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      Selling Overseas Property

      Capital gain tax implications

      Scenario:

      My question related to capital gains on a property owned overseas by UK residents who migrated to Australia. The facts are as follows: 
      • My wife and I purchased a UK residence (Property 1) in joint names on 1 July 2000. At the time, it was our place of residence and we resided (and up to that date had always resided) in the UK. 
      • On 1 July 2006, we purchased another property (Property 2) in joint names and moved from Property 1 to Property 2. 
      • Property 1 was rented out from 1 July 2006 until it was sold. 
      • In March 2011, we moved permanently to Australia and from this date are treated as residents for tax purposes. 
      • Property 2 is rented out from March 2011. 
      • When we moved to Australia, we rented a place from March 2011 to March 2015. 
      • In March 2015, we bought a house in Australia and moved into it as our main residence. 
      • Property 1 was sold on 18 December 2015. 
      My question is, does the capital gain tax apply to Property 1? 
       
      Explanation:
      When someone becomes a resident of Australia, they are deemed to acquire all overseas assets at the market value at the date of becoming Australian residents (in this case, March 2011). Accordingly, Property 1 will be deemed acquired for Australian tax purposes at March 2011 for its market value at the time. 
      As the property was rented out from March 2011 to December 2015 (when it was sold), the whole period will be subject to CGT based on the difference between sale proceeds and deemed acquisition cost at March 2011. 
       The CGT discount will be fully available as you were Australian residents throughout the period. There is also UK CGT to consider. The principal private residence relief is available, which operates similarly to the Australian relief.  
      In addition, non-residents only pay tax on any gain made since 5 April 2015 and full tax relief is available for the last 18 months of ownership if the taxpayer qualifies for tax relief for any period (which will be the case as you and your wife lived in the house as your principal place of residence for several years). This should eliminate any UK gain entirely.