Capital Gains Tax –
The Complete Guide (2023/24)

What is Capital Gains Tax?

Capital Gains Tax (CGT) is charged when a property – or another asset – is sold, swapped, donated, compensated for or otherwise disposed of resulting in a profit.

CGT is based on the amount of gain, not the total amount received.

In the context of property sales, such gains are defined as the difference between the final sold price (as registered at HM Land Registry) and the original purchase price.

As a basic example, let’s say you purchased a buy-to-let property 15 years ago for £100,000 and subsequently sold it for £200,000. The capital gain would be £100,000 (£200,000 minus £100,000).

Note that there are a number of reliefs and exemptions involved that we will discuss below.

How Does Capital Gains Tax Work?

For the purposes of property, Capital Gains Tax is due after you have made a certain amount of profit.

This is usually from a sale of a second property that is owned in your personal name (i.e. not through a Limited company structure). Note that the official date of sale (disposal) is when contracts are exchanged.

CGT is self-reported and not deducted automatically like income tax and VAT. It’s therefore vital to work with a qualified accountant / tax advisor to ensure the capital gains tax calculation is accurate and aligned with current HMRC directives.

Capital Gains Tax must be settled within no longer than 60 days of the transaction.  Failing to do often results in penalties and, if left for too long, prosecution.

Scottish and Welsh taxpayers are subject to the same rules and rates as those in England.

When is CGT Applicable?

In addition to property that is not your own home (such as a buy to let house / flat, holiday property, serviced accommodation unit or portfolio of properties), Capital Gains Tax is due on personal possessions worth over £6,000. These include:

• Art and sculptures
• Selected antiques / crockery / china  / silverware / collectables
• Jewellery
• Fine wine (that can be stored for 50+ years)
• Coins and stamps
• Collectable music records
• Shares that are not held within an ISA or PEP
• Business assets (such as machinery that is not attached to a building)
• Cryptocurrencies (such as Bitcoin and Ethereum).

CGT may be due on gifted properties as well as transfers of property following divorce, legal separation or dissolution of a civil partnership.

Note that if a property is owned by one or more people, the gain is based on individual proportions.

UK residents are liable to CGT for both domestic and international sales of property / land.  Non-residents are liable in the same way.

There are also specific rules for individuals that are living outside of the UK temporarily.

When CGT is Not Applicable?

If you have demonstrably lived in the property as your main residence, you’ll benefit from Principal Private Resident (PPR) relief. This essentially means that no CGT is due.

So-called “wasting assets” that have a lifespan of under 50 years also do not incur CGT.  These include cars (unless used for business purposes), boats, most furniture and natural resources.

Other (non-tangible) exempt assets include:

• Donations to registered UK charities
• Cash transfers
• Bettings / pools / cash prizes / lottery wins
• Gifts between spouses or civil partners (not that tax may be due if a new owner sells the item)
• Certain government securities such as gilts and premium bonds
• Child trust funds and National Savings & Investments pension products
• Permanent Interest-Bearing Shares (PIBS)
• Certain Sharia-compliant products
• Shares held within approved employer incentive plans
• Assets held in ISAs or PEPs
• Local authority and corporate bonds that are not held in an investment fund
• Foreign currency held for personal use
• Authorised schemes that encourage business growth.

There is no Capital Gains Tax payable when you inherit a property.

However, a charge will be due if you decide to sell, part-exchange or give away the same property. The tax will be calculated on the basis of the increase in value from the date when the individual passed away and the completion date.

How Much is Capital Gains Tax?

The amount of Capital Gains Tax due depends on whether you are a basic or higher / additional rate taxpayer.

There are also different levels of tax payable after residential, commercial and mixed-use property sales. Therefore, if you own other types of assets, make sure you or your accountant checks the exact amount owed.

Capital Gains Tax Rates

Capital Gains Tax rates for residential property 2023/24 stand at:

• 18% for the entire capital gain if you are a basic rate taxpayer (with income below £50,270). This taxable charge is 10% on all other assets
• 28% for the entire capital gain if you are a higher or additional rate taxpayer (with income above £50,270). This charge is 20% on all other assets. Note an additional rate tax payer is an individual who earns over £125,140.

Basic Rate Tax Payer CGT Charges

Basic rate taxpayer CGT costs vary according to:

• The amount of taxable income – i.e. you total annual income minus your personal allowance and any other tax reliefs (such as pension contributions, charitable donations and child maintenance payments);
• The total gain you have made from the sale of residential properties (note that you may be able to offset losses).

If the taxable income plus the gains from a residential property sale remain within the basic income tax band, 18% will be charged. This increases to 28% on any amount above the basic tax rate.

Higher Rate Tax Payer CGT Charges

As a higher or additional rate taxpayer, the 28% charge applies to any gains from a property sale.

