Overseas (UK) property, CG tax and tax treaty

Hi PCers

I've heard some people say that if an Oz resident has UK property and that person ceases to be Oz resident, CG tax could be payable even if there has been no actual sale of the UK property.

Has anyone come across this to know what the rules are? If CG tax is payable, does the Oz/UK tax treaty offer any other solutions? For example, if the Oz resident moves back to the UK, will CG tax still be payable (since in the UK there wouldn't be a CG liability as there has been no sale of the property)?

There must be many UK expats in Australia that, after many years (eg 10+ years) decide to move back so was wondering if anyone has come across this situation. What if the person subsequently relocates elsewhere (eg Dubai) after moving back to the UK? Presumably that's a matter for UK/Dubai tax rules and Australian rules are no longer relevant.

Any experiences / thoughts much appreciated.

 

If a Australian tax resident becomes a non-tax resident they are deemed to have disposed of their non-Australian properties and must pay tax on that disposal.

 

If you ceased being an Australian resident you are taken to have disposed of each asset that is not taxable Australian property (like a UK house) for its market value at the time you ceased being a resident.
Exemption for a temporary resident
If you are a temporary resident when you cease to be an Australian resident, you are not taken to have disposed of any of your assets.
Exemption for a short-term resident
If you are an individual who was in Australia on 6 April 2006 and have remained here as an Australian resident since that date, an exemption to capital gains tax applies if you cease being an Australian resident, provided you satisfy certain conditions. You disregard the capital gain or capital loss if you were an Australian resident for less than a total of five years during the 10 years before you stopped being one, and either:

• owned the asset before last becoming an Australian resident, or
• inherited the asset after last becoming an Australian resident.

 

thanks for the responses. A work colleague mentioned to me there was something in the UK/Aus treaty that might also exempt the capital gains tax if the relocation was back to the UK. I might investigate that further.

 

Assuming the individual is not a temporary resident (e.g. s,457 visa holder or international student).

As I recall the 2004 treaty, but things may have changed since I last had to look ...

If

1. the Australian resident makes an election to defer any capital gain under CGT event I1 upon ceasing residency; and

2. the CGT asset is real property located in the UK; and

3. they are a resident of the UK when a later CGT event happens in respect of that real property

Then they are exempt from CGT in Australia at the time of that later CGT event.

Otherwise normal rules apply and they may be liable for CGT in Australia at that later date.

If they do not make any election then CGT event I1 applies at the time of ceasing residency ... the default position.

You should get specialist advice as to whether this is appropriate for the specific circumstances of your friend. Small details can make a big difference.

 

Any taxpayer who changes residency should obtain TWO lots of tax advice specific to each country and all assets and issues such as super. Super can be portable and the UK pension can be either withdrawn and tax paid or rolled over to AU in some cases. There can be tax issues surrounding UK pensions and property that need to be understood.

 

Thanks - will look into it further but I think that was the nuance. When I heard that you need to actually go from Oz to UK and be tax resident first, that did sound odd and it makes more sense that you only need to be UK resident at the time of actual disposal of the property (ie you could be resident in another country (eg Dubai) before ultimately being resident in the UK).

 

CGT on foreign residents, temporary residents and changing residency

The "2006 rule" also complicates (or simplifies?) some issues... Eg a person who migrates from the UK and keeps their former UK home and then departs here back to the UK or who inherits their parents property etc

 

Yep

Grandfathering of old law pre-dating the 2006 law changes.

Old law exempted "pre-residence" assets or assets inherited during residence ... if that residence was short term and you were resident at the date of introduction.

11 years have passed from this transition provision.

The temporary resident system was introduced from 2006.