UK Tax - UK property vs Thai property

[chiang mai]

In January I'm going to start splitting my year between Thailand and the UK, I've been here full time for fourteen years and am classified as UK non-resident for tax purposes.

 

I intend to spend February, March and April in the UK, return to Thailand for May and then back to the UK for three months at some point during the year, probably sooner rather than later so as to take advantage of the nicer weather here later in the year. That will mean that I will not become UK resident again until some time later in 2017, once I have remained there for at least 182 days.

 

I have a leasehold flat in the UK that I own, Mrs CM owns our house in Thailand but I have an usufruct on the property. As a result of those things my UK property is not my only home hence the 30 day UK home rule doesn't apply when the ties are considered in the residency test.

 

BUT, and this is the point of my post, will the UK Revenue regard my usufruct in Thailand as ownership and therefore propel me into capital gains on the sale of my UK leasehold (or Thai property) in the future? I believe they will not but I cannot find anything to confirm and knowing how devious The Revenue can be, I thought I'd ask here since I know there are several UK tax experts on TVF.

[Kwasaki]

You could say your a bit like between the devil and the deep blue sea as sometimes said but from what l know personally my transition from England to Thailand regarding tax was done with internet and telephone.

The only way IMO is to be open and honest with them on what circumstances are, again talking on the phone with them to clarify certain things l did not quite understand they were very helpful and will ring you back etc.

I would say the UK Revenue would not regard a usufruct in Thailand as ownership it's as you know a lease agreement, l was never asked anything about anything belonging to me in Thailand only my financial situation and ownership of anything in the UK. 

Edited November 28, 2016 by Kwasaki

[chiang mai]

15 minutes ago, Kwasaki said:

You could say your a bit like between the devil and the deep blue sea as sometimes said but from what l know personally my transition from England to Thailand regarding tax was done with internet and telephone.

The only way IMO is to be open and honest with them on what circumstances are, again talking on the phone with them to clarify certain things l did not quite understand they were very helpful and will ring you back etc.

I would say the UK Revenue would not regard a usufruct in Thailand as ownership it's as you know a lease agreement, l was never asked anything about anything belonging to me in Thailand only my financial situation and ownership of anything in the UK. 

 

Indeed I have no intention of lying to them and never have. It's just that if the usufruct is viewed as being my property and then enters the UK tax picture, it will be easy for me to remove it from the chanotte with very little risk.

[partington]

Assuming you would be selling as a non-resident,  I don't think HMRC are concerned about any property you own, rent or have the rights to anywhere else other than the UK.

 

Just to remind you, if non-resident, capital gains tax is now due on all property sales, but only levied on gains in value accrued after April 1st 2015. As prices in the UK have fallen a little as a result of Brexit, now would be a perfect time to sell with no CGT at all!

 

It's useful to get some kind of valuation, even if it's by pretending to an estate agent that you want to sell now: they will give you a price that they would offer it at and you can use this as a basis for a value declaration to HMRC when you do sell ( if you sell as a non-resident).

 

If considering selling in future as a resident, especially if you have owned the place for a long time,  this is unwise  now as it will result in a prohibitive amount of capital gains tax : 28%.  It doesn't matter that it is your single home: any period you haven't lived there is counted for CGT gains purposes pro rata. You get relief for any periods away that you can prove you were working, and also get relief for periods that the property was rented, but the maximum amount of relief for letting is tax on a capital gain of £40,000. 

 

This is tiny when over the last two decades values may have risen by many hundreds of thousand of pounds.

Edited November 28, 2016 by partington
corrected date from 1st April 2016 to 1st April 2015 for CGT valuation

[JB300]

Check out the residency rules / status here http://tools.hmrc.gov.uk/rift/screen/SRT+-+Combined/en-GB/summary?user=guest

[chiang mai]

1 minute ago, partington said:

Assuming you would be selling as a non-resident,  I don't think HMRC are concerned about any property you own, rent or have the rights to anywhere else other than the UK.

 

Just to remind you, if non-resident, capital gains tax is now due on all property sales, but only levied on gains in value accrued after April 1st 2016. As prices in the UK have fallen a little as a result of Brexit, now would be a perfect time to sell with no CGT at all!

