Reduce Property Gains Tax, Property Investors

Avoiding Capital Gains Tax on property UK

simon

Simon Misiewicz

8th December 2020

What is a taxable Capital Gain?

Our capital gains tax accountants wrote this article for the 2021/2022/2023 tax years.

According to industry statistics, in 2020-21 receipts from Capital Gains Tax UK payments amounted to £10.60 billion.

This represented an increase of £800 million paid in CGT compared to the previous year.

As property accountants serving thousands of UK landlords that purchase buy to let properties, we know that you may need to pay capital gains tax (CGT) if you sell something for more than you paid for it. This is particularly relevant to buy to let houses. Buy to let tax can always be reduced or mitigated.

In 2018/19, the total Capital Gains Tax liability was £9.5 billion for 276,000 taxpayers. This CGT liability was £62.8 billion of chargeable gains. The total CGT liability and gains increased, but the number of taxpayers decreased.

The southeast of England had the highest number of capital gains taxpayers, followed by London. These two regions accounted for 40% of individuals liable to CGT in the UK in 2018-19. The North East of England and Northern Ireland had the fewest taxpayers.

People aged 55 to 64 have consistently had the highest capital gains, followed by those aged 65 to 74 and 45 to 54 age categories. These three age groups represent 71% of the CGT population.

I wonder how many of these taxpayers paid more CGT than they needed to because they did not discuss their scenario with a property tax specialist.

From 6th April 2020, individuals, trustees, and personal representatives of deceased persons who sell or dispose of a residential property portfolio must report the disposal to HMRC within 30 days of completing the disposal, where a taxable gain has been made. The taxpayer in question must also make a payment on the CGT due.

Our capital gains tax advisors are often asked, “how long do you have to keep a property to avoid capital gains tax?” Sadly, it does not matter how long you own the property rather how long you have lived in the property to avoid capital gains tax. We will see a lot more detail about this a little later.

Do you have a potential Capital Gain?

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Are you paying too much UK Taxable Capital Gains Tax when selling an investment property?

Our property tax specialists help over 1,000 monthly retained UK landlords and property investors to minimise tax whilst building their wealth.

There are many reasons why people pay far more buy to let tax than they need to.

This is because:

– They do not know what they do not know with regards to Capital Gains Tax rates

– A Taxable Capital Gain is not a common thing to worry about

– They have not spoken to a tax specialist to go through their situation to see what tax reliefs are available.

– Their accountants or solicitors are not aware of the many reliefs available to their clients and are not taken advantage of.

– Tax legislation changes but either the person or their accountant/tax specialist have not been made aware.

You need to work with capital gains tax accountants to ensure you pay the least amount of CGT.

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What are the basics of UK Tax when selling a buy to let property?

As a capital gains tax accountant serving landlords that purchase buy to let properties across the UK, I know that property law’s impact can have a huge and negative impact on the profitability of portfolios being grown by property investors.

Capital Gains Tax UK (CGT) is one of the most complex areas where our clients request expert tax advice.

UK CGT is a tax on the profit arising from the sale of a property portfolio.

A CGT bill will usually be applied when selling a second home or buy to let property.

Property landlords in London have faced challenging times during the Covid-19 pandemic, with the effects of Brexit taking their toll on property investments across the city and into bordering counties.

Landlords can no longer offset mortgage interest payments from rental income before tax.

Since April 2020, this has been replaced by a flat rate of 20% tax relief, further denting potential profits. Our capital gains tax accountants can helo you understand the complexities of CGT.

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How much CGT UK will I pay when selling a rental property?

The Government requires that you only pay CGT if your gains throughout the year exceed the Annual Exempt Amount (AEA). There are several Capital Gains Tax rates you need to be aware of.

The tax-free allowance is £12,300 for individuals. Keeping your profits below this threshold is a straightforward way to avoid paying Capital Gains Tax on a property portfolio. Please also do not forget that everyone has a Capital Gains Tax annual allowance and, at the time of writing, was £12,300. Married couples and civil partners get this allowance, meaning they get £24,600 combined.

Excess of £12,300 is subject to Capital Gains Tax 18% for basic rate taxpayers or 28% if high rate taxpayers.

