Capital Gains Tax is taxable on any gain made when an asset is sold or disposed of i.e. when you no longer own it. So for residential property, the most common examples are:
- when you sell your property or give it away as a gift;
- when you transfer the property title to someone else; or
- when you exchange the property for a different property.
It is worth noting that if you own more than one home, there is an exemption from CGT for gains made on your “principal private residence” (PPR) and you must comply with the criteria set by HMRC.
UK individuals each have an Annual Exempt Amount which is an annual tax-free allowance, currently £10,600 for individuals and then any gains above this threshold are charged at 18% or 28% depending on the total amount of your taxable income.
If you, either as an individual or as a company, are not resident in the UK but own property here, then CGT is not relevant even if you sell your UK property and you receive a profit from the sale. However, there is currently no definitive test on the definition of “resident in the UK” and whether you pay CGT on gains made on your UK property will depend on the following:-
- Are you ordinarily resident in the UK i.e. is this where you consider your normal home to be? If so, you will be liable to CGT for each year you are ordinarily resident here.
- Do you use the property in the UK to carry on a trade through a UK branch or agency (even if you are not resident nor ordinarily resident in the UK)? If so, you will be liable to CGT.
- Have you lived in the UK before? If so, you may be liable to CGT depending on how long you were in the UK prior to your departure, when you left the UK and how long you lived abroad.
- When did you leave the UK? If there are fewer than 5 complete tax years between the year of departure from the UK and the year of return to the UK then you would be liable to CGT on any property disposed of during that period.
As part of the 2012 Budget which was announced earlier this year, the Government issued a consultation in connection with CGT. The proposals include an extension of the existing CGT regime to cover any gains made on the disposal of UK residential properties which were owned by non resident, non natural persons e.g. companies, trusts, clubs and associations etc. (but not charities, which are exempt). It appears that the proposal applies when the amount or value of the consideration for the disposal is in excess of £2m. The CGT will be calculated in accordance with the current CGT rules.
The consultation closed in August 2012 and the Government is due to publish a response in the Autumn. The changes are due to take effect from 6 April 2013. You can keep up to date with the progress here.