 

It's useful to get some kind of valuation, even if it's by pretending to an estate agent that you want to sell now: they will give you a price that they would offer it at and you can use this as a basis for a value declaration to HMRC when you do sell ( if you sell as a non-resident).

 

If considering selling in future as a resident, especially if you have owned the place for a long time,  this is unwise  now as it will result in a prohibitive amount of capital gains tax : 28%.  It doesn't matter that it is your single home: any period you haven't lived there is counted for CGT gains purposes pro rata. You get relief for any periods away that you can prove you were working, and also get relief for periods that the property was rented, but the maximum amount of relief for letting is £40,000. 

 

This is tiny when over the last two decades values may have risen by many hundreds of thousand of pounds

 

The UK property has only just come into my ownership this month and I plan to live in it as a UK resident, but only for 182 days per year, the rest of the time I intend to live in Thailand in Mrs. CM's property, albeit I have an usufruct on it. So I don't think long term capital gains is going to be an issue on the UK property. The only way (I think) that CG could be an issue is if the Revenue regards the house in Thailand as mine, in which case I would remove the usufruct and let it become entirely the property of my long term unmarried partner. Please correct me if you see things differently.

[partington]

Ah fair enough, I assumed you had owned the UK place a long time (I am going through similar considerations right now, as I'm going to return to the UK soon, but really need to sell my flat first or I will lose massive amounts in tax.)

 

I am not a tax expert at all so can't say what the correct solution is. I assumed from my reading that if you live in the UK as a resident and don't nominate a foreign home as your primary residence then you automatically get the primary residence relief on your UK home. Don't take my word for it though!

[Baerboxer]

I don't think HMRC are interested in things outside of the UK, unless you are tax resident in the UK, which you aren't.

 

As expats we still get the personal tax allowance but they removed the exemptions on selling property CGT even if the property is your only home.

Is the apartment currently rented out? If not then be careful because of the new way "ties" to the UK are calculated. Be careful not to suddenly find that your considered UK resident - amount of time there, family connections etc. The info is all on their website. You can register for email alerts on any changes too which is a good way of keeping up to date with changes.

 

As for the usufruct. They'll only know if you tell them. They aren't interested at the moment because you're not UK resident for tax purposes. If you were, then they might be. One thing, when you die, sorry to be morbid, but then your estate would be taxable I think (don't know your net worth, and it seems you have a partner but not wife or civil partner). Long way off hopefully but better your Mrs. CM has it all rather than HMRC grabbing some.

 

The tax could be getting more complicated in the UK as HMRC are talking about quarterly tax returns in addition to your yearly assessment. The accountants are up in arms but gawd knows what will happen. 

 

I've always looked after my personal taxes and assessments but it's got to the point now where I'm probably gonna get a pro to do it. I've had a couple of quotes and it's isn't expensive. If you are planning to move back, split your time as you say now, or sell assets in the future maybe worth doing. 

[wiggy97]

Regrettably  you have not been keeping up to date with changes to UK tax legislation regarding residence. The 183 day rule has gone and there are a series of tests which take into account other property ownership, ties to the UK regularity of visits etc - look on the HMRC website under Manuals for guidance on the new residence rules.

Also UK property is now subject to CGT on sales by non residents so you had better look at this as well

So everything has changed for the worse.

 

[louse1953]

2 hours ago, wiggy97 said:

Regrettably  you have not been keeping up to date with changes to UK tax legislation regarding residence. The 183 day rule has gone and there are a series of tests which take into account other property ownership, ties to the UK regularity of visits etc - look on the HMRC website under Manuals for guidance on the new residence rules.

Also UK property is now subject to CGT on sales by non residents so you had better look at this as well

So everything has changed for the worse.

 

Sounds like they are copying Australia.If you have any type of money the govt want a piece of it,the vultures.

[JB300]

Regrettably  you have not been keeping up to date with changes to UK tax legislation regarding residence. The 183 day rule has gone and there are a series of tests which take into account other property ownership, ties to the UK regularity of visits etc - look on the HMRC website under Manuals for guidance on the new residence rules.