This needs to be carefully monitored as a property gain could push a property investor from basic to the higher tax rate during a tax year, meaning you would also need to pay CGT at the 28% rate.

Example of CGT rates

Sarah buys a property for £100,000 and incurs £500 legal fees and other associated finance arrangement fees of £2,500. She spends £5,000 on improvement costs.

Sarah sells the property for £120,00. She pays the estate agent £1,500 and solicitors £500.

£120,000 sales proceeds
£100,000 less purchase price of the property
£5,000 Less Property improvement costs
£1,000 Less legal/solicitors fees £500 x 2
£1,500 Less estate agent fees
£2,500 Less arrangement fees
£10,000 taxable profit

Please note the acquisition costs and sales costs are not revenue items. I have seen many accountants and clients treat these incorrectly.

The profit of £10,000 is less than the CGT tax-free allowance of £12,300. She does not have a tax bill on this profit.

Any excess gains over the £12,300 capital gains tax allowance would be subject to an 18% CGT rate for basic taxpayers and 28% for high rate taxpayers. The same rate also applies to additional tax ratepayers.

It is always useful to check your CGT workings with capital gains tax accountants before submitting your return to HMRC.

Do you have a potential Capital Gain?

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Who pays Capital Gains Tax and when is it due? Answered by our capital gains tax accountants

You must report and pay any Capital Gains due to HMRC within 60 days of the sale of a buy to let property.

Property investors pay buy to let tax on the gain from selling other properties not classified as a primary home.

This includes land, second homes, business premises and inherited property portfolios.

Capital Gains Tax rates are paid on investment properties owned by an employed individual, an unemployed individual, a self-employed sole trader, or an individual in a business partnership.

To report any capital gain, you will need calculations for each capital gain or loss reported, details of how much each asset was bought and sold for, the dates you took ownership of and then disposed of the asset, as well as any other relevant information such as the costs of disposing of the asset and any tax reliefs.

Understanding the rules on Capital Gains Tax 600 days reporting and payment is vital for investors.

If you’re a property investor and are unsure whether you have to pay Capital Gains Tax, get in touch with one of our property accountants today.

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How long do I need to live in a house to avoid capital gains tax UK?

Our capital gains tax accountants frequently get the question, “how long do I need to live in a house to avoid capital gains tax UK?”

Our international property investors that buy a UK buy to let properties understand that there is a purchase tax and a sales tax to consider.c

To avoid capital gains tax UK, you need to live in it for a period of time as your home. As you can see that it does not matter how long do you have to keep a property to avoid capital gains tax, rather how long you have lived in it.

 

 

Private Residence Relief (PRR) is a relief applied when you sell a home.

It is also important to point out that you do not pay tax for the period you have lived in the property.

PRR is an additional tax relief that may be used with Capital Gains Tax rates.

HMRC states that there are periods where you are absent from a property where you will qualify for Private Residence Relief. These include:

– The period you lived in the property as your primary and only residence

– The final nine months of your period of ownership always qualify for relief (even if you didn’t live there)

PRR may also be extended for several reasons to help you understand the answer to the question “how long do I need to live in a house to avoid capital gains tax UK.”

– 12 months, you do not occupy your new home when you acquire it because you are not able to sell the old home

– 12 months, you do not occupy your new home because you are waiting for the completion of refurbishment on the new property

–  36 months for any reason of absence (so long as both sides of the absence period you do live in the property, i.e. this relief requires you to move back in after you leave at some point)

–  48 months of absence (again, you must move back in after the period of absence) during which the distance from your place of work prevents you from living at home, or your employer requires you to work away from home to do your job effectively

–  Unlimited absence where your employment requires you to work overseas (again, you must move back in after the period of absence unless, for example, you remain permanently employed overseas and sell the property whilst permanently employed overseas)

The property must be your main home for you to benefit from PRR. It is important for you to use a private residence relief calculator properly given all the allowable reliefs.

If you’re selling a second home or buy to let property, you’ll have to pay CGT on property profits, but you might get some relief depending on whether you have ever lived in the property.

