Question re capital gain on foreign property
Discussion
I own an apartment in a Swiss ski resort and its on the market. If I sell it, I know I have to calculate my capital gain in GBP. Lets have some figures
Purchase CHF 650,000 (£282,600)
Estimated Sale CHF 950,000 (£760,000)
Est cap gain CHF 300,000 (£477,400)
Looks good doesn't it? Problem is that I took out a mortgage to buy it of CHF 430,000. So I've only made a currency gain on the balance of CHF 220,000. Will the taxman take this into account or is he going to go for the full £477,400 less purchase & selling costs and capital improvements?
Purchase CHF 650,000 (£282,600)
Estimated Sale CHF 950,000 (£760,000)
Est cap gain CHF 300,000 (£477,400)
Looks good doesn't it? Problem is that I took out a mortgage to buy it of CHF 430,000. So I've only made a currency gain on the balance of CHF 220,000. Will the taxman take this into account or is he going to go for the full £477,400 less purchase & selling costs and capital improvements?
CGT is calculated on Selling Price (less selling costs) less Purchase Price (plus purchase costs). If the difference is a profit (i.e. a gain) you will be subject to Capital Gains Tax.
The purchase price will be based on the Sterling price at that time and the selling price is based on the sterling value at the date of sale.
The purchase price will be based on the Sterling price at that time and the selling price is based on the sterling value at the date of sale.
Thanks Eric, you have confirmed my worst fears. This could be a major issue for anyone who has bought foreign property a few years ago and sells it now when Sterling is so weak.
A few years after we bought the apartment, we bought the one next door. If we sell this, we'll probably sell it for what we paid for it. No capital gain, but in Sterling terms it will be a gain of £337,000.
Purchase CHF 900,000 (£383,000)
Sale CHF 900,000 (£720,000)
Gain CHF 0 (£337,000)
When we bought it, we put in CHF 215,000 and borrowed the balance. So our real gain is CHF 215,000 (£172,000) minus CHF 215,000 (£91,500) which equates to £80,500.
Yet HMRC will claim that we made £337,000. The more highly geared you are, the worse the gain will appear. This is a nightmare!
I think we'll take them off the market and wait until Sterling recovers
A few years after we bought the apartment, we bought the one next door. If we sell this, we'll probably sell it for what we paid for it. No capital gain, but in Sterling terms it will be a gain of £337,000.
Purchase CHF 900,000 (£383,000)
Sale CHF 900,000 (£720,000)
Gain CHF 0 (£337,000)
When we bought it, we put in CHF 215,000 and borrowed the balance. So our real gain is CHF 215,000 (£172,000) minus CHF 215,000 (£91,500) which equates to £80,500.
Yet HMRC will claim that we made £337,000. The more highly geared you are, the worse the gain will appear. This is a nightmare!
I think we'll take them off the market and wait until Sterling recovers
If it is abroad and the mortgage is abroad and you don't repatriate the proceeds, is it a UK tax affair or a Swiss one?
ETA - not questioning those who are far more knowledgeable in the field and who have contributed, just a simple question from an amateur.
ETA - not questioning those who are far more knowledgeable in the field and who have contributed, just a simple question from an amateur.
Edited by Revisitph on Thursday 20th October 22:08
I'm domiciled in UK so will have to declare the gain in my tax return, not that I've sold them yet. I did some more calcs and the figures are very worrying.
If I sell the second apartment for what I paid for it and after purchase & selling costs and the refurbishment I will have effectively converted the original CHF 215,000 (£90,000 in 2007) I put in into CHF 108,500 (£86,800 today). That's a loss of £3,200.
HMRC will calculate my gain to be £272,000 and I will owe 28% of that. So not only have I lost £3,200 over the years I will owe the tax man £73,000. I am literally speechless.
All because I purchased with a mortgage and Sterling has collapsed against the Swiss Franc.
If I sell the second apartment for what I paid for it and after purchase & selling costs and the refurbishment I will have effectively converted the original CHF 215,000 (£90,000 in 2007) I put in into CHF 108,500 (£86,800 today). That's a loss of £3,200.
HMRC will calculate my gain to be £272,000 and I will owe 28% of that. So not only have I lost £3,200 over the years I will owe the tax man £73,000. I am literally speechless.
All because I purchased with a mortgage and Sterling has collapsed against the Swiss Franc.
keith333 said:
I'm domiciled in UK so will have to declare the gain in my tax return, not that I've sold them yet. I did some more calcs and the figures are very worrying.
