Brits With Homes Overseas Face CGT Disaster

Hard-up Brits looking to sell their overseas second homes are being urged to think twice to avoid a double whammy that could leave them out of pocket.

The warning comes from accountancy firm Baker Tilly which says a clamp-down by HM Revenue and Customs (HMRC), coupled with a fall in the value of Sterling, will hit any profits.

The firm warns anyone selling a home to declare any profits for tax to drop any hopes of keeping the transaction a secret.

HMRC announced in December that it would launch a crackdown this month targeting UK taxpayers who had second homes in Britain and overseas in a continuing clamp down on tax evasion.

The warning comes as bad news to many British people who own property abroad, particularly those with homes in France and Spain, where prices have plummeted in recent months.

Tax planning

Gary Heynes, a partner at Baker Tilly, said: “HMRC will target those with second homes in the UK or abroad as part of their ‘closing in on tax evasion’ so for anyone thinking of how HMRC will find out, there is no hiding place.

“So, if the sale of a second home, or any other chargeable asset, is expected, it is better to consider what planning can be undertaken to reduce the tax, such as ensuring the property is sold in joint names with a spouse or civil partner to maximise relief and lower rates of tax.”

Following the downgrade of the UK’s credit rating recently, Sterling has dropped against all of the major currencies which has an impact on any profits made from a house sale.

Another setback for anyone wanting to sell their property comes when they realise how HMRC calculates the profit which will be charged to capital gains.

To ensure that the calculation is simple, HMRC calculates that the sale proceeds are expressed in terms of Sterling on the date of sale and purchase.

Tax on losses

Some homeowners they may find they will pay capital gains tax (CGT) on their sale even though the property has not realised a profit.

To illustrate this, someone buying a property for €250,000 last summer would have paid the Sterling equivalent of £195,000.

If the owner then had to sell the property for €250,000 in what is a difficult market for sales they would find the Sterling equivalent is £219,000, which means the taxman will be looking for CGT on a gain of £26,000.

Mr Heynes says the CGT calculation is the correct method to use and that those thinking of selling a property abroad should think twice before doing so.

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