You would not get any CGT relief if you bought the property to make a ‘gain’, i.e. as an investment or for business use.

The relief you get as a landlord depends on the financial gain you make from selling your property and the amount of time you’ve lived there for.

The relief can be very straightforward if you own one home at a time and have the required evidence to show that you meet all the qualifying conditions.

A claim for PRR can be complicated if you own multiple properties or are developing properties.

To claim PRR, you must own the freehold or leasehold of the property, which must have been occupied as a dwelling or occupied as your only or primary residence.

The relief does not apply to commercial property.

PRR covers the building and a permitted area of up to 1.25 acres of garden and grounds, including outbuildings.

If you own two or more homes, you will need to make an election to the HMRC if you have two homes that qualify for PRR to say which home is your principal private residence.

It is possible to ‘flip’ homes to avoid CGT by making elections at strategic times, but this needs to be carefully considered with your capital gains tax accountants. HMRC may look at the flip and try to charge income tax and class 2 and class 4 national insurance on the profit made.

It is important to work with a capital gains tax specialist. Our UK landlord accountants will use the private residence relief calculator to see what CGT reliefs are available.

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Tax Applies Upon the Agreement of Sale - Delayed Completions 

There may be times when people agree to sell a property sometime in the future. Capital Gains Tax applies upon the sale agreement rather than when the sale took place.

Residential Property Investment - Transferring to a Limited Company

Landlords may wish to transfer an investment property portfolio to a limited company. The mortgage interest may be offset in its entirety within a limited company. There are a few considerations before you sell your residential property portfolio to a Limited Company:

– Stamp Duty Land Tax (SDLT) will be chargeable on any deemed land transaction. Please do not forget that there is also a 3% additional SDLT charge on the total amount of the property. This applies where the value of a property is £40,000 or more. I have written an article on SDLT transfers to a Limited Company. 

– Capital Gains Tax: You will also need to pay CGT if you transfer a property investment into a limited company. This is assuming that the property is not your trade business. Putting an investment property into a Limited Company can be a costly exercise. CGT will also be a tax liability if you transfer properties from a partnership into a Limited Company.

– Mortgage and finance: you will not be able to transfer the mortgage into the Limited Company.

Do you have a potential Capital Gain?

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UK Tax when transferring a buy to let property to a child.

Parents may wish to transfer a buy to let or second home to their children. This can be done, but they need to know that a Capital Gains Tax bill is likely to arise. The Capital Gain will be based on the market value less the purchase price and capitalised items. You will note the words market value. This prevents a parent from transferring an asset for less than it is worth.

We have written a separate article for UK landlords wishing to mitigate tax when transferring property into trust for children. The types of tax avoided are Capital Gains Tax and Stamp Duty Land Tax.

Buy property from family members with the support of your capital gains tax accountants

Similarly to the previous section, there may be tax implications when buying a property from family members. The person buying the property may pay Stamp Duty Land Tax (SDLT). The seller may have to pay the CGT bill on the disposal. Given that this article is about CGT, we will focus here.

I appreciate the article that says “may have to”. Let me clarify. If you are a connected person, then the CGT bill will be based on the market value of the property and the original purchase price. A connected person is one of many.

– relatives (brothers, sisters and spouses or civil partners of relatives)
– trustees
– partners
– companies

Section 286 TCGA 1992 identifies persons we are “connected” for CGT purposes. A taxpayer is connected with their spouse. Remember that the term spouse includes a civil partner. A taxpayer is also connected with his “relatives”. “Relatives” include ancestors such as one’s parents or grandparents.

Relatives also include lineal descendants such as children or grandchildren and one’s brothers or sisters. TCGA 1992, s.286 A taxpayer is also connected with any relatives of his spouse.

These include one’s brothers-in-law or sisters-in-law, the brothers or sisters of one’s spouse. Relatives of one’s spouse also include one’s mother-in-law or father-in-law, so these people are also treated as connected persons. Finally, a taxpayer is connected with the spouses of his relatives.

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An example of a son that wishes to buy a property from his father in law

John is the stepfather to Andrew and has moved into the family home with Andrew’s mum. Andrew wishes to buy the property from John, which they agree to transfer the property as a gift. We will ignore the seven-year inheritance tax rules for this article.

