by Dave Watkinson
WE have said before that, whilst we all have our own personal opinions, it is not our place to comment on whether or not we should leave the EU. However, we shall be looking at the effects of some of the consequences of the vote to leave.
One of the most immediate of these is the substantial fall in the value of sterling. Immediately before the June vote £1 was worth about 1.3 Euros. Whilst the value is fluctuating quite wildly on a day by day basis, the overall effect has been a reduction in that value, and as we write £1 is worth about 1.13 Euros, a fall of more than 12%. Whilst we will all notice an increase in the cost of living due to this there is one group of people for whom this drop in sterling is both good and bad news, and that is people who have property abroad.
Firstly, the good news (we always try to look on the bright side of life, etc!!). That property is now worth more in the UK even if the value in the foreign currency has remained stable. In fact, even if the value overseas has fallen the sterling value could have risen. For instance, a holiday apartment in Spain that is worth 150,000 Euros had a sterling value last summer of about £115,000. Today, the sterling value of that same apartment has increased by over £17,000 to about £132,750.
However, we must now turn to the bad news. Anyone living in the UK is subject to UK Capital Gains Tax on the disposal of assets anywhere in the world, and that gain is calculated in sterling. Taking the example above, that apartment may have been acquired 10 years ago for 145,000 Euros when £1 was worth about 1.45 Euros, The sterling cost of the apartment would therefore have been £100,000. Had the property been sold last summer then there would have been a Capital Gain of £15,000 and a resulting tax liability of about £800. If it was sold today then the gain would be £32,750 with a resulting tax liability of about £6,200!
But, I hear you say, he is getting more sterling back. But that may not be the case. That additional tax is a tax on holding an asset in property rather than cash. Had the proceeds of sale in the summer been held in a Euro account until now then the gain resulting from the drop in sterling would still be achieved, but currency gains are tax-free!
For every silver lining there is a cloud somewhere.
WatkinsonBlack are pleased to advise on these and other matters. They have considerable experience in all areas of taxation and businesss services, including providing a very cost-effective payroll bureau service. If you want to arrange a no-obligation initial meeting on any taxation or accounting matter then please contact us. Please note that these ideas are intended to inform rather than advise and you should always obtain professional advice before taking any action.