UK Capital Gains Tax: Are you an offshore investor? Be aware of what you will pay

UK Capital Gains Tax: Are you an offshore investor?

When investors dispose of their interest in a residential property, any capital gain they have made is generally subject to UK Capital Gains Tax (CGT). The way in which the gain is calculated varies between countries and additionally, the tax charged can vary depending on whether the investor is domiciled in the country of sale or not. In this article, we focus on Capital Gains Tax when the property is located in the United Kingdom. 

Before we go on, we must make it clear we are not accountants, this article is for generic interest only. You should always seek independent advice from a professional accountant.

In the United Kingdom Capital Gains Tax is charged upon worldwide gains realised by individuals and Trustees resident in the UK. Unlike in Australia and New Zealand, Capital Gains Tax in the UK is not treated as income and is taxed separately as a one-time capital event. 

There is an annual exemption per individual (from tax on all gains) of £12,300 for 2020/21 tax year.  This Capital Gains Tax exemption only comes into play in the tax year that the gain is made.  The annual exemption is not dependent on the individual’s jurisdiction or residence.

Investors are able to deduct the following costs from any taxable gain:

  • Stamp Duty Land Tax paid when the property was purchase 
  • Legal Fees for buying and selling
  • Agents fees
  • The cost of capital improvements made where no deduction has been claimed against the rental income

You may be entitled to tax relief if the property was your home at any point, or if it was occupied by a dependent relative.

International purchases prior to April 2015

Prior to April 2015, capital gains tax was not payable by non-UK resident individuals, trusts and companies.  However, this ‘loophole’ has now been closed and, effective from April 2015, any UK property sold by a non-UK resident, trust or company is subject to capital gains tax.  

This has effectively meant that both non-residents and resident individuals, companies and trusts are treated in the same way from a Capital Gains Tax perspective.  So how is this calculated for those offshore investor who purchased property prior to April 2015? There are two possible calculation methods:

  1. For properties acquired prior to 6 April 2015 to be rebased to the market value at that date.  CGT is then charged on the difference between the net sale proceeds and the market value from 6 April 2015. 
  2. Alternatively, owners can calculate the profit arising on disposal of the property without rebasing the base cost and then split this gain across the period of ownership. Only the period post-April 2015 is subject to charge. For example, if a property was purchased in April 2007 and then sold in April 2017, only 2 of the 10 years would be subject to tax and therefore tax would be payable on only 20% of the gain with the remaining 80% of the gain exempt. 

How do I calculate UK Capital Gains Tax liability?

Investment Property - Capital Gains Tax

Calculating the Capital Gains Tax liability is relatively straightforward in the UK for those properties purchased after April 2015.  

For individuals (regardless of whether they are domestic or international), they can simply calculate their gain and net off any of the allowable deductions. They will then pay Capital Gains Tax at a rate of 18% to the extent the profit falls within the basic band of tax and the 28% on any profit thereafter, in both situations allowing for the annual exemption. 

Calculating The Tax Cost – Domestic and Overseas Investors

The example below shows how capital gains tax would be calculated for domestic and overseas investors assuming the same set of circumstances and assuming the overseas investor bought the property after 6 April 2015. 

Capital Gains Tax Calculation
Sale Price £510,513
Purchase Price£400,000
Stamp Duty£22,000
Legal Fees£500
Agency Fees (@2%) Sale Price of 510,513£10,210
Taxable Capital Gain£77,803
Taxable allowance£12,300
Net Taxable Gain£65,503

In determining the tax payable, the following would be the calculation:

Net Taxable Gain£65,503
Basic Rate Tax £37,500 @ 18%£6,750
And then £28,003 @28%£7,841

You must report and pay Capital Gains Tax you owe within 30 days of the sale of the property (now extended to 60 days as of 27 October 2021). Failure to do so can result in interest charges and a penalty.

Final Thoughts

As a reminder, we are not accountants and this article is for general information only. Always seek the advice of a qualified accountant for tax advice.

We hope you have found this article useful, feel free to comment or ask any questions.  For more information on overseas investment property also check out our other articles.

UK Capital Gains Tax

Related Resources:

Why you should buy new build property if you’re an offshore investor?

Overseas Property Investment Guide: Comparing purchase costs in Australia, New Zealand and England

Investment property in Australia: How do expenses affect your income tax position?

What can landlord’s offset against tax in the UK? Check out our useful guide.

Stamp Duty New Zealand? There is none! But what about other property taxes and purchase costs?

Is Help to Buy a risk to UK tax payers?

Positive Signs for Investors as UK House Sales Slump by 52%

What is the future for PropTech?

Important notice:  Proptech Pioneer and its associated companies seek to provide investors with guides, information and tools, but we cannot guarantee this information to be accurate or perfect.  You use the information at your own risk and accept no liability if you rely on this information.   Proptech Pioneer is not a tax advisor, accountant, conveyancer, lawyer, financial advisor or mortgage advisor.  You should seek independent advice from independent professionals before making any investment decision