John values the property as £200,000. He is pleasantly surprised as the property was purchased for £100,000 just ten years earlier. There is a mortgage of £90,000. All John wants to do is have a nice holiday and pay off the mortgage. They agree on a price of £100,000.

On the face of it, you would assume that there is no CGT to pay by Andrew buying a property from John. This is because the sales price for John is £100,000, and the original purchase price is also £100,000. No gain, no loss.

Sadly they are close relatives, and HMRC will require that the CGT bill computation is

£200,000 Market Value of the property

£100,000 Original purchase price

£100,000 gain

It is the £100,000 gain that will be considered as part of John’s self-assessment CGT return

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Tax When Getting A Divorce

One of the most significant tax benefits of marriage and civil partnerships is transferring assets between spouses. These transfers are exempt from Capital Gains Tax. When separating or divorcing in a marriage or civil partnership, the CGT exemption is still available, but there is a risk that you would trigger Capital Gains Tax (CGT) and potentially Stamp Duty Land Tax (SDLT).

Transferring assets from one spouse to another using a deed of trust at the right moment can save you thousands in Capital Gains Tax and Stamp Duty Land Tax. This is particularly the case when you wish to sell assets to a third party. You can save a lot of CGT by simply transferring assets to the basic rate taxpayer from the high rate taxpayer.

Tax law sees both parties in a marriage/civil partnership as separate entities. This means that when one partner only makes a capital gain or loss, they face the tax ramifications.

You can transfer assets between partners whilst still living together and married without any Capital Gains Tax liability. Please note that you may need to think about the Stamp Duty Land Tax issues of transferring mortgage debt between husband/wife/civil partner.

The exemption from the Capital Gains Tax remains in effect until the marriage ends in divorce or when one party leaves the marital home. CGT is not just based on divorce; it may be triggered by leaving the marital home. It is essential to work with capital gains tax accountants when getting a divorce so that mistakes are not made during a stressful period of your life.

Do you have a potential Capital Gain?

Tell us about your potential Capital Gain so that we can help you minimise your tax liability

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The First Year of Separation/Divorce

Unique tax rules apply to CGT and SDLT in the first year of separation or divorce. The tax year runs from the 6th of April until the 5th of April the following year. If you were officially living together during that time frame, your tax position falls into a grey area.

You have the entirety of the year to make exempt transfers to each other as if you were still officially living together. These transfers will be free from CGT, as previously stated.

Tax law becomes more complicated as you reach the 6th of April following the separation. Any transfers between you after this point in time face different rules.

Make sure you are getting the tax benefits and complying with tax law. Work with a tax professional such as Optimise Accountants. We can help you navigate the Capital Gains Tax and divorce challenges.

Capital Gains Tax After Separation or Divorce

It is worth looking at an example of how Capital Gains Tax works when you are in a separation or divorce process.

Sarah and Jim decide to part ways. Jim leaves home on 1st January 2020. They try and make things work whilst being apart, but this does not work out. Jim agreed to sell his house share to Sarah on 30th June 2021. This is now 18 months after the separation.

Please note that they are not yet divorced but legally separated. Jim will benefit from the time he lived in the property plus nine months for Private Residence Relief.

Jim and Sarah bought the house in January 2018. This means that they owned the house for 30 months.

Anyone thinking of separating or getting a divorce needs to consider Capital Gains Tax rates.

Now we have to look at the financials:

 

£400,000 was the market value and transfer value of the house from Jim to Sarah in June 2021

£300,000 was the purchase price of the property in January 2018

£100,000 is the gain, but this is limited to 50% for Jim

£50,000 is the Capital Gain made for Jim

We know that Jim would benefit from Private Residence Relief. However, Jim has to pay £3,000 Capital Gains Tax within 30 days of transferring the marital home to Sarah.

Jim could have avoided the CGT liability had he spoken to a Capital Gains Tax accountant.

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What are Enterprise Investment Schemes (EIS)?

