CGT

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galiniman
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Joined: 04 Apr 2020 20:34

CGT

Post by galiniman »

I am resident for tax in UK. I have a half share in a villa in Peyia which I want to gift to my daughter. It was built in 1998 and there is a substantial capital gain on the gift. I will pay UK CGT and daughter will acquire at today's value for UK tax purposes. There appears to be no CGT in Cyprus for gifts from father to child. If daughter eventually sells she will pay Cyprus CGT. But
(1) what is base cost for working out the gain. Is it my 1998 cost or today's value?
(2) Can the UK CGT payable now by me be taken as a credit against daughter's future Cyprus CGT; or
(3) Can my UK CGT payable now be automatically added to the 1998 base cost; or
(4) if daughter indemnifies me against, and actually reimburses me for, my UK CGT would this enable her to add it to her CGT base cost.

The problem comes because Cyprus may not rebase daughters acquisition cost to 2020 even though UK does. But on the other hand Cyprus does not charge CGT now.
Nigel Howarth
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Re: CGT

Post by Nigel Howarth »

Good morning galiniman and welcome to the forum.

A couple of things to start:

1. Gifts made from parent to child (or between spouses or between up to third degree relatives) are not subject to Capital Gains Tax (CGT).
2. CGT is paid in the country where the capital gain arises - so if you were to sell the property to your daughter rather than gifting it to her, you would pay CGT to the Cypriot authorities.

Regarding your daughter's CGT liability.

Your daughter will be liable for GCT when she sells the property. Her liability (I believe) will be based on what she sells the property for less what you paid for it in 1998.

This figure is adjusted for inflation using the Consumer Price Index (CPI) and she may deduct certain allowances. A personal allowance of €17,086 and Property transfer fees, Stamp duty, Estate agent’s commission (but only if the estate agent is licensed by the Cyprus Real Estate Agents’ Association), Professional fees, Accepted capital additions and improvements - planning permission where necessary.

Regards
Nigel Howarth
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The Bear
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Re: CGT

Post by The Bear »

Nigel Howarth wrote: 05 Apr 2020 10:58 CGT is paid in the country where the capital gain arises
But not necessarily only in that country.

Apologies for being so late with a comment but I imagine that things haven't moved very fast. OP is tax resident in UK so is subject to UK CGT on gains arising from disposals of overseas property - assuming also UK-domiciled (sometimes a complex subject in itself). The Double Taxation Agreement exists so that both countries don't collect their full pound of flesh on the one transaction when both have the power to tax it.

For UK tax purposes there is no scope to declare this property as OP's Principal Private Residence and the transaction is not at arm's length so it will, indeed, be valued at 'open market value' but note that HMRC recognises that a half-share has a value which is less than 50% of the value of a full share.

There may be ways to achieve a lower UK tax burden. For example, the whole 50% interest in the property does not have to transferred all at once but could be done over a number of years such that each year's taxable gain is no more than OP's available CGT annual allowance with valuation being no more than 4 times that amount. At these levels it would not even need to be reported by OP if he has no other capital gains in the relevant tax year. If the numbers are too big to make that viable then each tax-year's transfer could be arranged so that the gain in excess of OP's available annual CGT allowance doesn't push him into Higher Rate. One also needs to evaluate legal fees and other frictional costs for multiple tranches.

However, OP should not be relying on comments such as the above made on a forum when it comes to tricky subject areas like taxation - and especially cross-border taxation - where there could be so much devil in the detail and exchange rate movements have their own effects. Professional advice in advance of any dealings could be a good investment (and it comes backed with professional indemnity insurance).
Pantheman
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Re: CGT

Post by Pantheman »

First I heard of this. Given the CGT is higher in Cyprus than the UK it is highly unlikely that once the tax is paid here (assuming there is tax to pay) that the UK would demand anything further.

I mean, what is the purpose of the DTT if what you say is correct? Comments on these forums are for guidance and of course one should also seek professional advice.