Also UK property is now subject to CGT on sales by non residents so you had better look at this as well

So everything has changed for the worse.

 

Agreed, things have changed quite a bit over the past few years...

You’re automatically resident if either:

you spent 183 or more days in the UK in the tax year

your only home was in the UK - you must have owned, rented or lived in it for at least 91 days in total - and you spent at least 30 days there in the tax year

You’re automatically non-resident if either:

you spent fewer than 16 days in the UK (or 46 days if you haven’t been classed as UK resident for the 3 previous tax years)

you work abroad full-time (averaging at least 35 hours a week) and spent fewer than 91 days in the UK, of which no more than 30 were spent working

Sounds like CM doesn't fall into either camp so should check his likely residence status at http://tools.hmrc.gov.uk/rift/screen/SRT+-+Combined/en-GB/summary?user=guest

My money is he'll find himself UK Tax resident (not a big deal if his income comes from the UK by way of pensions as these will be Taxed in the UK anyways)

Edit: if the above link doesn't work, you can find it at this link https://www.gov.uk/tax-foreign-income/residence

[mpyre]

UK tax rules aren't that bad compared to the USA...at least you keep what you make overseas...Uncle Sam takes a piece of EVERYTHING you make, or have, anywhere in the world...talk about an arrogant political class...we're not much better than serfs, or sharecroppers really...

[chiang mai]

12 hours ago, wiggy97 said:

Regrettably  you have not been keeping up to date with changes to UK tax legislation regarding residence. The 183 day rule has gone and there are a series of tests which take into account other property ownership, ties to the UK regularity of visits etc - look on the HMRC website under Manuals for guidance on the new residence rules.

Also UK property is now subject to CGT on sales by non residents so you had better look at this as well

So everything has changed for the worse.

 

 

I am in fact well versed in the new residency rules and in my case it's only the 182 day rule that makes me UK resident again. Whilst I would be UK resident if I my ONLY home were in the UK and I spent 30 days in it, I have another home in Thailand hence that tie doesn't apply - the question of whether O own that home or not was pretty much at the heart of my point about the usufruct. The following from Cambridge Tax is the version of the rules I find easiest to understand:

 

. http://www.cambridgetax.co.uk/ctp/New_Residence_Rules.html

 

FWIW I think the change is for the better, the previous rules were so open to interpretation they were actually scary.

[chiang mai]

1 hour ago, mpyre said:

UK tax rules aren't that bad compared to the USA...at least you keep what you make overseas...Uncle Sam takes a piece of EVERYTHING you make, or have, anywhere in the world...talk about an arrogant political class...we're not much better than serfs, or sharecroppers really...

 

Heads up, UK tax rules for UK residents tax income worldwide, just like the US!

[chiang mai]

9 hours ago, JB300 said:

Agreed, things have changed quite a bit over the past few years...

You’re automatically resident if either:

you spent 183 or more days in the UK in the tax year

your only home was in the UK - you must have owned, rented or lived in it for at least 91 days in total - and you spent at least 30 days there in the tax year

You’re automatically non-resident if either:

you spent fewer than 16 days in the UK (or 46 days if you haven’t been classed as UK resident for the 3 previous tax years)

you work abroad full-time (averaging at least 35 hours a week) and spent fewer than 91 days in the UK, of which no more than 30 were spent working

Sounds like CM doesn't fall into either camp so should check his likely residence status at http://tools.hmrc.gov.uk/rift/screen/SRT+-+Combined/en-GB/summary?user=guest

My money is he'll find himself UK Tax resident (not a big deal if his income comes from the UK by way of pensions as these will be Taxed in the UK anyways)

Edit: if the above link doesn't work, you can find it at this link https://www.gov.uk/tax-foreign-income/residence

 

You're right, I fall between the two rules and it's only the 182 day rule that makes me resident again. And again yes, my income that arises in the UK is pension based and is within the personal allowance, once I become resident again there will be UK tax to pay on a US based pension but that is offset by not having to pay US tax on it.

