CAPITAL GAINS TAX

Capital Gains are made when an asset (such as an investment property) is sold for more than it cost. Capital Losses are made when an asset is sold for less than it cost. Tax is chargeable on capital gains to the extent that they are not covered by exemptions, reliefs or allowances.

PERSONS LIABLE TO CAPITAL GAINS TAX

Gains arising on disposals made by persons who are temporarily non-resident are always subject to UK Capital Gains Tax in the same way as gains made by UK residents (except for a timing difference). Temporary non-residents are those who have been resident outside the UK for less than five full tax years. Gains arising on disposals made by permanent non-residents before 6th April 2015 are generally not subject to UK Capital Gains Tax (though tax may arise in their country of residence). With effect from 6th April 2015 gains accruing after that date arising on disposals of residential property made by non-residents are subject to Capital Gains Tax.

It is possible for a non-resident landlord who is in the UK for more than 90 days in any one UK tax year to elect a UK property to be his Principal Residence and obtain substantial tax reliefs from Capital Gains Tax. However, this is a very high risk strategy as it may make him UK resident for all tax purposes with financially disastrous consequences.

REPORTING DISPOSALS

All disposals of UK residential property by non-residents must be reported to HMRC within 30 days of completion. Calculating the CGT and paying the CGT may be deferred if the non-resident is registered for Self- Assessment and makes annual UK tax returns.

CALCULATING CAPITAL GAINS AND LOSSES ON THE DISPOSAL OF INVESTMENT PROPERTY

The detailed calculation of the taxable Capital Gain arising on the disposal of an investment property is complex and should normally be undertaken by a suitably qualified person.

  • The cost is taken as the headline price plus all legal costs, stamp duty survey fees etc.
  • The sale proceeds are the headline price less the agents fees, legal fees etc.
  • ‍Some improvement costs may be added to the cost of the asset
  • The gain is deemed to have accrued evenly over the period of ownership.
  • To arrive at the notional value at 5th April 2015 non-residents have two choices. Either the gain over the entire period of ownership is time apportioned, OR the actual value at 5th April 2015 is used.
  • Any gain accruing when it was your own Principle Private Residence is exempt. (Private Residence Relief)
  • Where a gain is made on a property that has at any time been your Principal Private Residence the gain accruing in a final period of up to 18 months is ignored.
  • If the property has been your principle private residence and it has been let as residential accommodation there is a further allowance not exceeding the sum of the previous two items and is capped at £40,000 (Letting Relief).
  • Other reliefs may be available.
  • The cost is deducted from the sale proceeds then the exempt amounts are deducted.
  • Then the personal annual exempt amount is deducted.
  • Capital Gains of individuals arising on the disposal of residential property (after deducting the Annual Allowance) are notionally added to the taxpayers other taxable income. To the extent that they would otherwise fall within the basic rate band they are taxable at 18% and the excess is taxable at 28%.

TREATMENT OF LOSSES ARISING ON THE DISPOSAL OF INVESTMENT PROPERTY

  • ‍Losses may be set off against gains of the same year.
  • Losses may be carried forward and set off against gains of future years. They must be used at the first opportunity and before other reliefs are applied.
  • Losses may NOT be carried back against the gains of an earlier year (except from the year of death).
  • Special rules restrict the use of losses when they arose in a transaction involving a disposal to a connected person.


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