Capital gains tax

What is capital gains tax?

CGT or Capital gains tax is a tax due on the gain made from the disposal of assets.  The tax is due on the actual gain made and not on the amount of money received. Note the word ‘disposal’. This could mean either selling your asset, getting compensation for it, or giving it away/transferring it. Transfers of assets between husband and wife or civil partners are normally treated as being made at no gain/no loss

What is considered an asset for CGT purposes?

Assets could include items such as the sale of shares, property, certain valuable possessions or a business.

What asset disposal will CGT be due on?

CGT is assessed on the disposal of worldwide assets for UK tax residents. It is a separate tax from income tax but the applicable rate of tax is determined with reference to the income tax bandings. Capital gains are applied to the bands after income.

Do I need to pay CGT on my main residence in the UK?

There used to be loophole that allowed those residing offshore for more than a year to be able to dispose of their main UK residence without being subject to CGT. This loophole has since been closed, with a change to the law made in April 2015.

HMRC FA2015/S37 and FA2015/Schdule 7 enact the provisions that extend CGT to chargeable gains accruing to non-UK resident persons on the disposal of an interest in UK residential property.  The legislation refers to this as “non-resident CGT” or “NRCGT”.

Note that It doesn’t matter how long you’ve lived outside the UK or even if you never intend to return…you still have to pay.

How much CGT will I need to pay?

The rate of CGT payable depends on a number of factors, including whether you are a basic or higher/additional rate taxpayer and whether the gain relates to the sale of residential property or another taxable asset. The total gain is calculated by subtracting the sale value from the original purchase value.

What are the tax rates for the sale of residential property?

• If you have made a gain on the sale of residential property:
• basic rate taxpayers will pay CGT at a rate of 18%, and
• higher rate and additional rate taxpayers will pay CGT at a rate of 28%
• For non-residential property and other assets, the rates are 10% and 20% for individuals.
• Any unused annual exemption is lost and cannot be carried forward or transferred to another person.
• The law also provides that the annual exempt amount available to most trustees of settlements is one half that due to individuals and so this will be £6,000 for the tax year 2019/20.

Are there any allowances?

The current CGT exempted amount is GBP 12,000 per year, per individual. This is a slight increase from the 2018/19 tax year where the allowance stood at 11,700 per person.

Before calculating CGT it is sometimes possible to deduct the costs of improvements made to the property during ownership. These costs may include advice received, general improvements such as building extensions or garages, (excluding decorating and maintenance), and also some taxes.

I have heard about PPR relief, what is this?

PPR is Principle Private Residence Releif. It has been the case that from 6 April 2015 any residence owned by a UK or non-UK resident will only be capable of qualifying for PPR if it is located in a territory in which the individual, their spouse or civil partner is resident. Or where it is located in a different territory, the individual meets the “day count test” in relation to the residence. In determining the residence status of an individual, the Statutory Residence Test (SRT) will apply in the UK.

I am moving back to the UK and have heard about private residence relief. How does this work?

Both non-residents selling UK residential property and UK residents selling residential property abroad may still be able to get this relief as a non-UK resident if they meet new qualifying conditions. 

For example, you can apply PRR to a property you’re selling as long as you’ve lived in it for 90 days or more over the UK tax year in question. For those who own more than one property in a country, the 90 days can be split between properties.

If you’re a UK resident you can apply the relief to any property you own overseas as long as you spend 90 days in it.

For expats, if you live outside the UK but spend 90+ days in your UK property, you can nominate this to be your principal residence and get PRR. Be wary of this approach however, as it may push you into a different residency category for tax according to the UK’s Statutory Residence Test. This could have serious tax implications on your income and even result in you having to pay UK tax on your worldwide income.

You will be entitled to full relief where all the following conditions are met:

· the dwelling house has been your only or main residence throughout your period of ownership

· you have not been absent, other than for an allowed period of absence or because you’ve been living in job-related accommodation, during your period of ownership

· the garden or grounds including the buildings on them are not greater than the permitted area

· no part of your home has been used exclusively for business purposes during your period of ownership

What about the PRR exempt period?

Under private residence relief rules, owners can gain an 18 month CGT exemption. That means they pay no CGT for the last 18 months they own a property, so effectively, non-residents who can claim PRR pay no CGT before October 5, 2017 regardless of the new rules.

Do you pay CGT on the disposal of collectibles?

If you sell a valuable personal possession in the UK for £6,000 or more, CGT may apply. Items covered include jewellery, paintings, antiques, coins and stamps, and in these cases you will need to work out your gain on the item when you sell it and subtract your CGT allowance to see if any tax is payable.

How is the tax paid?

By completing and filing a Form NRCGT within the 30-day limit. If a taxpayer is already in the UK self-assessment system, the tax can be paid at the time of filing or by January 31 following the end of the tax year.

Are there ways to help mitigate or reduce CGT due?

The most common ways to avoid CGT in the UK are “tax wrappers” such as individual savings accounts (ISAs) or pensions, where gains are CGT-free.

Investing in businesses qualifying for the Enterprise Investment Scheme is another avenue.

Do you need to declare the sale of assets

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) is an offense.

When should the CGT be paid?

Within 30 days of completing the disposal.

You should always seek qualified and professional taxation advice to help you with your decision-making and to ensure you do not accidentally or even deliberately avoid required tax payments.