Overseas property, capital gains and exchange rates?

[Propagate]

Hi all,

Just a hypothetical question.

Our tenant in the UK has decided to vacate. We will likely re-let, but it did get me thinking about selling it and maybe buying locally in Australia instead.

For background info, the house was our UK PPOR for 7 years before we moved to Australia 5 years ago. We own a house in Australia now too, so would not be exempt from CGT on the UK house.

We had a valuation on the UK house when we moved here, as we understood that future Australia CGT liability was based on the initial value of the house being on the date you entered Australia as a tax resident.

So, what I want to know is, is the exchange rate also factored into this?

In the last 5 years, UK house prices tanked and the exchange rate went nuts. The figures for our circumstances look something like this:-

2007 - UK house valued at GBP 200,000 and exchange rate was around 2.35 = $470,000
2012 - UK house valued at GBP 170,000 and exchange rate is around 1.5 = $255,000

That means, if we use the exchange rates at the time it's a fair old capital "loss".

Or, do you use the current exchange rates for both calculations? Meaning that the initial valuation is actually only $300,000?

Looking at those figures, it's a moot point I guess as there's no way we'll sell now. Not until at least the values go back up or the exchange rate swings back round.

Thanks for any insight.

Cheers.

 

[ndpjai]

I do plan to get an overseas property, I'm not a tax SME, but IMHO exchange rates should be based on the event happened at that point in time, not on today's FX rate. For example, if i paid a council rate on Feb 3, 2012, currency rate should be based on Feb 3, not on today's rate. ATO maintains complete exchange rates for several years.

From hindsight, you are in capital loss. Bought at 470K & current valuation is 255K= 215K loss. This is the risk with FX currency loss.

I'm not sure about 50% capital gain\loss, if you had property > 12 months in your case but generally allowed in Australia. Please check with your tax agent.

 

[MartinW]

a) Must be translated into AUD equivalents
b) You must apply the fx rates applicable on the date of the events

Also, the 50% discount was removed for non-residents in May this year - although you are a resident so won't affect you

Might be waiting a while for the planets to come back into line ie UK pound goes back to normal and the general property values recover (although London seems to have come back most of it)

 

[kiwipaul]

I agree with the other posters the exchange rate you use is that current on the date you move here for valuation purposes.
One thing you can choose to keep your UK house as your PPOR for up to 6 years without any CGT liability in OZ (although you would become liable for CGT on your Oz home if you did this).
YOU decide which is your PPOR and when it changed and you only need to do this when you sell one of them.
EG you could claim you UK house as your PPOR until the date you bought a property in OZ.

 

[Propagate]

Thanks all.

I thought that would be the case.

As we bought here within the first year, so the 6 year PPOR thing doesn't really make any difference, plus the house was worth the most it's ever been worth when we had it valued as we left the UK, it's been on a downward slide ever since and probably won't reach it's original value for at least 5+ years I'd guess.

So, CGT aspect is negligible in the short term.

The only way we'd consider selling and bringing the proceeds over would be if the exchange rate ever picks back up. At the moment, it would be totally pointless to cash it in.

I'm hoping the ex rate stays this way for a good long while yet, as we've got a bit risk averse of late, the thought of taking on a ton of debt for leveraging into future gains just seems too stressful at the moment, (before anyone knocks me for that, each to their own I say and good luck to all that are doing well by doing what we haven't).

At the moment, whilst we're both earning a good wage, it seems to me to make sense to keep whacking it in the 100% offset on the PPOR, saving 6% thereabouts on the mortgage. We'd have to earn a return of nearer 10% elsewhere to match it, and it's risk free.

All things being well, we should have the PPOR bowled over within 4 years. If the UK ex rate is still as it is now by then, then what we were putting into this place we'll send to the UK instead where the dollars will effectively buy us more pounds and try and knock that mortgage over as well. Or at least have the equivalent amount of that mortgage locked away over there while the ex rates are low.

Cheers.