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.
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.
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:
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.
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:
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.
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 for residential property 2023/24 stand at:
Basic rate taxpayer CGT costs vary according to:
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.
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.
|Type of Asset
|Shares (not held within an ISA or PEP)
|Bitcoin / Cryptocurrency
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.
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
Costs of improving the property (refurbishment / renovation / extension / improvement 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:
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).
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:
|CGT Annual Exempt Amount for an Individual
|CGT Annual Exempt Amount for Married or Civil Partnership Couples
Some other rules to note:
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.
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:
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.
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.
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.
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.