It would appear that, this is your field and I am surprised you haven't quoted a website offing such a service.
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Nigel Howarth
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Re: CGT

Post by Nigel Howarth »

Before OP can complete on the sale of the property, he/she must provide a certificate from the Cyprus Tax Department confirming that CGT has been paid to the Cyprus Tax Department.

OP can then use whatever they've paid to offset any CGT liability that may arise in the UK.

Cheers
Nigel Howarth
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The Bear
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Re: CGT

Post by The Bear »

Pantheman wrote: 26 May 2020 20:04... what is the purpose of the DTT if what you say is correct?
Apologies again for being a bit late but Nigel has it right in his latest comment. As I wrote, the idea of the DTA is that one doesn't pay the full tax on a transaction to both taxing countries: it gives relief from double taxation on the same income/gain. There are no refunds so the typical result is that one pays the higher tax: either full tax in country A with no refund in country B if their tax assessment works out to be less OR full tax in country A plus the extra payment to country B to make up the difference if country B imposes a higher tax burden.

If CY CGT liability is higher then one pays that and UK recognises that the lower UK CGT liability is covered. If CY tax liability is lower then UK will seek the difference between its own assessment and whatever has already been paid in Cyprus. If a gift to one's child of an interest in residential property doesn't give rise to a CGT charge in CY then whatever CGT is assessed in UK on the transaction (using UK rules to determine the valuation and other components of the calculation) is payable in full to the UK's taxman - though that's expressing it very simply.

UK CGT calculation in a UK tax year is not on a 'per transaction' basis as it takes into account other chargeable gains and losses in the tax year plus any brought-forward allowable losses. The UK rate of CGT steps up for the part of net gains above a certain threshold and that threshold takes into account assessable income for the tax-year with a further complication that the CGT rates for residential property are higher than for gains on other chargeable assets. It can be a tricky calculation with, of course, yet more complication in that the UK tax-year isn't aligned with the CY tax-year and then there are date-dependent exchange rates involved and, of course, the basis of calculation of the capital gain itself differs between the CY and UK CGT regimes!
It would appear that, this is your field and I am surprised you haven't quoted a website offing such a service.
I ceased professional involvement in this field some decades ago and the rate of legislative change and required level of detailed knowledge are such that my comments nowadays are simply those of an interested layman ('use it or lose it' applies to the specialist knowledge). For example, the rules for UK-residents reporting sales of overseas property have started on a process of change but current reporting deadlines (and relevant penalties for late submission) may depend on whether OP already submits self-assessment tax returns. Again, those not UK-resident but disposing of UK residential property have already seen significant changes to UK taxation of capital gains which used to be (subject to conditions) outside scope of UK CGT. OP stated that a significant capital gain could be involved for the full 50% share so should probably consult/engage a UK accountant if he doesn't already have one - and before the event when tax mitigation can still be undertaken.
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Re: CGT

Post by Nigel Howarth »

Nigel Howarth
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The Bear
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Re: CGT

Post by The Bear »

Nigel Howarth wrote: 30 May 2020 16:21The latest situation regarding Capital Gains Tax is explained in ...
Yes, of course I'm aware of that document and have checked against it and related documents when specific detail of wording in that DTA has been required. Article 13.1 confirms Cyprus also has taxing power over capital gain arising from disposal of OP's interest in Cyprus property and Article 22 is also germane to this discussion though, as ever with taxation, it can be dangerous to read any document in isolation - one can't know the appearance of a building from examining a single brick.

My caveat regarding this being perceived as 'my field' was because, in practice, an individual's circumstances can be quite complex and, as in this case, there are many matters to be considered extending well beyond just the DTA but I haven't even tried to keep on top of subjects which have no relevance to my own circumstances (those subjects including, but not being limited to, corporation tax, royalty income, UK Crown pensions, non-domicile in UK and so on and on and on).

Regards.
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