UK Capital Gains Tax (CGT)
In summary, Capital Gains Tax (CGT) is:
- A tax on gains made on the disposal of assets.
- CGT is assessed on the disposal of worldwide assets for UK tax residents.
- It is a separate tax from income tax but the applicable rate of tax is determined with reference to the income tax bandings – capital gains are applied to the bands after income
CGT Tax Rates
The rate of CGT payable depends on a number of factors, including whether you are a basic or higher/additional rate taxpayer and whether the gain relates to the sale of residential property (not your principal private residence - PPR) or other taxable asset.
If you have made a gain on the sale of residential property:
- basic rate taxpayers will pay CGT at a rate of 18%, and
- higher rate and additional rate taxpayers will pay CGT at a rate of 28%
If you have made a gain on an investment that is not residential real estate:
- basic rate taxpayers will pay CGT at a rate of 10%, and
- higher rate and additional rate taxpyers will pay CGT at a rate of 20%
Note the following:
- There is an annual capital gains tax annual exemption – currently £12,000 - which is available to reduce the total taxable gains in a year before the application of the appropriate tax rate
- For trustees the CGT annual exemption is halved
- A person who claims the ‘Remittance Basis’ of taxation loses their CGT annual exemption
CGT for Individuals leaving the UK
Where an individual leaves the UK indefinitely still holding assets there are no UK CGT consequences unless they return and become resident again in the UK within 5 fiscal years of the year they left having disposed of the assets in the meantime or the asset is residential property (property used or suitable for use as a dwelling).
A relatively recent exception has been introduced with respect to residential property and non-residents will now be liable for UK CGT in relation to the increase in value of their property from April 5, 2015. In most cases, if there is a double tax agreement between your country and the UK, this amount will be available as a CGT tax offset in your country of residence - avoiding double taxation. Non-residents must now advise HMRC of any property sale and we very strongly recommend tax advice prior to any sale.
CGT relief - Principal Private Residences
Gains on an individual’s home may be eligible for the Principal Private Residence (PPR) exemption. This exemption is complex and subject to detailed conditions, but generally PPR will not be available for a tax year unless either:
- the person making the disposal was tax resident in the country where the property is located for that tax year; or
- the person spent at least 90 days in that property in that tax year - the "90-day rule". (If a person has more than one property in a country in which they are not tax resident, he or she may aggregate the number of days spent in any of those properties in the relevant tax year in order to meet the 90-day rule. One of those properties may then be nominated for PPR).
Foreign Currency Gains and Losses
Foreign currency is a CGT applicable asset. Where any amount of foreign currency is held in excess of an individual’s personal needs (eg holiday money) any exchange gains or losses will be subject to CGT.
Use of Capital Losses
Capital losses may be carried-forward indefinitely but can only be offset against capital gains.