Would you know how to account for the tax on a property you bought overseas maybe ten or fifteen years ago and you’ve recently decided to sell? Capital Gains Tax, the tax applied to a sale of an asset such as a property – the gain from capital, if you will – is one of the more difficult taxes to calculate, particularly if you’re dealing with two different currencies. Because of this, HM Revenue and Customs are beginning to clampdown on landlords who they believe haven’t paid their capital gains tax.
How Should it be Done?
Capital gains is paid only on the ‘profit’ you make from a sale of a property. So, if you paid £200,000 for a property and sold it for £220,000, you’re liable to pay tax on the £20,000 gain. From any gains you make you can then offset a tax free allowance, this year it’s £10,600, so you’ll end up only paying tax on the £9,400 gain after your personal allowance. The rate depends on how much your capital gains are and also, in some cases, other financial circumstances.
When it comes to overseas property you may need to make a couple of adjustments, and this is where things get complicated. There are a couple of ways to make the currency conversion; you could, for instance, convert only the gain at a current exchange rate or convert both prices. Equally you may need to seek double tax relief in the country you bought the property. On these issues you’ll need to speak to an accountant.
Remember that the price you paid for a property isn’t just its value, you can also include all the fees you incurred directly when buying the property. You can claim things like estate agents fees but something like overseas property insurance is not directly related to the purchase of the property, so you’ll have to leave it out.
Capital Gains Tax is one of those things that makes sense when you know the full picture but if you only see half the story it can be tough to figure out what you need to do. In most cases its wise to speak to a financial advisor to ensure you’re complying with the rules.