Disposing of a property in another country engages at least two tax systems. Getting this right requires an understanding of the source-country rules, the home-country rules, and how the applicable double tax treaty coordinates the two.

The source country goes first

The country in which the property is located holds primary taxing rights over the disposal gain. This applies irrespective of whether the seller is resident in that jurisdiction. Under international tax treaty principles, real property gains are taxable in the source country as a matter of course.

The home country follows

The gain is reportable in the home country, with credit applied for any CGT paid in the source jurisdiction. The credit is capped at the home-country tax on the gain. Where more tax has been paid in the source jurisdiction than is owed domestically, the excess credit is not recoverable.

Hold-period exemptions

Several countries offer significant time-based reliefs that can eliminate the source-country liability entirely.

  • Germany. Fully exempt after ten years. No taper; either fully exempt or fully taxable.
  • Italy. Fully exempt after five years, with conditions around main residence use.
  • France. Progressive abatement from year six; full CGT exemption at year twenty-two.
  • Australia. 50% CGT discount for residents holding more than twelve months. The discount does not extend to non-resident owners.
  • United States. Long-term rate of 0 to 20% plus 3.8% net investment income tax for holdings over twelve months. Short-term gains are taxed at ordinary income rates.
Timing your sale around hold-period thresholds is one of the most straightforward tax savings available in cross-border property. If you are approaching year nine in Germany or year twenty in France, the case for waiting is often compelling.

Currency gains

Where the local currency has appreciated against the home currency between acquisition and disposal, an additional currency gain arises alongside the property price gain, and this is taxable in the home country. Conversely, a weakening local currency reduces the home-country gain even if the property price rose in local terms.

US property: FIRPTA

Where the seller is a non-US person disposing of US real estate, the buyer is legally required to withhold 15% of the gross sale price and remit it to the IRS. This is a withholding on account, not a final tax. The seller files a US return and claims a refund of any excess. The timing difference between withholding at completion and the refund can create material cash-flow implications.

Planning to sell an overseas property?

We can model the CGT position across both jurisdictions and introduce you to advisers who can advise on timing and structure.

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