Sign in to follow this  
Followers 0

Capital gains tax on property sale after 10 years

45 posts in this topic

 

if you are buying another home with it it may not count as income.

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

 

 

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

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:

 

 

Mike Warburton: If you are moving abroad permanently, or for at least five complete tax years to April 5th, you will be classed as not resident (and not ordinarily resident) for capital gains tax purposes. Provided you complete the full five year period and delay selling your properties until at least April 6th following your departure, you should be free of UK CGT. If you return within the five-year period, the capital gains will be calculated and assessed on you for the year of your return.

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.

0

Share this post


Link to post
Share on other sites

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.

0

Share this post


Link to post
Share on other sites

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.

0

Share this post


Link to post
Share on other sites

 

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.

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).

 

 

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.

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.

0

Share this post


Link to post
Share on other sites

OK - what happens if it's the other way round and you make a LOSS on your property? Can you claim some tax back on that???

0

Share this post


Link to post
Share on other sites

Was it a business loss? Was the property rented for gain? In theory you can then set those losses against other profits in that "business".

 

Only a quick guess:::

 

For example - you have 5 properties rented out and are making a nett profit of £100,000 per annum after mortgage payments etc. This is your business.

 

If you then sell one of these business assets, and crystallise a loss, then I think you should be able to put that loss against the profits.

 

So in that year you make a basic £100,000 profit, lose £50,000 on the house sale, and have a taxable income for the business of just £50,000.

 

(above might be wrong).

 

But need a "real world" example to answer correctly. I very much doubt for example you could stick a loss on your family home against your PAYE for the year.

0

Share this post


Link to post
Share on other sites

This whole discussion is, if I understand it correctly, about the so called "Private Veräußerungsgeschäfte" §23 EStG. (emphasis on private)

If you sell a house or appartement in which you have lived the whole time between purchase and sale or at least the last 3 years (selbstgenutztes Wohneigentum), the profit will not get taxed. Therefor I assume you wont be allowed to use any losses from such a sale either.

 

In other cases, if the sale happened less than 10 years after you bought it, the loss of selling your private property can be compensated with profit made out of selling other private property in the same year, the previous year or in any following year. But to use the losses in the previous or following years, you need to do a "gesonderte Verlustfeststellung" §10d(4)EStG, so it can be officially recognized by a "Verlustfeststellungsbescheid".

 

Disclaimer: This is just a summary. Your real situation might be more complicated. This is no advice, but simply my view of the legal situation. I dont guarantee anything. Talk to a tax advisor.

0

Share this post


Link to post
Share on other sites

Hi,

I've been through this post a few times and do not find a consensus of opinion. This situation must be quite common.

1) Move to Germany but keep the house back home 2) Seem like you will be in Germany a while so rent the house out 3) Not sure when will move back to UK, house prices have peaked, so sell the house

More than ten years have passed since the house was bought but have not owned it for ten years before starting to rent. Been non resident for more than five years.

 

I'm happy that HM Revenue is not interested in CGT but is the Finanzamt interested in CGT?

 

Sorry if it is clear after all,

JT

0

Share this post


Link to post
Share on other sites

Well we know the 10 year rule does NOT apply to your main home when living in it (no time there at all). 10 year rule applies when you own a property and rent it out commercially. Either way (living in it or renting) you have owned for 10 years, so I just cannot see how you could be liable over here. Just wouldn't make any sense.

 

That said I guess you could argue that the property "changed status" after say 5 years from domestic to commercial (i.e. when you started renting it out). But I still cannot see them taxing you. You have owned it for 10 years - end of chat I reckon.

0

Share this post


Link to post
Share on other sites

Hi,

Not sure I understand your last point about changing status from domestic to commercial and how that might help. The issue seemed "quite" clear to me, but I got concerned about the lengthy discussions and uncertainties expressed in the forum.

My interpretation of "Private Veräußerungsgeschäfte" says you do not have to pay CGT on the sale of property if:-

1) between buying and selling over any time period it was used exclusively for you to live in

2) in the year sold and the previous two years it was used exclusively for you to live in

3) any property or land for any purpose where there is at least ten years between buying and selling.

