UK Capital Gains Tax is the tax which is due as a result of the financial gain (often referred to as profit) received once an asset is sold or disposed of.
The total gain is calculated by subtracting the sale value from the original purchase value.
For example, if you are selling a residential property, the sale value will normally be the sale price or, in some cases, the market value which the property could be reasonably expected to sell for in an open market. Market value is applied when you give the property away, for example, or sell it at a reduced cost or pass it to a connected person (such as a family member). For assets acquired before 31st March 1982, the market value as at this date will be applied.
It may also be possible to deduct the costs of any improvements made to the property during ownership. These costs may include advice received, general improvements (but not decoration or maintenance) and other legal and professional costs incurred.
Once the total gain has been calculated, any tax relief and tax-free allowances are taken into account before calculating the Capital Gains Tax charge, using the appropriate rate.
Non-domiciled foreign national, or expat, living in the UK?Please read ourguide to the UK tax requirements of "non-doms" in the UK.
An explanation of UK Capital Gains Tax 5-year rule for expats and non-residents
It used to be the case that by simply leaving the UK for a complete tax year, and then disposing of any profitable assets (although different rules have always applied for property) during that year, you could be exempt from Capital Gains Tax. However, one year is no longer a sufficient length of time and an individual now has to be non-resident for a minimum of five complete UK tax years to take advantage of this rule.
Proper planning is clearly very important in these situations as timing can make a significant difference in your tax liability.
Even though you may be deemed non-resident for income tax purposes, you are treated as temporarily non-resident for capital gains tax purposes for up to 5 years.
Certain gains made during that time are taxed in the year you return to the UK if within five years.
If, however, the asset (being non-property related), such as a portfolio investment, was acquired after you had left the UK, any gain realised is not subject to UK Capital Gains Tax if you are indeed non-UK resident.
When double taxation agreements are taken into account, capital gains may be completely exempt from UK tax but taxable in the country where you reside.
Assets liable for UK Capital Gains Tax
Assets which are liable for Capital Gains Tax include all forms of property (unless specifically exempt), certain gifts made, sale of assets acquired by inheritance, shares and assets transferred through divorce, orcivil partnerships which have been dissolved.
UK Capital Gains Tax rates
In the UK, Capital Gains Tax for residential property is charged at the rate of 28% where the total taxable gains and income are above the income tax basic rate band. Below that limit, the rate is 18%.
For trustees and personal representatives of deceased persons the rate is 28%.
For non-residential property and other assets, the rates are 10% and 20% for individuals.
When selling a non-publicly listed business, if you are eligible, you may benefit from the equivalent Entrepreneurs' Relief scheme under which you will only have to pay 10% on the sale of a business or business shares. However this has been subject to recent change and will be addressed separately and not in this particular section.
Capital Gains Tax reliefs
There are several different tax reliefs which can reduce the chargeable gain:
- Rollover/holdover relief on replacement of business assets – which allows you to defer the CGT on the gain of a business asset, where this is matched with a replacement of a new business asset in the period commencing one year before and ending three years after the disposal.
- Business incorporation relief - available when you transfer your business into a Limited Company in exchange for shares.
- Holdover gift relief - on some gifts of business assets, or gifts made into trusts, whereby tax does not become payable until the person, or trustee, who receives the gift disposes of it.
- Entrepreneurs' relief - for disposals after 5th April 2008. This allows disposal of a material part or all of your business to have the CGT rate reduced to 10%. There is a lifetime limit which from 6 April 2020 is £1million (which has only recently been reduced from £10million).
Absorption of capital losses
Any capital losses made on a chargeable transaction are netted off against any capital gains made in the same tax year. They are applied before the annual exemption. Unused capital losses are carried forward against future capital gains; they cannot normally be carried back. To make use of a capital loss it must be reported to HMRC within five years and ten months of the end of the tax year in which it arose.
Capital gains tax allowance
An annual exemption of £6,000 for the tax year 2023/24 is available to individuals and therefore total gains made in the tax year up to this amount are exempt. Any unused annual exemption is lost and cannot be carried forward or transferred to another person.
