Capital gains tax on property sale after 10 years

Hi
Does anyone know if I would have to pay capital gains on my UK house sale when resident in Germany?
I have owned my house for 10+ years, however, I have rented it for about 5.

I know I have to stay out of the UK for 5 full tax years before the UK taxman is no longer interested, but I read somewhere that if you have a property in Germany, you don't have to pay CGT on the proceeds of the sale if you own the house more than 10 years. But I don't know what the rules are if you have rented the property during any of that time.

Can anyone help me here.

Cheers
NL

http://business.timesonline.co.uk/article/...2165040,00.html

Sounds like you should be OK - scroll down this page for an answer.

I think the 10 year German exemption is cool for rented properties. So assuming you have been away from the UK 5 years, and dont go back in the next 5 years, should be nothing to pay.

I just learnt something new!

They have t catch you first...

There are good reasons to sell while you are still in Germany, if you go back to UK you will become liable for CGT there. At the moment you are probably tax free from both sides but as there's a fair bit of money at stake it's worth seeing a Steuerberater.

thanks for the replies.

So it is right that after 10 years, the Finanzamtleute are not interested in a slice of my gain, even if I have rented my property ?

I was having trouble finding any good sources on the internet (English or German) that would confirm this.

My boyfriend just sold his house in the UK and they told hime he was exempt from CG tax if he was no longer a UK resident from 1998 onward. He moved away in 97 so is theefore exempt. I think you still have to claim it against your German taxes though since it is income whilst living in Germany!

I'm not worried about the UK taxman. (well not for this anyway )

I'm just worried about what Mr Finanzamt in Muenchen II is going to say about it !

Finanzamt theme tune: "Money, Money, Money"...

This forum isnt the place for a definate answer.

Try your friendly local tax advisor (but thats no guarentee either it seems).

I would suggest getting tax advice in the UK pertaining to your own particular circumstances. I very much doubt that you will qualify for full private residence relief as the property has not been your only or main residence for the past ten years. There are periods of absence when the house was not your only or main residence which can be treated as periods of occupation for capital gains purposes but from the information provided I do not know if you qualify for these. In any case you will only be entitled to partial relief since you rented the house for five years although you can offset a portion of this via letting relief upto a ceiling of forty thousand pounds.

The piece in the Times refers to tempory non-residence and capital gains tax legislation and basically means that if you realise a gain while non-resident and do not return to the UK within five full tax years of that gain, then a charge for capital gains will not accrue if you subsequently return after that period. It is all very complex and residence and ordinary residence are not defined in the Tax Acts and guidelines are largely based on court rulings.

I would suggest that you contact The Centre for Non-Residents who will give guidance and advice on liability to UK Capital Gains.

The other option is to do a Grinner but remember you still have to claim your private residence relief via HM Revenue & Customs

I'm glad this came up as I'm thinking about selling my house in the UK. This hadn't even occured to me. I'll get onto that UK phone number to find out my position there, but before I pay the cash to go see a tax expert here I was wondering if anyone knows what would happen CGT wise in Germany given that I've owned it for 4 years and been living in Germany for a year and a half, it was my primary residence.

It looks like from the advise on this thread that I would have to pay it as I've not been a non-resident for 10 years. is that right?

OK - been there done that and bought the T-shirt. There is another thread that goes into great details on this subject. Big arguments about the wording. I got one of my German accountants involved at great length etc.

As far as the UK tax is concerned you are 100% clear. You have 3 years from when you last moved out, that it was your primary residence, before the issue of CGT starts to kick in. This is easy to find on all the UK websites for clarification - including the official ones.

I will find the thread in a minute.

OK - been there done that and bought the T-shirt. There is another thread that goes into great details on this subject. Big arguments about the wording. I got one of my German accountants involved at great length etc.

As far as the UK tax is concerned you are 100% clear. You have 3 years from when you last moved out, that it was your primary residence, before the issue of CGT starts to kick in. This is easy to find on all the UK websites for clarification - including the official ones.

