UK Properties You Pay Capital Gains Tax On
Making a ‘gain’ (profit) when you ‘dispose of’ (sell) a property other than your main home can incur liabilities for Capital Gains Tax. Examples include:
- Business premises
- Buy-to-let properties
- Inherited property
- Second homes
Note: A help guide explaining more about tax when you sell property is also available in Welsh language (Treth pan fyddwch yn gwerthu eiddo).
Even so, some of the UK rules for Capital Gains Tax (CGT) differ when you are:
- Non-resident (e.g. living overseas of the United Kingdom).
- Registered as a non-resident company for Corporation Tax.
- Selling a main dwelling (read more about CGT when selling your primary residence).
As a result, working out the gain is one of the steps you will need to complete to determine whether you need to pay tax to HM Revenue and Customs (see below).
When You Don’t Need to Pay Tax
In most cases, you would not need to pay capital gains on property that you (either):
- Donate to a charitable organisation.
- Gift to a spouse (e.g. husband, wife) or civil partner (read more about Capital Gain Tax allowances).
You may be able to reduce or delay the amount of Capital Gains Tax you pay if the property is a business asset.
Furthermore, if a dependent relative occupied the property, Private Residence Relief (Self Assessment helpsheet HS283) explains when you do not pay.
Note: If a CGT payment is due, you would usually get no more than thirty (30) days to report and pay Capital Gains Tax after selling a property in the United Kingdom.
How to Calculate the Gain for CGT?
In most cases, the gain will be the difference between the amount paid for a property and the amount ‘realised’ after it gets sold (e.g. ‘disposed of’).
As a result, you must report it to HMRC and pay Capital Gains Tax (CGT) if your combined capital gains go over your allowance for the current tax year.
When to Use the Market Value?
Certain situations will call for using the market value of a property when working out the gain. Typical examples of when to do this include situations where the property is:
- A gift (the rules differ if gifted to a spouse, civil partner, or charity).
- Inherited and you cannot establish the Inheritance Tax value. Another section explains more about valuing the estate of someone who’s died.
- One that has been in your ownership since April 1982.
- Sold for an amount less than it is worth (e.g. to help the buyer).
Calculating the Gain in Special Circumstances
Special rules will apply when you calculate your taxable capital gain (or loss) if you:
- Live abroad of the United Kingdom (e.g. non-residents selling UK property or land).
- Sell a lease (or part of the land).
- Purchased the property through the compulsory purchase system.
Note: In cases where you own property jointly with other people you would need to calculate the taxable capital gain for the share that you own.
Some of the costs that you can deduct from the gain include expenditure used for buying, improving, or selling the property. Typical examples of deductible costs include fees for:
- Estate agents
- Improvement works (e.g. the construction of an extension but would exclude regular maintenance costs)
Qualifying for Tax Reliefs
You may qualify for tax relief if the property was (either):
Calculating Capital Gains Tax on Property
Having established the gain on a property, you will be able to use the government tax service facility to work out if you need to pay Capital Gains Tax – unless you:
- Are claiming tax reliefs (excluding Private Residence Relief and Letting Relief).
- Are classed as a (any):
- Personal representative
- Reduced your share in a property that you still own ‘jointly’.
- Sold land, business premises, or other chargeable assets in the current tax year (e.g. company shares).
If you have Capital Gains Tax to pay
Important: The rules for reporting and paying Capital Gains Tax (CGT) differ if you make a loss on a chargeable asset.
Selling Property Used for Businesses
You may qualify for CGT tax reliefs if you sell a property used for a business. Doing so can reduce or delay how much Capital Gains Tax you will pay.
But, the rules differ when buying and selling property is the purpose of the business (e.g. property developers). In this case, instead of paying Capital Gains Tax after selling a property, you would pay:
Note: The special rules for Capital Gains Tax on high value residential property apply to limited companies that dispose of a single residential property valued over £2 million.
Selling Overseas Property
Disposing of an overseas property as a resident in the United Kingdom means there would be some Capital Gains Tax liabilities. Another section explains more about UK residence and tax in more detail.
Furthermore, you may get ‘taxed twice‘ after making a gain in another country. If so, you should check to see if you can claim tax relief.
Important: The section on ‘non-domiciled’ residents explains some of the special rules that apply to residents in the United Kingdom who have a permanent home abroad.
Capital Gains Tax as a Non-Resident
Returning to the United Kingdom within five (5) years of leaving means you may be classed as UK resident after living abroad. Another section explains more about tax if you return to the United Kingdom.