NB - A taxing problem (CGT)

[Mahi]

I had expected to be chatting more about seafaring matters on this witty, often educational, frequently fun forum - full of like-minded chappies and chappesses. I can handle all kinds of seagoing challenges; tie a one handed bowline on a dark stormy night on a heaving foredeck. I can navigate (the traditional way) through the eye of a needle, manoever a vessel in the worst conditions, but.... I am as helpless as a one winged seagull when it comes to financial matters...

So I am hoping that there is some advice out there for a floundering soul - well it's not that bad, but I'm trying to be poetic...

Deep breath……

I’m in a bit of a quandary as a brother who lives o/seas has one of those buy to let flats. But he will need to sell it soon to pay back funds to elderly mother who needs the dosh. However, brother does not live in the UK, just makes a few visits per year; I don't live in the UK either - which makes it harder for me to help. I would like Mother to get as much back as possible in order to enjoy her twilight years a little. Bro reckons that he can give notice to the tenants, then make it his postal address for the min required months. But this creates all sorts of mucky problems that he has not considered and will not occur to him as he swans back to his tropical outpost, but repercussions are on poor elderly Mother!

Are there any better, and I hasten to add legal :0), but clever ways of getting around CGT?




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[[2574]]

From Tolleys tax guide - (CGT section)

"Non residents who are not ordinarily resident escape CGT, except for those leaving the UK on or after 17th March 1998 and returning subsequently if their period of non-residence is less than five complete tax years. In that event they will be liable to tax on those gains arising during their absence."

Whether or not an individual is resident or not can be quite complex - and is the subject of chapter 41 in tolleys tax guide.

Hope this helps.

rob

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[AlexL]

CGT is just about the most complex tax in existance. The only guaranteed thing I know about it is that you get seven thousand and something pounds exemption, i.e you only pay the tax over and above that limit. The rest is best to go and see a CGT specialist accountant - i'm sure theres plenty who can deal with the whole thing remotely via e-mail. I would be very wary of any 'amateur' advice on such a complex legal / tax issue.

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[[2574]]

"CGT is just about the most complex tax in existance"

No, disagree on that one. CGT is a rather logical tax when compared to the two (mainstream) taxes vying for the title "most complex" which in my opinion would be - in no. 1 spot - VAT and no. 2 spot - employment tax (inc PAYE)

rob

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[mikewilkes]

Just out of interest would "mum" not be better off with the income from the property?

If she has a large lump sum and she needs " care " facilities later then this government will just take the bloody lot from what I read.



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Ceum ur

 

[tcm]

this sounds better. Perhaps just repay the loan interest forever, using the rent money? That way both mum would stay with few assets (but money coming in) and son would have debt to offset rental income? Also, houses are getting harder to sell...

specialist tax advisor required with the CGT i think...

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[jfm]

Mahi:
If your brother is non UK resident then subject to the next para he is not liable to UK CGT at all, so he can just sell the property, keep the money, not fill in any UK tax return, job done

There is a 5 year come-back rule. If you:

a. start off being uk resident,
b. then you leave the UK and become non resident,
c. then you make capital gains while you are non UK resident
d. then you re-become UK resident within 5 years of step b

you will be liable to CGT on all the gains you made while you were non resident. There are complex rules about the exact date you leave and come back, and "years" means APril-April tax years, so if you think there's any chance the 5 year rule applies please reply back

Non residence (and non ordinary residence) is complex but if he is always in the UK less than 90days per tax year (April 6-April 5) he will be non uk resident

There is no point making the UK property his home address, total waste of time and achieves nothing.

So it sounds like he is ok but please shout if it's not as clear cut as your post said. Also this post relates to uK tax. You dont say where he lives, but there could be a CGT in that country which he is liable for. Where does he live?

This is I suppose amateur advice, but really it's not, I'm very qualified, moreso than the authors of Tolley's tax guide

 

[Birdseye]

" There is no point making the UK property his home address, total waste of time and achieves nothing."

Not only that but he would risk making himself UK resident (assuming that he isnt already) and therefore liable to other UK taxes.