If I sell the second apartment for what I paid for it and after purchase & selling costs and the refurbishment I will have effectively converted the original CHF 215,000 (£90,000 in 2007) I put in into CHF 108,500 (£86,800 today). That's a loss of £3,200.
HMRC will calculate my gain to be £272,000 and I will owe 28% of that. So not only have I lost £3,200 over the years I will owe the tax man £73,000. I am literally speechless.
All because I purchased with a mortgage and Sterling has collapsed against the Swiss Franc.
CGT is based on residence. I assume you are UK resident? If I sell the second apartment for what I paid for it and after purchase & selling costs and the refurbishment I will have effectively converted the original CHF 215,000 (£90,000 in 2007) I put in into CHF 108,500 (£86,800 today). That's a loss of £3,200.
HMRC will calculate my gain to be £272,000 and I will owe 28% of that. So not only have I lost £3,200 over the years I will owe the tax man £73,000. I am literally speechless.
All because I purchased with a mortgage and Sterling has collapsed against the Swiss Franc.
If so, it's going to be quite complicated. You have a UK gain based on fx at the time of the relevant transactions. And you'll have a Swiss gain in accordance with Swiss rules, because the DTA between the UK and Switzerland gives taxing rights to Switzerland (ie, where the propety is situated). You can deduct any Swiss tax against any UK liability.
To add to the complication, foreign currency is also a CGT asset, so any gain or loss you make on the currency between the sale (CHF) and conversion to sterling will also be subject to capital gains tax.
keith333 said:
I think we'll take them off the market and wait until Sterling recovers
I fear you may have a very long wait.... CGT is a fact of life. Part of that fact is that since indexation and taper were abolished CGT acts as a wealth tax. It's a tax on inflation, and a tax on exchange rate movements.
Alpinestars said:
CGT is based on residence. I assume you are UK resident?
If so, it's going to be quite complicated. You have a UK gain based on fx at the time of the relevant transactions. And you'll have a Swiss gain in accordance with Swiss rules, because the DTA between the UK and Switzerland gives taxing rights to Switzerland (ie, where the propety is situated). You can deduct any Swiss tax against any UK liability.
To add to the complication, foreign currency is also a CGT asset, so any gain or loss you make on the currency between the sale (CHF) and conversion to sterling will also be subject to capital gains tax.
Yes I'm UK resident. Because we're quite highly geared on the apartment and Sterling has collapsed I am going to have a tax bill of £73,000 when I've actually made a loss of £3,200. That is crazy!If so, it's going to be quite complicated. You have a UK gain based on fx at the time of the relevant transactions. And you'll have a Swiss gain in accordance with Swiss rules, because the DTA between the UK and Switzerland gives taxing rights to Switzerland (ie, where the propety is situated). You can deduct any Swiss tax against any UK liability.
To add to the complication, foreign currency is also a CGT asset, so any gain or loss you make on the currency between the sale (CHF) and conversion to sterling will also be subject to capital gains tax.
To avoid this the only thing I can think of doing is to keep the apartments. Just when I thought I could make a little money out this Sterling weakness.
keith333 said:
Yes I'm UK resident. Because we're quite highly geared on the apartment and Sterling has collapsed I am going to have a tax bill of £73,000 when I've actually made a loss of £3,200. That is crazy!
To avoid this the only thing I can think of doing is to keep the apartments. Just when I thought I could make a little money out this Sterling weakness.
Unfortunately that's the case. You'll also have a Swiss liability on the basis of your numbers. You've made a significant Swiss gain. The Swiss taxes will reduce any UK tax liability. To avoid this the only thing I can think of doing is to keep the apartments. Just when I thought I could make a little money out this Sterling weakness.
Alpinestars said:
keith333 said:
Yes I'm UK resident. Because we're quite highly geared on the apartment and Sterling has collapsed I am going to have a tax bill of £73,000 when I've actually made a loss of £3,200. That is crazy!
To avoid this the only thing I can think of doing is to keep the apartments. Just when I thought I could make a little money out this Sterling weakness.
Unfortunately that's the case. You'll also have a Swiss liability on the basis of your numbers. You've made a significant Swiss gain. The Swiss taxes will reduce any UK tax liability. To avoid this the only thing I can think of doing is to keep the apartments. Just when I thought I could make a little money out this Sterling weakness.
On the second apartment we paid CHF 900k and will sell it for CHF 900k if we're lucky so no capital gain in CHF. We put in CHF 215k when we bought it and borrowed the balance. So assuming we get CHF 900k and after allowing for purchase costs, selling costs and refurbishment costs we'll end up with CHF 108,500 in the bank.
CHF 215k in 2007 was £90,300. CHF 108,500 now is £86,800 so that's my loss of £3,500.