 

or am I missing something

0

Share this post


Link to post
Share on other sites

 

1) between buying and selling over any time period it was used exclusively for you to live in

2) in the year sold and the previous two years it was used exclusively for you to live in

3) any property or land for any purpose where there is at least ten years between buying and selling.

Thats correct.

The only thing I´d like to add: you need to avoid the appearance of being a "gewerblicher Grundstückshändler". The "Finanzamt" gets suspicious if you sell more than 3 objects in 5 years. But this is something better discussed with a tax advisor.

0

Share this post


Link to post
Share on other sites

A really useful thread so thanks.

 

i know this is all tied up n this thread somewhere so can I just check my understanding in relation to my property

 

I have a flat in the UK that I'm thinking of renting out for a few years when i move to Germany shortly. I have owned it for 6 years currently while living in the UK and it was my main residence for some of this time.

 

My understanding is if I rent it out for less than three years I won't pay capital gains tax in the UK but might well have to pay CGT in Germany as I won't have owned it 10 years?

 

Similarly if I rent it out for 3-4 years I will have to pay CGT in the UK and possibly in Germany as well (but not both) as i will not have owned it 10 years

 

Once I'm past renting it for 4 years I will have owned it for 10 so the Germans shouldn't be interested but i will still have to pay CGT in the UK as I won't have left for 5 years

 

Once I have rented it for over 5 years I'm free from both as i will have been in Germany for 5 years (so the UK won't be interested) and I will have owned it for >10 so the Germans won't either?

 

Any support appreciated

0

Share this post


Link to post
Share on other sites

The way the UK economy is at present I would love to be in a position to pay Capital Gains Tax on the B2L flats I have owned for 6 years. That would mean I have a gain to be taxed rather than a thumping great loss!!

0

Share this post


Link to post
Share on other sites

Actually you are quite right. There is currently no capital gains as I can't sell it. This is the reason I'm thinking of renting it out but I don't want to go to the trouble if it is all going to dissapear at 40% CGT in three years. Might as well cut my losses and drop the price even more to get a sale now (and make a significant loss)

0

Share this post


Link to post
Share on other sites

Rent it out and declare the income on a UK tax return before you declare it in Germany. You will still be entitled to your UK personal allowance and there are tax deductible expenses such as letting agents fees and mortgage interest which help a lot. Then declare it here, you can't be taxed on the income twice although yes, it does contribute to your overall income which affects your tax level here.

 

Read other threads about renting out UK property, it's been well discussed. Also look at threads covering non-residence in UK for tax purposes. You may find yourself selling the property while non-resident in UK and also over the 10 year limit in Germany and avoiding CGT that way.

3

Share this post


Link to post
Share on other sites

Thanks. That sounds good. Does that mean that I shouldn't fill in one of these forms (NRL1) which allows me to be paid the gross income directly? - i should pay tax on it (which as you say would be zero due to my allowance) or is filling out the form doing the same thing?

0

Share this post


Link to post
Share on other sites

I should perhaps have added that I've checked the message boards and the income tax side of things makes good sense to me. I've also spoken to HMRC in the UK and they have confirmed I would have no UK income tax to pay as its below the threshold. They did however make it clear I MAY get taxed in Germany - If using the NRL1 form or usinga different method would exempt me from this on the basis I would have paid UK tax then so much the better.

0

Share this post


Link to post
Share on other sites

You can take the rental income gross then do a UK tax return at the end of the tax year. You may be told you don't need to but it helps to keep things clear on the German side that this is income already declared. It's worth getting help from a Steuerberater for the German tax returns - one who understands how to deal with overseas income.

 

I can't remember how long you have to be gone before you get non-resident status but do remember to keep a note of how many days you spend in the UK even if it is only one holiday a year as the IR will ask for this information each year on the tax return.

0

Share this post


Link to post
Share on other sites

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!


Register a new account

Sign in

Already have an account? Sign in here.


Sign In Now
Sign in to follow this  
Followers 0