Tax implications: Should we keep our UK property after we buy a home in France?
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Many people who move to France keep their UK home to rent out or sell it and buy smaller properties to rent out, but what are the implications for capital gains tax? Matthew Cameron explains
Q: My husband and I are in the early stages of purchasing a property in France and would like some advice about what to do with our property in the UK. We bought it 24 years ago and now own it outright. We are either going to rent it out or perhaps buy two smaller properties to rent out. What are the implications for capital gains tax for either option? We have straightforward mirror English wills – we’ve been married to each other for 30 years and have four children. We have read about a tontine clause – is that what we need? Claire Hayton
A: Matthew Cameron of Ashtons Legal replies:
This question raises a number of points that can be addressed in turn. Inevitably it is only possible to set out a few pointers in a brief piece such as this. It is probably fair to say that there is not really an absolutely right answer, and certainly not one that would be suitable for everybody.
Once you have bought the new home in France, the purchase of one or two new properties in England or Northern Ireland (different rules may apply in Scotland or Wales) would give rise to a Higher Rate Stamp Duty Land Tax charge. It is common knowledge that buying a property in the UK potentially generates a charge to SDLT (or the Welsh or Scottish equivalents); however subject to a set of criteria being fulfilled, where you buy a property which is – broadly speaking – not going to be your new main home, a further tax charge of 3% will apply.
That extra tax charge can clearly have a substantial impact on the overall cost, so might well be an important influence on whether to keep the previous family home or buy new ones. On the other hand, the family home might be in need of work to bring it up to good rentable quality – work that a new buyer may have been prepared to carry out but would deter a new tenant.
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On the issue of capital gains tax (CGT), this would apply if a UK property were sold either a long time after it has ceased being the family home, or if it never was. Capital gains tax is derived from the effective profit made on the sale of a property (or certain other assets) over and above the initial purchase price and other allowances, like the cost of works and professional fees relating to the property. Apart from selling the current family home in advance of, or shortly after, the move to France, if the sale of a property in the UK is to take place it would be prudent to seek advice on the likely exposure to capital gains tax.
One further point is noteworthy: if you retain a property in the UK, whether it is rented out or kept as a ‘bolthole’, it would not give rise to any capital gains tax unless it is sold. So if you retain it until you die, no CGT would be charged. It will be included in your estate for the purposes of calculating inheritance tax, although this is a completely separate issue, and depending on your circumstances, there may well be no inheritance tax applying. Again, this should be the subject of a detailed analysis by professionals.
It is also of note, that CGT can apply not only when a property is sold, but also if it is given away. So, if you gift a house to your children, this could generate a tax charge.
Regarding ownership structuring, detailed professional advice should be sought from solicitors with expertise in French and English law, and this in advance of the purchase. Nevertheless, it is fair to say that insertion of a tontine clause in the purchase deed is unlikely to be the most suitable option, as this structure can lead to other complications. It is more likely that a review of the existing wills, potentially with these being updated (and possibly with new French wills being added alongside or replacing the English wills) would allow for your plans to be met.