Note that both higher / additional and basic rate taxpayers are also entitled to a tax-free allowance.

Personal representatives of someone who has deceased will pay 28% CGT on any residential property sales.

Current CGT Rates (2023/24 Tax Year)

Business Asset Disposal Relief

Some asset sales benefit from a 10% special rate – this is known as business asset disposal relief (formerly known as entrepreneurs relief).

To qualify, you must be a sole trader or business partner and demonstrate some form of ownership of the company for a minimum of 2 years.

How Much is Capital Gains Tax?

Assuming that Principal Private Residence does not apply, the level of Capital Gains Tax payable, in most cases, is based on the following formula:

The sale proceeds of the property

Original price paid for the property

Incidental costs of buying the property (such as conveyancing fees, survey costs, estate agency and stamp duty costs)

Costs of improving the property (refurbishment / renovation / extension / improvement costs). 

Incidental costs of selling the property (such as conveyancing fees, estate agency / auction sales fees, VAT costs). 

Capital Gains Tax (CGT) liability

Note – in the following cases, HM Revenue and Customs will use the market value of the property to calculate the amount of gain:

• The property is being transferred as a gift (note there are separate rules if the transfer is between spouses / family members / civil partners or to a charity)
• Where property is sold for less than it is worth
• The property is inherited and the Inheritance Tax value is unknown
• The property was owned before 1982.

If you are disposing of jointly owned property, tax is due on the proportion of the gain.  In most cases, properties are owned in halves (between spouses or civil partners).

Capital Gains Tax Allowance

Individuals benefit from a £12,300 Capital Gains Tax Allowance, also known as the Annual Exempt Amount (AEA). Any profit under this amount you make from a property sale will not be taxed.

If you own the property with a spouse this allowance effectively doubles to £24,600.

Below is a table of current and previous year’s rates:

Some other rules to note:

• A UK non-resident selling a property or plot of land can claim AEA
• Unused allowances cannot be carried forward to the following tax year.  However, unused losses can be used to offset gains (and lower future CGT liabilities)
• Different AEA rates apply if you own shares or cryptocurrencies.

Properties and other assets can be directly exchanged between spouses or civil partners. Note that when a gain is made in the future, the CGT liability will be based on the total time the assets are owned with the spouse / partner and not the date of the transfer.

How to Pay Capital Gains Tax

Capital Gains Tax bills must be paid within 60 days of the property sale (this used to be 22 months).

Via the Government Gateway, you will also have to report the following:

• How much you bought and sold the property for
• The dates of ownership
• Whether you had lodgers or were absent for business purposes / overseas employment
• Any property buying and selling costs alongside improvements to the assets and tax reliefs
• Previous tax losses that can be offset

In most cases, we would recommend instructing a qualified accountant to review your accounts before submission.

There is also a requirement to declare capital gains when filing a tax return (even if it has been paid). Here, HMRC will also request a breakdown of how the capital gains liability was calculated.

Capital Losses

Tax relief is available if there has been a loss when selling a different property or other type of asset.  Here, you can deduct the loss from the gain before calculating the level of tax owed.

Remember, even if little or no CGT is owed, make sure your accountant submits the losses from one year to the next.  These can be used to offset future gains.

Note that you cannot claim allowances if the property has been sold or given to a spouse, family member or connected person(s).  Non-chargeable assets also cannot claim losses.

Capital Gains Tax on Overseas Property

You will need to pay Capital Gains Tax on the sale of any properties you own outside of the UK.

Remember to look into whether you are liable for double taxation and whether any reliefs / credits would apply.  You can check the Double Taxation Agreements (DTAs) or if any unilateral reliefs apply.

For instance, there are specific remittance basis tax treatments if your “domicile” (i.e. your permanent home) is abroad but you are a UK resident. Here, you will only pay tax on overseas gains that are brought back into the UK. Whether you stand to benefit from this will largely depend on your own circumstances.

Speak to your accountant about “split year” rules should you be leaving or returning to the UK at any point before the end of the tax year. Different countries also have their own profit, exemption and net gain calculations which can cause confusion.

Then, of course, there are the exchange rate differences to take into account. As a general rule, HMRC will calculate CGT on whatever is paid in the overseas currency on the date of purchase.  This figure is converted into sterling at that point when the property is sold.

Note that we have scratched the surface here and would highly recommend speaking to suitably qualified accountants both in the UK and where the property is located.

Capital Gains Tax – Budget Announcements

Changes to Capital Gain Tax rules are typically announced by the Chancellor of the Exchequer every autumn.  Plans are then rolled out the following fiscal year.

Note that there may also be “emergency” and “mini” budgets should circumstances dictate.

The most recent updates can be seen on the Gov.uk website.