Previous years capital gains tax allowances:
- 2023/23: £12,300
- 2021/22: £12,300
- 2020/21: £12,300
- 2019/20: £12,000
- 2018/19: £11,700
- 2017/18: £11,300
- 2016/17: £11,100
- 2015/16: £11,100
- 2014/15: £11,000
Other capital gains tax exemptions
- Normally the sale of your only or main residence is exempt, although it can become partly chargeable in some circ*mstances where it is let out or used for business purposes;
- Transfers of assets between husband and wife or civil partners. Such transfers are normally treated as being made at no gain/no loss;
- Most chattels whose value decreases over time (called wasting assets);
- Non-wasting and business chattels where acquisition cost and disposal proceeds do not exceed £6000;
- Certain private motor cars;
- Gifts to charity and certain amateur sports clubs;
- SAYE contracts, savings certificates and premium bonds;
- Betting winnings and prizes including the lottery;
- Compensation for damages for personal or professional injury;
- Some compensation pay-outs for miss-sold pensions;
- Life assurance policies in the hands of the original owner or beneficiaries;
- Company re-organisations and takeovers where there is a share for share exchange.
Capital Gains Tax rules for British expats and non-UK residents with a UK property
The rule, which came into effect on April 6, 2015, particularly affects British expats and non-UK residents with UK property interests, and especially those with buy-to-let agreements which generate an annual income.
While it is possible to be assessed for CGT on the original value of the residential property, you may elect to have the gain assessed on the 5 April 2015 market value of the property if owned before this date.
Hence CGT will be calculated on the value of the property on the day prior to the introduction of the new tax rule for non-residents from the start of the 2015/16 tax year.
Where possible, therefore, it is recommended that you seek a professional opinion on the property value as at 5 April 2015 to establish an accurate understanding of the gain/loss made from this date to date of sale.
UK Capital Gains Tax payment within 60 days after completion
From 27th October 2021people selling their residential properties will need to pay the full amount owed within 60 days from the completion date of the sale. This has was increased from 30 days, a rule which was introduced in April 2020.
If you are selling a property that has been your main residency in the past, you will qualify for tax relief for the period of time you lived in the property over the whole ownership period.
For non-UK residents, selling UK property, there is the option to have the chargeable gain on the sale assessed against the 5 April 2015 market value of the property but when electing to do so, tax relief is available for 9 months only of the total period of ownership from 6 April 2015 to date of sale, if the property was once your main residence. (Prior to 6 April 2015, no CGT was due from non-UK resident on UK property disposals. This is discussed in greater detail below.)
If you are unsure of how the changes will directly affect you, it is vital that you seek professional assistance from a specialist in non-resident tax affairs. We can assist you by introducing you to a tax specialist from our network who will ensure that you are paying the correct amount of tax.
Capital gains tax declarations when selling property as a non-resident
Since the new rules came into force in April 2015 as a non-resident, when you sell a UK residential property you must tell the HMRC, even if you have no capital gains tax to declare. This also applies if you are selling, or have sold, your main residence.
Failure to correctly make a capital gains tax declaration to the HMRC within 30 days after conveyancing (transferring ownership of) your property is likely to result in a penalty – even if there is no capital gains tax to pay.
We always recommend that you seek professional advice before finalising any declaration or capital gains tax calculation.
Speak to a UK Capital Gains Tax specialist
If you need help with your capital gains tax requirements, whether related to property, or other assets, you should seek qualified advice about your best course of action to minimise your capital cains tax bills.
Our free introduction service enables you to have a free consultation with a UK tax specialist that has expert understanding of UK tax rules for non-residents and will be able to help you:
- Establish your current UK residency status, including recommendations on how you could reduce your tax burden
- Understand and apply any relevant double tax treaties
- Identify opportunities to make your income and gains more tax efficient
Request your free introduction to a UK Capital Gains tax specialist here >
