UK property sale, CGT, residency

[Russ104]

Yes, I'm prepared for the UK CGT. I just want to avoid the Japan CGT, which would be huge.
2 properties with potential total sale value of 1.3M GBP.
Gain from 2015 of approx. 400k = CGT in UK of 96k @ 24%
However if Japan resident, as the properties are fully depreciated and now assumed to have zero value, would need to pay CGT on full 1.3M @ approx. 20% = 260k ie. an additional 164k after the UK CGT.

... or is my understanding and calculation not right?

(living in the property after I go back to UK would not help much with CGT reduction in UK, as I believe it's calculated as a proportion of the total time you've owned the property)

[eyeswideshut]

I have a somewhat similar situation (Canada, not UK though) so I am also curious whether this might work. If you haven't done so I suggest posting the question on Japan Finance Reddit forum also in the hope that u/starkimpossibility provides an answer. He or she has provided amazing responses on similar questions in the past and may answer this one for you.

[Tkydon]

You only get to claim the Primary Residence Capital Gains Tax Exemption for the years you were actually resident at the property.

https://www.litrg.org.uk/savings-proper ... -your-home

[Russ104]

I'm prepared for the UK CGT. I just want to try to avoid the huge CGT I would have to pay in Japan if resident here.

2 properties in UK with potential total sale value of 1.3M GBP.
Gain over purchase price of approx. 600k @ 24% CGT = 144k GBP in UK.
(If I can get away with using the gain since 2015, the gain could be 400k @ 24% = 96k GBP, but I think that only works for non-UK residents)
However, in Japan, as I fully depreciated the properties, I believe they are seen as having zero value now - hense if resident in Japan, I would need to pay CGT on the full sale value of 1.3M GBP @ approx. 20% = 260k GBP.
So an additional 116k or 164k on top of the CGT paid in UK.

Is my logic / calculation correct?

As Tkydon mentioned, living in the property after going back to UK won't gain much reduction in CGT as it's calculated pro rata according to the total time you owned the property.

[Wales4rugbyWC23]

Why don't you just live of the rental income??? That is what I am planning to do.

[Russ104]

Why don't you just live of the rental income??? That is what I am planning to do.

That's definitely an option. But it feels like it would just be kicking the problem further down the road, and someone is going to have to deal with it sooner or later. If we keep the properties until I die, I doubt my wife would want to try and continue to manage them after that, so she would have to sell then and face the same issue.
Also think I can get a better return investing elsewhere, considering everything I've had to pay in repairs, maintenance, management fees etc.

If you haven't done so I suggest posting the question on Japan Finance Reddit forum also in the hope that u/starkimpossibility provides an answer.

Thanks. Will do.

[Tkydon]

I seem to remember... someone can correct me if I'm wrong

Even after you have terminated your residency and moved to the UK, if you sell the properties you may still be liable for Japanese Capital Gains Tax if you had been resident in Japan for more than 10 years in the last 15 years, so until you have been out of Japan for at least 5 years, as you made the Capital Gain and claimed the Depreciation while you were resident in Japan,

and your Japanese wife would still be on the hook for Japanese Taxes until she has been out of the country for more than 10 years.

You should consult a Professional.


You actually Arbitraged the Tax Rate, reducing your income (rental income and additional Salary Income) by the amount of the Depreciation, thereby saving your Marginal Tax Rate and Reconstruction Tax plus 10% residents' Taxes; totals 30.42%, 33.483%, 43.693%, 50.84% or even 55.945% on the total value of the Depreciation, to finally pay Capital Gains Tax on the Total Depreciation claimed (and the Capital Gain) of just 20.315%.
That is a really good deal

[eyeswideshut]

I'm prepared for the UK CGT. I just want to try to avoid the huge CGT I would have to pay in Japan if resident here.

2 properties in UK with potential total sale value of 1.3M GBP.
Gain over purchase price of approx. 600k @ 24% CGT = 144k GBP in UK.
(If I can get away with using the gain since 2015, the gain could be 400k @ 24% = 96k GBP, but I think that only works for non-UK residents)
However, in Japan, as I fully depreciated the properties, I believe they are seen as having zero value now - hense if resident in Japan, I would need to pay CGT on the full sale value of 1.3M GBP @ approx. 20% = 260k GBP.
So an additional 116k or 164k on top of the CGT paid in UK.

Is my logic / calculation correct?

As Tkydon mentioned, living in the property after going back to UK won't gain much reduction in CGT as it's calculated pro rata according to the total time you owned the property.

I think you could deduct the CGT paid to UK before calculating the CGT owed to Japan. But otherwise your calculation looks correct to me. As someone mentioned below, you (and I) arbitraged a higher tax rate on salary into a 20% rate for CGT and in the process obtained a good investment. So however you handle it you should feel good about the investment.

[Wales4rugbyWC23]

Why don't you just live of the rental income??? That is what I am planning to do.

That's definitely an option. But it feels like it would just be kicking the problem further down the road, and someone is going to have to deal with it sooner or later. If we keep the properties until I die, I doubt my wife would want to try and continue to manage them after that, so she would have to sell then and face the same issue.
Also think I can get a better return investing elsewhere, considering everything I've had to pay in repairs, maintenance, management fees etc.

If you haven't done so I suggest posting the question on Japan Finance Reddit forum also in the hope that u/starkimpossibility provides an answer.

Thanks. Will do.

No kids? you could gift them it and put the deeds in their names. Possible for kids over the age of 18 years old. My dad did it for us and I am planning to do it for my two.

[Tkydon]

No kids? you could gift them it and put the deeds in their names. Possible for kids over the age of 18 years old. My dad did it for us and I am planning to do it for my two.

If you gift the properties to your kids, you can use the Combined Gift Inheritance Tax, and they can receive upto Y25M value free of Gift Tax at the time of the gift, but then pay Inheritance Tax at the time of your death on the value of the gift at the time of the gift. Anything over the Limit would be subject to Gift Tax at the time of the gift.