UK Capital Gains Tax – Explained!

UK Capital Gains Tax is a tax on profit you make when you sell or dispose of something.

It usually comes into play when you sell or give away something substantial for more than you bought it for.

By substantial we are talking about things like:

• An item worth at least £6,000 (except your car)
• Property (but not your main residence unless you’ve let it out, used it for business or it is very big i.e over 5,000 square meters)
• Shares (that aren’t in an ISA or PEP)
• Business assets

For most people this means they become liable for Capital Gains Tax (CGT) when they sell things like shares, bonds, jewelry, antiques, coins, stamps, art and property.

Property CGT

Property isn’t always liable. You can often sell your main residence without paying this tax, but there are some exceptions.

These exceptions come about when you’ve used your property to make money in some way. The most obvious example being a buy-to-let, but there are other situations where Capital Gains is relevant.

One of the most common situations where you may need to pay is where you’ve sub-let part of your house (having one lodger doesn’t count).

Another common example is if you bought a property with the goal of making a profit. A property developer may do this for example.

Along the same lines, if you run a business from home you may be liable.

In some cases the whole of your home may be liable, but in others it may only apply to a part of your home.

Of course, nobody is going to know if you usually get a bit of extra work done from your spare room on a Sunday, but if you have one or more dedicated rooms that you always work from, which are used specifically for work you may be liable to pay when you sell.

This becomes more likely if you have been making other tax claims for that room i.e. you’ve been claiming tax deductions for things like lighting, heating, telephone and internet costs.

These days it’s not uncommon to see professionals like dentists and physiotherapists dedicating a few rooms in their house to run their businesses. Other common examples of space used for business include storage facilities or workshops.

As well as homes used for business, actual businesses themselves can be liable for UK Capital Gains Tax when items are sold within the business. Things like property, plant and machinery or registered trademarks are common examples.

Situations where you don’t sell anything but still need to pay tax

Most people in the UK have to pay CGT when they sell something for a lot of money. However, there are instances where you could be liable even if you didn’t sell anything. Common examples include:

• You give something away as a gift (or transfer ownership to somebody else)
• You swap an item for something else
• You receive compensation for something (i.e. an insurance payout)

In these situations because you don’t actually sell something you will have to estimate your gain using market value.

This just means looking at what other similar items are selling for on the open market.

If you give away your apartment and apartments like yours usually sell for £200K then you might use this figure to determine any capital gains.

Situations where you don’t pay CGT in the UK

You don’t always need to pay tax on when you make gains.

In fact, there are many situations when you don’t need to pay anything at all.

Here are some of the main instances where you can sell something substantial and yet completely avoid UK Capital Gains Tax:

• The total profit you make is less than the CGT free allowance
• You make profits through ISAs or PEPs
• Gilts (UK government bonds) you own are sold for a profit
• You gain through Premium Bond ownership
• Anything you win through betting
• You have lottery or pools winnings
• Assets that you inherit

The above applies to individuals.

Certain types of company aren’t required to pay CGT at all. That’s because only self employed sole traders and partnerships need to pay. Limited companies and some alternative types of organization are liable for UK Corporation Tax instead.

Costs you can deduct

Even if you do have to pay Capital Gains Tax, you might not have to pay as much as you think.

There are many kinds of fees you can deduct from your profits.

Here are some common examples:

• Your estate agents’ and solicitors’ fees when buying houses
• Costs for improvement works, for example for an extension (but not normal maintenance costs) on a property
• Associated fees such as stockbrokers’ fees when buying and selling shares
• Stamp Duty Reserve Tax (SDRT) when you purchase shares

Should you report your total gains even if you think you don’t have to pay?

If you’ve done the calculations yourself and you are positive you are not eligible for Capital Gains Tax you don’t need to report your gains unless:

• The total amount you sold your assets for was more than four times your allowance
• You are registered for Self Assessment

How to pay CGT

The UK Government gives you two options for making payments. In the first instance, you can do it immediately through HMRC’s ‘real time’ Tax service.

To do this you need to sign up for a Government Gateway ID, so you can deal with everything online.

As a result, if you are planning to sell something for a lot of money and haven’t yet set up your Government Gateway ID, it may be worth doing so, to make things more convenient later on.

Alternatively, you can complete an annual Self Assessment tax return. Again, if you want to do it online you will need to sign up for a Government Gateway ID, but you can also do it by post if you want to.

Self Assessments need to be returned by January 31 if completed online or October 31 if returned by post.

Both methods require you to provide details of each gain (or loss), cost records and reliefs you are (or at least think you are) eligible to receive.