Here goes:

Selling a house in the UK from Germany


Basically the gain is technically TAXABLE in the UK. But under UK tax law the amount payable is £0.00 - so that should and I think is the end of the matter.

@Wizadora

AS JE says you are fine as the final thirty six months of your period of ownership always qualifies for relief no matter how you use the property as long as it has been your main residence at some prior point. In essense that means you will qualify for full private residence relief as long as you sell it in the next year and a half. As I said previously the UK capital gains legislation is not always clearly defined, it can be quite complex and open to various interpretations especially in the case of non residents.

In terms of whether you would be subject to Capital Gains in Germany when you sell your house in the UK is a completely different kettle of fish and one that I am not qualified to answer. It seems from the previous thread that there was no clear definition or answer but I would find it unlikely that the German authorities could tax you again under the double taxation agreement even though you would pay zero tax in the UK because you qualify for full private residence relief. From my understanding of the thread you would be not be liable in the German jurisdiction but it would be worthwhile to clarify that with profssional advice.

Let us know how you get on...

Here is a very good webpage from the UK tax office with FAQs on CGT for non residents
http://www.hmrc.gov.uk/cnr/faqs_capgains.htm


Yes, me too !!! This is actually what my original question is, but no-one seems to be saying a lot about what the Germans will want.
Does anyone know what the German rules are for CGT for property? especially if you have rented it for any part of the ownership period.

I have looked at the thread that JE pointed out but I can't see anything in there other than a reference to 40% (yikes ) ...though it's a long thread and I may have missed something and I didn't see any discussion about this 10 year ownership clause.

cheers

My own personal opinion is that you cannot be taxed in Germany if you have been through the UK CGT procedure but as you say no one seems to have concrete clarification. The ten year rule you mention applies ás far as I know to German property. I do not know if it applies to UK property. Only a German tax consultant or maybe the tax office can clarify if the authorities here will charge CGT on a property in the UK because no one here seems to be sure either way.

INFO FOR HOME RENTAL AND PURCHASE GAINS TAX
REAL ESTATE GUIDE; This site is copyrighted so I can't paste the info here :Informative and FREE...PLEASE READ.

http://www.allgrund.com/real_estate_in_ger...ate-germany.htm

What an interesting forum. I wish I had seen it some time ago. The article pointed out by NaeLuck is exactly right although there are enough ifs, buts and couldbes in it to allow the interpretation of any particular circumstance in a variety of ways. The German ten year rule referred to by Elisabeth40 does seem to cover any properties no matter whether they are in Germany or the UK. However, I think Topcat1 hit the nail on the head when he says it is difficult to get anyone to confirm black on white what the situation really is.

The way to find out is suck it and see - but if it goes wrong nobody is going to bail you out and a mistake can be very expensive (the 40%). I have lived in Germany as a British citzen for many years longer than the two numbers in question and have gone through the exercise of selling my UK home after it had been rented out for over 15 years. Happily, the rules worked out OK. In the UK, the tax office does not charge CGT provided the annual tax returns show that you have been out of the country for the appropriate time, keeping to the rule that one has not spent more than 90 days per year visiting the UK (also taken from the tax returns - one wonders how these figures are checked and interpreted in the days of Ryanair). The German authorities consider any propery owned for more than ten years to be free from CGT wherever it is but the point about not selling more than three properties over the last five years, mentioned in the article from www.allgrund.com, must be carefully considered.

I am sure that Germany tax consultants (Steuerberater) are legally responsible for their advice and a reputable one will stand by what he says. It costs, of course, but the peace of mind is well worth it.

My understanding of your situation is

You are non resident for UK tax so you have no UK CGT to pay.

You are resident in Germany so have to declare the gain here.

What you have to pay here will depend on how long you owned the property - I have also heard that after 10 years there is no German CGT to pay but you need to talk to Steuerberater about this.