The Enterprise Investment Scheme (“EIS”) is a Government scheme that provides a range of tax reliefs for investors who subscribe for qualifying shares in qualifying companies.

There are five current EIS tax reliefs available to investors in companies qualifying under the EIS, which are summarised below :

Enterprise Investment Schemes and 30% Income Tax Relief 

An individual with no more than a 30% interest in the company can reduce their income tax liability by up to 30% of the amount invested. An EIS qualifying investment must be held for no less than three years from the issue date.

There is no minimum subscription per company and the maximum in respect of which a subscriber may obtain income tax relief in any year is £1m.

Individuals may elect to treat their subscription for EIS shares up to their maximum annual allowance as if made in the previous tax year, effectively carrying income tax relief back one year.   In other words, up to £2m may be invested, of which £1m could be applied to the previous tax year.

Individuals each have an EIS allowance of £1m, so a married couple could invest up to £2m per tax year.

Income Tax Relief is limited to the amount which reduces the individual’s income tax liability for the year to nil.

 Enterprise Investment Schemes and Tax Reliefs

No Capital Gains Tax is payable on the disposal of shares. This is the case where the value increased since purchase. Another caveat is where the asset is not sold earlier than the later of three years post-purchase or three years post commencement of trade. This is provided the EIS initial income tax relief was given and not withdrawn on those shares.

However, the shares can be held for much longer, thus potentially permitting CGT free gain to accrue over a longer period. The opportunity for a CGT free gain can be an extremely valuable benefit from subscribing for shares in a successful EIS qualifying company.

Tax on capital gains realised on a different asset can be deferred for as long as the EIS qualifying shares are held or even indefinitely, where disposal of that asset was less than 36 months before the date of the issue of shares in the EIS investment or less than 12 months after it.

A deferral relief is unlimited; in other words, this relief is not limited to investments of £1m per annum and can also be claimed by investors (individuals or trustees) whose interest in the company exceeds 30%.

If EIS shares are disposed of at any time at a loss (after taking into account income tax relief), such loss can be set against the investor’s capital gains or his income in the year of disposal or the previous year.

For losses offset against income, the net effect is to limit the investment exposure to 38.5p in the £1 for a 45% taxpayer if the shares became totally worthless.

EIS the losses can be offset against Capital Gains at the prevailing rate of 28% as applicable.

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Enterprise Investment Schemes and Inheritance Tax mitigation

Shares in EIS qualifying companies will generally qualify for Business Property Relief for Inheritance Tax purposes. After two years of holding such investment, the relief may be as much as 100%. Inheritance Tax is reduced or even eliminated in respect of EIS such shares.

EIS investments are a great way to mitigate the rates of Capital Gains Tax that you pay.

Enterprise Investment Schemes Investment Process

The investor must have an EIS3 Form from the company invested in claiming relief. The investor has to fill in and submit a self-assessment income tax return. The EIS3 form needs to be submitted with the return if the investor claims CGT deferral relief.

As we have mentioned above, the claim may lead to a rebate of income tax.

The EIS investor can write to ask HMRC to adjust their PAYE code. Their payments on accounts may be reduced if the EIS investor is self-employed. It is advisable to speak to a capital gains tax accountant or other professional concerning the tax reliefs. There is also information on the HMRC website under EIS Investing.

Capital Gains Tax (CGT) may be mitigated by EIS investments (called EIS Reinvestment Relief). This means your CGT is frozen  As long as you reinvest the full value of the gain you made (less your annual allowance).

The previous deferred CGT will be unfrozen upon the sale of the EIS shares. This depends on how much of the investment you sell. You will need to speak with an IFA about this as we are not regulated to discuss this in any more detail.

Do you have a potential Capital Gain?