British expats

Though there are many advantages to moving abroad, there can be many disadvantages too.

British expats often find that they no longer have access to things they took for granted back home. Tax free investment wrappers like ISAs being a key example.

However, it is not all bad news because UK non-residents only usually pay UK Capital Gains Tax on property and land. This means other items such as shares are not liable.

So if you have an onshore brokerage account and sell your shares, you won’t usually be taxed on your gains. In fact, as a result it may not be necessary to open an offshore brokerage account as some suggest.

Of course whether or not you are a UK resident isn’t as straight forward as it should be so you maybe unsure what your resident status actually is.

You are definitely not a UK resident if you have lived and worked in another country for 5 years continuously. However, up to then it will depend on exactly what your situation is.

For those in doubt, the UK government has a guide that you can use to determine this called the Statutory Residence Test (SRT) / form RDR3.

If you are unsure about your resident status it maybe a good idea to read over the guidance which you can find here.

Generally CGT doesn’t become an issue for non-residents unless property or land is involved.

Whereas non-residents wouldn’t have to report anything if they sell things like shares or artwork, property or land is a different matter.

All non-residents need to inform HMRC of all property or land sales within 30 days. This applies even if you lose money or make less than the your tax free allowance. Basically, it needs reporting no matter what!

If you need to report a property or land sale, you can do this by completing a non-resident Capital Gains Tax return, which you can find here.

And don’t put it off! It needs to be done straight away if you want to avoid a fine. The amount you pay in fines is increased the later you are.

• 0-6 months costs £100
• 6-12 months costs an additional £300 or 5% of any tax due (whichever is greater)
• 12+ months cost an additional £300 or 5% of any tax due (whichever is greater)

And it doesn’t stop there as late penalties and interest can also be applied if you miss payment deadlines.

It’s worth pointing out that this article doesn’t cover any taxes that may be payable in your resident country.

Different countries have different tax rules. That said, generally, you pay tax to the country where you made the gain, but that isn’t always the case.

If the country you live in has a double taxation agreement with the UK you may be completely exempt from paying UK tax, but liable to pay tax to the country where you live.

As a consequence, if the tax rates in your resident country are lower this would be beneficial for you, but at the same time, if the tax rates were higher it wouldn’t be.

Consequently, it is always worth reading up on the tax situation in your resident country.

And if in doubt it would be advisable to seek the advice of a financial professional.

How much tax do you pay?

If you do sell something substantial you won’t pay tax on the sale amount. Instead, only the profit you make is liable. Even then you can subtract the tax free allowance.

The tax free allowance for an individual is £3K right now or a couple selling an asset have a £6K allowance. (It seem like only yesterday that those numbers were nearly 4 times as much)

So in reality, this means you can earn thousands of pounds tax-free when you sell something for a profit before you need to pay anything.

If you and your spouse bought an apartment together for £80,000 and sold it for £100,000 making a profit of £20,000, you wouldn’t be liable for UK Capital Gains Tax because your profit is less than your combined personal allowance.

When your profit is above your personal allowance you need to consider any UK income.

That’s because when it comes to payment, UK CGT is directly related to UK Income Tax. In fact, the amount you pay is directly linked to the UK Income Tax Band you are in.

These bands are shown in the table below:

Tax Band	Taxable Income	Tax Rate
Personal allowance	Up to £12,500	0%
Basic rate	£12,501 to £50,000	20%
Higher rate	£50,001 to £150,000	40%
Additional rate	over £150,000	45%

As well as being based on your UK Income Tax band, there are different values for property and other assets. This means there are four possibilities for what you might pay:

• For property, you pay 18% if you are a basic income tax rate payer and 28% if you are higher income tax rate payer. (28% reduces to 24% from 2025)
• And for other assets you pay 10% if you are a basic income tax rate payer and 20% if you are a higher income tax rate payer.

So you’d need to have a UK income over £50,000 before you would be liable for the higher rate.

The bottom line

If you sell something substantial where you make a big profit you are likely to be liable for UK Capital Gains Tax.

But that doesn’t mean you necessarily have to pay anything because you will usually be eligible for a personal allowance.

Your main home can usually be sold without any tax levied as long as you haven’t used it to make money.

When you give things away or exchange them, you still might be liable.

Expats are only liable for property and land sales, and they need to notify HMRC whenever they sell property or land within one month of the sale.

As with many things in life there are simple and complicated situations. If your situation isn’t straight forward, it may be advisable to seek guidance from a professional.

you can read more about tax here