One question raised and then left hanging in one of the previous threads, was that although there is no CGT to pay, the gains are somehow considered part of your income, and your tax bracket is increased. This doesn't seem logical to me, but can anyone confirm or deny this ?

BOR

If it counts as income then it would increase your total income for that year which would in turn increase the rate of tax you pay on everything during that year? This may depend on what you do with the money, if you are buying another home with it it may not count as income.

You really need to talk to a Steuerberater about this. Making a badly informed decision could be expensive.

That is a red herring. What you choose to then do with your cash will be irrelevant


This at first glance is good advice - like visiting your Doctor when sick. Regretfully few accountants are generally 100% well versed in UK and German tax law and the implications of both crossing over. I deal with 2 accountants in the UK and 2 accountants here in Germany. In the past 12 months I have had to correct 1 of the Germans,
and 1 of the UK accountants on issues. And ironically both corrected were VERY senior in their field - indeed the UK guy used to be Chief Tax Inspector in the UK.

It's a bit like lawyers - they also bluff a great deal because it is impossible to be a 100% expert in everything within their field.

So I would recommend reading as much on the internet as you can on these issues.

It actually sounds to me like there might be an interesting gap between the 3-5 year period from when you moved out of your UK house. Why? Well if you sell within 3 years in the UK you have 0% Capital Gains (and in my opinion 0% here in Germany).

From the link in post #2:


So if selling between 3-5 years after moving out, but living here, you should still be clear of CGT but if you moved back to the UK before being away 5 years you could be hit with the CGT.

I do not personally think however that you would or should be hit by any taxes here in Germany.

Er .. yes but I was responding to bors last post which I understood to be not about CGT liability but about the effect that extra income can have on the way the Finanzamt view all your income.

One question raised and then left hanging in one of the previous threads, was that although there is no CGT to pay, the gains are somehow considered part of your income, and your tax bracket is increased. This doesn't seem logical to me, but can anyone confirm or deny this ?

This can happen with rental income from UK property. If it is declared in UK it doesn't get taxed again here but it should be declared and the profit will be added to your total income which determines the rate of tax you pay. Whether this applies to profits from sale of property - I have no idea but would also be interested to know.

OK, so I got some advice from a professional, Thomas Zitzelberger, who I found on Toytown . He contacted me very quickly so I'll definitely be using him in the future.

He stated that, I am exempt from paying captial gains tax in Germany as it was my primary residence within the last 2 years. I.e. was was still resident in the UK in 2005 so as long as I sell it in 2007 then it's exempt in Germany.

Bit of a relief that one...still need to check what happens in the UK but the German tax rates are always waaaayyy more scary.

This lot specialise in non resident tax issues and I have phoned them for advice in the past.

http://www.thefrygroup.co.uk/

UK property is 100% free of CGT if you sell within 3 years of living there. Not talking out my bum for a change on that one:

http://www.taxationweb.co.uk/articles/article.php?id=108

Once the right to some Private Residence Relief has been established, some other benefits accrue:

1. The last 36 months of ownership qualify for relief, even if you are not living there. (TCGA 1992 s 223(2)(a)).

2. You can be away for work or other reasons within certain limits and still qualify for these periods. (TCGA1992, ss 222(8) and 223(3)).

3. Letting relief may be available. (TCGA 1992, s 223(4)). Letting relief applies where a house that has been a main private residence is let as residential accommodation. Any chargeable gain is reduced by up to £40,000. (If the amount of the gain covered by Private Residence Relief is less than £40,000, then the letting relief will be the same amount as the Private Residence Relief).


Rental income - you pay the tax in the UK, and then declare again in Germany. If you would have paid tax at a HIGHER rate in Germany then the Germans take a 2nd bite at the cherry. So for example if you would have paid 40% in Germany, but only 25% in the UK - then the Germans will hit you for an extra 15%.

Profit from a sale of a property counts as CGT in the UK. They probably want you to declare it here - but I wouldn't bother I think if it was me.