HMRC reckons my gain is sale price £720k today less purchase price £378k in 2007 less costs approx £70k. That's a gain of £272k that I will have to pay 28% tax on. A gain I never made.
I won't be the only person that bought a foreign property in recent years with a big mortgage.
keith333 said:
No, I haven't made a gain at all on the second apartment. I've made a loss of £3,500.
On the second apartment we paid CHF 900k and will sell it for CHF 900k if we're lucky so no capital gain in CHF. We put in CHF 215k when we bought it and borrowed the balance. So assuming we get CHF 900k and after allowing for purchase costs, selling costs and refurbishment costs we'll end up with CHF 108,500 in the bank.
CHF 215k in 2007 was £90,300. CHF 108,500 now is £86,800 so that's my loss of £3,500.
HMRC reckons my gain is sale price £720k today less purchase price £378k in 2007 less costs approx £70k. That's a gain of £272k that I will have to pay 28% tax on. A gain I never made.
I won't be the only person that bought a foreign property in recent years with a big mortgage.
Ah ok. You've effectively made an fx gain on 900kCHF less costs. On the second apartment we paid CHF 900k and will sell it for CHF 900k if we're lucky so no capital gain in CHF. We put in CHF 215k when we bought it and borrowed the balance. So assuming we get CHF 900k and after allowing for purchase costs, selling costs and refurbishment costs we'll end up with CHF 108,500 in the bank.
CHF 215k in 2007 was £90,300. CHF 108,500 now is £86,800 so that's my loss of £3,500.
HMRC reckons my gain is sale price £720k today less purchase price £378k in 2007 less costs approx £70k. That's a gain of £272k that I will have to pay 28% tax on. A gain I never made.
I won't be the only person that bought a foreign property in recent years with a big mortgage.
Unfortunately CGT does not apply to the mortgage, which would obviously offset some of the gain.
Wow, so you and Eric agree with me. I was hoping I'd worked it out wrong.
If we'd bought without a mortgage then the tax calculation would have been correct, but because we had a mortgage and the exchange rate move we have this horrible situation.
We never bought the places to make money, just because we loved the resort and we wanted to take the kids skiing there. We're kind of locked in as we don't want to sell now and can't ski anywhere else if our place is going to lie empty. First world problems.
Thanks for all the replies.
If we'd bought without a mortgage then the tax calculation would have been correct, but because we had a mortgage and the exchange rate move we have this horrible situation.
We never bought the places to make money, just because we loved the resort and we wanted to take the kids skiing there. We're kind of locked in as we don't want to sell now and can't ski anywhere else if our place is going to lie empty. First world problems.
Thanks for all the replies.
For many years we have had a fairly stable currency relationship between the UK and European countries. Therefore risks associated with large swings in exchange rates were relatively low. UK tax residents who have invested in European properties probably took little or no account of the risks involved in exchange rate movements when buying properties on the Continent (or the US for that matter).
Well, the Brexit decision has thrown a massive spanner in the works for those who own overseas properties.
Well, the Brexit decision has thrown a massive spanner in the works for those who own overseas properties.
Eric Mc said:
For many years we have had a fairly stable currency relationship between the UK and European countries. Therefore risks associated with large swings in exchange rates were relatively low. UK tax residents who have invested in European properties probably took little or no account of the risks involved in exchange rate movements when buying properties on the Continent (or the US for that matter).
Well, the Brexit decision has thrown a massive spanner in the works for those who own overseas properties.
My parents are selling their Spanish villa and they will make a loss on it due to the slump in property over there.Well, the Brexit decision has thrown a massive spanner in the works for those who own overseas properties.
From what I can see their Euro-based loss will be softened when they convert back to sterling. They could even reduce their price further and end up with the same expected sterling due to the swing in the rates.
CoolHands said:
It would be worth moving to a tax exile for 6 months wouldn't it? Take a sabbatical from work & move to the cheapest place in Switzerland. That's what I would look to do.
Yes, that is something we could do. Our kids are 11-15 years old, so would like to wait until they had left school. Would we have to live outside the UK for 6 or 12 months? keith333 said:
CoolHands said:
It would be worth moving to a tax exile for 6 months wouldn't it? Take a sabbatical from work & move to the cheapest place in Switzerland. That's what I would look to do.
Yes, that is something we could do. Our kids are 11-15 years old, so would like to wait until they had left school. Would we have to live outside the UK for 6 or 12 months? There might be other options open to you that could give you better tax outcomes than just moving abroad.
Gassing Station | Finance | Top of Page | What's New | My Stuff