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Roll over relief when buying a replacement business asset

To benefit from the rollover relief to reduce capital gains tax, the individual must:

– The replacement business asset must be acquired within 12 months of the original sale

– The rollover relief must be claimed within

– – 1 previous year to disposal

– – 3 years post disposal of an asset

– The assets old and replacement assets must be used within your business

HMRC will extend these time limits if:

– you can demonstrate that you had a firm intention to acquire new business assets within the time limit

– you were prevented from meeting the time limit by some fact or circumstance beyond your control

– after being prevented from meeting the time limit, you acted as soon as you reasonably could

The types of activities that benefit from rollover relief to defer CGT

The following types of businesses will benefit from the CGT rollover relief:

– Trading

– carrying on a business of furnished holiday lettings

– occupying commercial woodlands and managing them commercially to make a profit

– carrying on a profession, vocation, office or employment

– providing an asset to your company

– disposing of land by a compulsory purchase

If you let accommodation, you can treat it as a business of furnished holiday lettings if it meets the conditions set out on page UKPN 3 of the ‘UK property notes’.

Examples of rollover relief

HMRC provides an excellent example of rollover relief: You sell your shop for £75,000 and buy a new shop costing £90,000. If you claim relief, you will not pay tax on the gains made on the sale of the old shop until you sell the new one.

You will still pay Capital Gains Tax If you buy a replacement business asset that is less valuable than the asset sold. You sell your shop for £100,000 and buy a new shop for £90,000. The £10,000 may be taxable as it is less than the original asset proceeds.

You cease trading as a newsagent and sell your shop. Later you buy a grocer’s shop and start trading again. If your grocery trade began within 3 years of the end of your previous trade, you could defer the gain on your shop’s sale.

You dispose of an old business asset for £80,000, making a gain of £30,000. It is intended to reinvest only £60,000 in acquiring new assets. You can defer the tax on £10,000 of the gain. £20,000 of the disposal proceeds are not to be used to acquire new investments, and so a gain of that amount is still charged to tax.

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Use a deed of trust to minimise Capital Gains Tax

A deed of trust is sometimes referred to as a declaration of trust. It is a legal document to say who has the beneficial entitlement of an asset. In this case, the rental income of a buy to let property.

If you are selling a property, you may be liable to Capital Gains Tax (CGT). Each person receives an annual CGT allowance of £12,300 before any tax is paid. If a couple owns a property and is sold, then the first £24,600 is tax-free. After that, the gain is taxed on the investment property at 18% for basic rate taxpayers and 28% for high rate taxpayers.

A deed of trust may also be used to minimise CGT liabilities as you can utilise one another’s CGT annual allowances. Not only that, but if done correctly, you can also identify the correct % allocation to maximise the basic rate tax band for CGT purposes.

This is more significant if you are married and the property is in one person’s name.

We have helped hundreds of UK property investors to minimise the impact of CGT using a deed of trust.

How do I complete a HMRC UK Taxable Capital Gains Tax return? 

Paying UK Taxable Capital Gains Tax on a property is relatively straightforward.

Once you have worked out your UK taxable capital gain if they are above your Capital Gains Tax allowance, you need to report them to HMRC.

Taxable Capital Gains Tax can be reported in two ways:

– Instantly via HMRC’s real-time CGT service online

– Annually in a Self-Assessment tax return if done within 30 days of selling the relevant property

If you opt to complete a Self-Assessment tax return, you must register with HMRC.

You can schedule a Capital Tax Gains consultation with one of our property accountants to assist you.

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Avoiding CGT late filing penalties and payment penalties

CGT rules change often. It is important to know how and when to report capital gains tax correctly.

There are different ways to report UK residential properties sold since 6th April 2020. Likewise, there are various ways to report UK residential property sold before 6th April 2020, namely the self-assessment tax return that needs to be filed by 31st January each year.

You will need to make a taxable capital gains tax computation for each gain or loss that you report. Here is where you’ll find that accurate record keeping is your best ally. You can also use our CGT calculator to identify the tax liabilities in some instances.

There are many elements of detail that you will need to obtain when submitting the CGT computation to HMRC within 30 days of the disposal:

– Date of original purchase and sale of an asset
– Capital purchase costs and legal fees associated
– Sales price less any agency and legal fees
– Capitalised costs during the holding period of the asset

It is essential to comply with the 30-day reporting rule when selling UK property. If you fail to do so, you may find that you’re subject to penalties and interest.

If you are a non-resident and sell a UK property, you must still report the asset disposal within 30 days. This 30 day CGT reporting rule applies to non-residents even if you do not owe capital gains tax.

