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:
- 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.
- 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?
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 |
| Less | |
| 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 |
| less | |
| 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 |
| TOTAL TAX PAYABLE | £14,591 |
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.
Related Resources:
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Overseas Property Investment Guide: Comparing purchase costs in Australia, New Zealand and England
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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?
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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