The only sensible advice is to cough up and take professional advice from an accountant who specialises in this sort of area. There isnt just cgt, there is inheritance tax, income tax and various provisions to offset your mothers income against her benefits.

<hr width=100% size=1>this post is a personal opinion, and you should not base your actions on it.

 

[jfm]

coughing up not needed

Quote: "The only sensible advice is to cough up and take professional advice from an accountant who specialises in this sort of area."

Why should he do that when I'm offering to advise him for free? My usual rate is £1000/hour

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[Mahi]

Thank you all so very, very much.

I will get in contact with my brother and discuss this with him, and.... find out why he came up with that half-baked idea to make the flat his home address; I was under the impression it was from his accountant (?!!?), (but so obviously daft now and did not take his non-resident status into account!).

Brother lives in Sri Lanka, which I suspect would be well out of the loop for any liability. I am sure that he has been properly non-resident for at least 5 yrs but would need to check this.

Beyond the CGT there are other issues, such as birdseye mentioned, and I shall definitely look at a visit to a professional when I next visit the UK.

It is a great relief to get all your input on this matter and I am truly grateful for all your excellent advice and suggestions.

You guys are the tops!




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[Mahi]

Re: coughing up not needed

jfm - now I'm scared! :0) !

A big thank you!



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[tome]

Re: coughing up not needed

John

You can lead a horse to water...

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[jfm]

Re: coughing up not needed

Yup Tom! See you mid december btw, afaik the visit is still on, date to confirm, more later

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[Mahi]

Re: coughing up not needed

If the offer still stands - this horse is not scared of water. I will have to contact my brother to find out a bit more, in light of your excellent advice.

Sincerely, I am most grateful for your help

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[3reefs]

Agree with Mike Wilkes: sensible to give Mum the rental, but not the capital.

Otherwise funds are going to an older generation, which flies in the face of all the advice we ever read about mitigating IHT.

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[Mahi]

Yes that's a very good point - thank you.

Indeed, that is how it has been for a while with this property; however, it is not really working out too well. Mostly because my brother, who has the property in his name, is not easy to contact at his o/seas outpost, (even in this hi-tech age). Mother (80+, but lively), has been burdened with those problems that come with being a landlord. I am also overseas, and brother refuses to appoint any management (the ones he has used in the past have been pretty lax anyway). Mother is not happy with the situation and neither am I - so I would like to extract her from it. Brother is also quite keen to extract himself from the arrangement, as reverse charges to his satellite phone are burning a hole in his pocket (lol!).

I may look at doing the same thing again, but with a more suitable low maintenance, managed property, (current one is a bit surveyors nightmare!).

All a bit of a tangled web really! Thanks for 'listening'- if you have got this far !


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[richardandtracy]

Commiserations..

I had a sort of similar situation. I leased a house to the housing association who acted as managing agents (the idea was to avoid stress). The sort of scum that got into the house were dreadful, and the work we had to do was disgraceful. After the 6 year lease was up I couldn't wait to sell the place, but had to replace all the gas pipes which had been sabotaged by drilling holes in them to blow the place sky high.

I liked the idea of being a slum landlord, but to be honest the stress & agro was too much for me in my 30's, let alone if I were to be in my 80's. And I only lived 800 yards away.

Regards

Richard.


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[Sea Devil]

I think the trick with rentals is to manage them yourself. Agents really do have a hidden agenda and there are always going to be some problems - cannot earn money without doing something for it.

Rental income will always be there and should rise year on year with inflation. You will always be able to rent - the only question is how much. I have managed to be 'away' sailing for quite a few years or be away doing my proper job and run a few flats.

once you get the hang of it - washing machines, central heating boilers, bad tenants it really is not too demanding and mum will be assured of secure future.

<hr width=100% size=1>If you have time please visit my web site -
<A target="_blank" HREF=http://www.michaelbriant.com/sailing>http://www.michaelbriant.com/sailing</A>

 

[Mahi]

Re: Commiserations..

Richard, thanks for your commiserations! That is awful - I have often heard of the nightmare tenants and your story sounds like the ultimate nightmare for a landlord. You must be relieved to have got away from it in one piece.

Bambola - I'm sure you are right. Have you written books about your methods ?!


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