Do you have a potential Capital Gain?

Tell us about your potential Capital Gain so that we can help you minimise your tax liability

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What if the 30 day reporting of Capital Gains Tax is incorrect? Use a capital gains tax accountant

You should have all the relevant information when you sell a buy to let property when submitting your CGT 30-day report. However, more information may arise when submitting your self-assessment tax return.

You will have more tax to pay on 31st January if it is found that you owe more CGT to HMRC than you initially disclosed and paid in the 30-day report.

Equally, you are likely to get a tax credit on your self-assessment tax return if you have overpaid CGT to HMRC on the 30-day reporting.

Reporting CGT for asset disposals for non-residents

HMRC state that you must report the disposal online using the non-resident Capital Gains Tax return by the 30-day deadline, even if:

– you’ve no tax to pay

– you’ve made a loss

– you’re registered for Self Assessment

UK taxable capital gains tax is charged on disposals of “UK property” directly or indirectly owned by non-UK resident individuals. “Non-resident” includes the overseas part of a split-year. Such disposal is referred to as a Non-Resident CGT (“NRCGT”) disposal (TCGA 1992, s.14B).

Direct ownership means they own the asset (or a portion of it) in their name. Indirect ownership means that they own shares in a company that owns such assets.

UK residential property means a dwelling either used as a residence or suitable for use and is outside the charge were sold before 5th April 2015. Commercial property capital gains are outside the charge were made before 6th April 2019.

If there was a change of use of the property (or if the property was in mixed residential and non-residential use), a “fair and reasonable apportionment” of the gain could be made to reflect any time the property was not residential (TCGA 1992, Sch.4ZZB para 6) up to 6th April 2019.

In summary:

– On UK residential property, the part of the gain arising after 5th April 2015 is chargeable to CGT (as this was the date the legislation took effect for residential property). Similarly, only the post-April 2015 element of a capital loss is allowable.

– On UK commercial property, the part of the gain arising after 5th April 2019 is chargeable to CGT (as this was the date the legislation took effect for commercial property). Similarly, only the post-April 2019 element of a capital loss is allowable.

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How to calculate taxable Capital Gains Tax for UK non-residents 

There are three methods for calculating the chargeable gain or allowable loss.

 – Method 1. The default method: This requires the property to be valued (“rebased”) at 5th April 2015 for residential and 6th April 2019 for commercial. The chargeable gain or allowable loss is the difference between the sale proceeds and the value on 5th April 2015/19. April 2015/19 property values will be subject to agreement with HMRC.

 – Method 2. The straight-line time apportionment method calculates the gain by deducting the original cost from the sale proceeds. The resulting gain or loss is then apportioned with only the post 5th April 2015 proportion being charged or allowed for residential and post 6th April 2019 proportion being charged or allowed for commercial property.

 – Method 3. The retrospective method calculates the gain or loss by deducting the original cost from the sale proceeds. In this case, the whole of the gain is chargeable.

How does UK CGT affect our American readers?

Americans who invest in London buy to let properties may pay CGT in the United Kingdom (UK) and in the United States of America (US). Buy to let tax needs to be paid in the UK and US.

Care must be taken not to pay too much capital gains tax to the IRS as you would benefit from a UK tax credit paid to the HMRC on your 1040 tax return.

To learn more, make sure you head over to our sister company Purser Tax that helps British people save tax in the US and Americans save tax in the UK.

It is one thing to be tax-efficient in the UK or the US; it is also tax-efficient across the Atlantic.

This is why you need to get a tax advisor that genuinely understands international tax.

How does this affect Hong Kongers looking to move or invest in the United Kingdom from Hong Kong?

The Inland Revenue Department (IRD), which is the tax authority in Hong Kong does not require you to pay any time on foreign income.

Learn more about our international tax services to help British people that wish to invest or move to the United States or Hong Kong.

How does this affect Spanish readers looking to move or invest in the United Kingdom from Spain?

You must pay tax to The Agencia Estatal de Administración Tributaria, which is a tax authority in Spain. This is because like in America you have to pay tax on your worldwide income.

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