 

[chiang mai]

14 hours ago, Baerboxer said:

I don't think HMRC are interested in things outside of the UK, unless you are tax resident in the UK, which you aren't.

 

As expats we still get the personal tax allowance but they removed the exemptions on selling property CGT even if the property is your only home.

Is the apartment currently rented out? If not then be careful because of the new way "ties" to the UK are calculated. Be careful not to suddenly find that your considered UK resident - amount of time there, family connections etc. The info is all on their website. You can register for email alerts on any changes too which is a good way of keeping up to date with changes.

 

As for the usufruct. They'll only know if you tell them. They aren't interested at the moment because you're not UK resident for tax purposes. If you were, then they might be. One thing, when you die, sorry to be morbid, but then your estate would be taxable I think (don't know your net worth, and it seems you have a partner but not wife or civil partner). Long way off hopefully but better your Mrs. CM has it all rather than HMRC grabbing some.

 

The tax could be getting more complicated in the UK as HMRC are talking about quarterly tax returns in addition to your yearly assessment. The accountants are up in arms but gawd knows what will happen. 

 

I've always looked after my personal taxes and assessments but it's got to the point now where I'm probably gonna get a pro to do it. I've had a couple of quotes and it's isn't expensive. If you are planning to move back, split your time as you say now, or sell assets in the future maybe worth doing. 

 

No the apartment is not rented out, it's inherited and I wont get full ownership for a couple more weeks yet.

 

The only part of the residency rules that might apply to me is:

 

1. your only home is in the UK for more than 90 days during the tax year and you occupy that home for at least 30 days

So even after living in the UK apt for more than 30 days  I don't meet that test since I have a home in Thailand that I also use (The Revenue defines "home" quite broadly" and doesn't have to mean a property I own, it just needs to be the same place of residence that is used repeatedly). None of the other ties apply since Mrs CM will always remain a visitor to the UK hence the family rule doesn't apply.

 

But "my" house in Thailand is in my (unmarried) Thai partners name, the only connection I have with it is the usufruct (which I can happily remove if needs be) so it doesn't form part of my estate and I can't see how it might generate a tax burden.

 

My assets in Thailand are willed to my Thai partner, my UK assets are also willed to her, the gifting of assets thus far (money to buy the house plus other) means I am under the IHT threshold.

 

NOTE TO ALL: many thanks for the queries/questions and challenges on this topic, it's been really helpful thinking them through to see where I stand.

[catman20]

The inland revenue only know what YOU TELL THEM try being a bit devious. DONT TELL THEM.

te this

 

[chiang mai]

4 minutes ago, catman20 said:

The inland revenue only know what YOU TELL THEM try being a bit devious. DONT TELL THEM.

te this

 

 

That used to be what hundreds of thousands of offshore savers thought at one time!

 

The world is getting rapidly smaller and I'm getting too old to tolerate ticking time bombs in my life, good planning is the key, hiding things and hoping these days is very risky.

[catman20]

28 minutes ago, chiang mai said:

 

That used to be what hundreds of thousands of offshore savers thought at one time!

 

The world is getting rapidly smaller and I'm getting too old to tolerate ticking time bombs in my life, good planning is the key, hiding things and hoping these days is very risky.

OK fare play 

[JB300]

 
No the apartment is not rented out, it's inherited and I wont get full ownership for a couple more weeks yet.
 
The only part of the residency rules that might apply to me is:
 

1. your only home is in the UK for more than 90 days during the tax year and you occupy that home for at least 30 days
   

So even after living in the UK apt for more than 30 days  I don't meet that test since I have a home in Thailand that I also use (The Revenue defines "home" quite broadly" and doesn't have to mean a property I own, it just needs to be the same place of residence that is used repeatedly). None of the other ties apply since Mrs CM will always remain a visitor to the UK hence the family rule doesn't apply.
 
But "my" house in Thailand is in my (unmarried) Thai partners name, the only connection I have with it is the usufruct (which I can happily remove if needs be) so it doesn't form part of my estate and I can't see how it might generate a tax burden.
 
My assets in Thailand are willed to my Thai partner, my UK assets are also willed to her, the gifting of assets thus far (money to buy the house plus other) means I am under the IHT threshold.
 
