Capital Gains Tax: UK Residents

The sale of assets, such as shares or property, may result in Capital Gains Tax. Gains are calculated on a tax year basis (i.e. 6 April – 5 April), with the taxable amount calculated by adding up all gains and losses in the year.

There is a capital gains annual exemption available each year (£12,300 for 2020/21), which is available to most taxpayers. If an individual’s total gains are below this amount then there is no capital gains tax to pay. For earlier years’ annual exempt amounts, see here.

Calculating the taxable gain on foreign assets

Calculate the capital gain (or loss) on an asset by subtracting the cost of purchase from the sale proceeds.

For assets bought and sold in a foreign currency, calculate the cost basis using the exchange rate on the date of purchase, and calculate the sale proceeds using the exchange rate on the date of sale.

Disposals of Shares

For individuals who are making multiple purchases and sales of shares of the same class in the same company, it is necessary to follow the share ordering rules.

The share ordering rules state that such disposals are to be identified with acquisitions in the following order:

  1. Acquisitions made on the same day as the disposal;
  2. Acquisitions made within 30 days following the day of disposal;
  3. Shares comprised in the ‘section 104 holding’. [The section 104 holding is essentially where all shares that haven’t been matched under (1) or (2) are pooled together, with the cost of each share being the average cost].

Capital Gains Tax Rates

The tax rate for most capital disposals is 10% (if a basic rate taxpayer), or 20% (if a higher rate taxpayer). This includes the gain on sale of shares and non-residential property. Often there is no tax on gains made on UK residential property, as a consequence of Principal Private Residence Relief. However, for such gains that are taxable, higher tax rates apply (see below).

Disposals of Property

Gains on residential property are often not taxed, as most disposals are eligible for Private Residence Relief, either in full or in part. This relief applies where the property has been used as the individual’s main home. If the gain (or a part of a gain) is taxable, the tax rate is 18% (if a basic rate taxpayer), or 28% (if a higher rate taxpayer).

Where a disposal is taxable in full, or in part, it will be necessary to calculate the taxable gain. In making this calculation, many of the costs involved in buying, selling, and making capital improvements to a property, can be used to reduce the taxable gain in the following way:

  • For sale proceeds: deduct estate agent fees, legal fees and other relevant professional fees from the sale proceedsFor cost basis: add stamp duty, capital improvements (new garage, loft conversion, etc), and professional fees on purchase.
  • For cost basis: add stamp duty, capital improvements (new garage, loft conversion, etc), and professional fees on purchase.

Principal Private Residence Relief

Private Residence Relief enables individuals to sell (or otherwise dispose, for example, by gift) their main home without paying tax. Individuals who have not used the property as their main home throughout their period of ownership are still eligible for the relief, though it will be restricted to the gain relating to the period it was their main home. For gains realised after 6 April 2020, the gain attributable to the last 9 months of ownership will also be exempt (prior to 6 April 2020 a longer period applied).

Other periods where the individual is not living in the home may also receive tax relief, as long as the property was their main home both before the period of absence and after that period of absence. This includes the following:

  • Absences of up to three years in total for any reason (not including the two below). Note that absences of over three years mean no relief applies
  • Absences as a result of being employed overseas, where all duties are performed overseas.
  • Absences totalling up to four years where:
    • You are required to work far enough away from the property to make it impractical to use as a home
    • Your employer requires you to live away from the property.
Example

Jenny buys a flat in 2010 and lives in it for a year. The following year Jenny accepts a job overseas and moves country. She returns to the UK in 2017 and lives at the property again until 2020, when she sells the property at a higher price than she bought it for.

As a consequence of being employed overseas, with all duties being performed overseas Jenny will be entitled to full relief under Principal Private Residence Relief, and will not pay any tax on the gain.

Tax Compliance

Any disposal of a residential property that was made on or after 6 April 2020 is affected by new reporting rules. The new reporting rules state that:

If a disposal was made which results in capital gains due (e.g. because it’s not fully covered by Principal Private Residence Relief), then it is necessary to complete a report (which can be filed online with HMRC), and pay the tax due, within 30 days of completion.

The report isn’t required where there’s no capital gains tax due.