Capital Gains Tax (‘CGT’)

Capital Gains Tax (‘CGT’) – the basics

CGT is a tax on the profit when you give/sell a ‘chargeable asset’, including selling residential property.

The costs of buying, selling or improving a property – estate agents’ and solicitors’ fees, improvement costs which are reflected in the property’s value – can be deducted.

You only have to pay CGT on your overall gains above your tax-free allowance of £11,300.

You do not pay CGT when you give/sell residential property if it is your ‘only’ or ‘main residence’.

The general rule is that you do not pay CGT on assets you give or sell to your spouse or civil partner.

Rate of CGT on residential property

How much you pay depends on the size of your taxable income and capital gain:

  1. Taxable income (income – reliefs); +
  2. 2. Total taxable gains – tax-free allowance

Basic rate income tax (£0 - £33,500) = 18%, higher/additional rate income tax (£33,501+) = 28%

Non-residents calculating CGT by 1. Rebasing & 2. Time Apportionment

From 6 April 2015 non-UK residents fell within the CGT net on the disposal of UK residential property.

Non-UK residents must inform and pay tax to HMRC within 30 days if they have given/sold a UK residential property. This applies even where no tax is payable.

Where a non-resident individual has owned a residential property before 6 April 2015 there are two options for calculating the CGT:

  1. use the property's market value at 5 April 2015 as the base cost:
     
    Purchase price at 5 January 2011 £650,000
    Market value at 5 April 2015 £750,000
    Sale price at 6 June 2016 £800,000
    Gain £50,000
  2. apply a time apportionment of the entire gain:

    Total ownership 65 months, period from 5 April 2015 to disposal was 14 months, proportion of ownership relates to period from 5 April 2015 to disposal (14/65).

Based on the same figures the gain is £150,000 x 14/65 = £32,307.69, a CGT saving of up to £5,000.

As illustrated by this simple example, with the correct advice you can avoid paying unnecessary additional tax.

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