NOTE TO ALL: many thanks for the queries/questions and challenges on this topic, it's been really helpful thinking them through to see where I stand.

I'm reading it as you have to be able to show you have a property in another country (no doubt evidence will be ownership or rental agreement plus utility bills in your name) so believe your name being in the usufruct is a good thing [emoji1303]

[chiang mai]

1 minute ago, JB300 said:

 

I'm reading it as you have to be able to show you have a property in another country (no doubt evidence will be ownership or rental agreement plus utility bills in your name) so believe your name being in the usufruct is a good thing

 

 

That's kinda the way I read it also and since I can't monetise the usufruct it surely can't be seen as an asset. But there again we're talking Revenue mindsets, who knows how they think.

[JB300]

 

That's kinda the way I read it also and since I can't monetise the usufruct it surely can't be seen as an asset. But there again we're talking Revenue mindsets, who knows how they think.

Do you want to remain a Non UK resident for Tax purposes?

Your UK pension will be taxed the same either way, as will your US pension (Double Taxation Agreement between US & UK) so only benefit I can see is if you have some other overseas income not being taxed (by a DTA country) or you earn enough in dividend income to take you into the higher tax bracket.

Advantage of becoming UK Resident for Tax is that there will be no CGT to pay on your Primary UK property as you'll be resident there.

[chiang mai]

5 minutes ago, JB300 said:

Do you want to remain a Non UK resident for Tax purposes?

Your UK pension will be taxed the same either way, as will your US pension (Double Taxation Agreement between US & UK) so only benefit I can see is if you have some other overseas income not being taxed (by a DTA country) or you earn enough in dividend income to take you into the higher tax bracket.

Advantage of becoming UK Resident for Tax is that there will be no CGT to pay on your Primary UK property as you'll be resident there.

 

I plan to be UK Tax Resident again in 2017, the advantages now outweigh the disadvantages given that I have put assets in my partners name, I'm actually quite poor from a UK perspective.

[mpyre]

On 11/28/2016 at 6:10 PM, chiang mai said:

make

 

On 11/28/2016 at 6:10 PM, chiang mai said:

 

Heads up, UK tax rules for UK residents tax income worldwide, just like the US!

OMG!

[partington]

On 11/29/2016 at 8:03 AM, JB300 said:

Do you want to remain a Non UK resident for Tax purposes?

Your UK pension will be taxed the same either way, as will your US pension (Double Taxation Agreement between US & UK) so only benefit I can see is if you have some other overseas income not being taxed (by a DTA country) or you earn enough in dividend income to take you into the higher tax bracket.

Advantage of becoming UK Resident for Tax is that there will be no CGT to pay on your Primary UK property as you'll be resident there.

Just as a heads up: this is true if you have always lived in the property, but if you have left it empty, or let it out for any period, you are liable for capital gains on your primary UK property even if you go back to live there as a UK resident.

 

This is worked out on a time-proportional basis, and you always get the last 18 months relieved of tax.

 

For example: you bought a house in 1990, lived in it for 10 years as your primary residence, then moved to another country, letting it out for 16 years, and finally became resident in the UK again and sold it . If you made £200,000 profit (with the unbelievable house price increases of the last decades this wouldn't be unusual) then you would get exemption from CGT for 11.5/26 of the CGT  or about £88,000 of profit.  You would get letting exemption for 14.5/26 of the CGT but this is always maxed at £40,000 relief, however long you have let the property.

 

You would therefore be exempt from tax on ~ £129,000 of the gain and end up paying CGT on £71,000 of the capital gains minus your CGT annual exemption of £11,000, so £60,000.  This amount pushes some of your gains into the 28% bracket, depending on how much other income you have, but minimum tax bill would be about £13,000.   If you have only used your property as your primary residence for a very few years your tax bill could be much, much larger, even as a resident.

Edited December 1, 2016 by partington

[JB300]

^^^ True but (fortunately) it's only on gains from April 2016 if it was your primary residence which is why CM should move to UK Tax resident straightaway as he's only just inherited the property