If you sell a property, other than your main home, or an asset that has increased in value while you have owned it, you will need to pay capital gains tax on the profit.
Like income tax, capital gains tax is linked to your residence status. If you are UK resident and domiciled you will need to pay tax on any profits made worldwide, unless the country concerned has a double-tax-relief arrangement with the UK. If you are not resident in the UK you pay tax on any land or property profits in the UK.
What are the capital gains rates for 2021/22?
There are two bands in place, depending on your income, and the rates for each are set out below:
Standard capital gains tax rate
If you are a basic-rate taxpayer, you need to work out your taxable income and add your taxable gains, then deduct your tax-free allowance. If the result is within the basic income tax band, you will pay:
- 18% on residential property;
- 10% on other assets.
If your gains are partly within the basic income tax band but also exceed that, the excess part will be taxed at the higher rates below.
Higher capital gains tax rate
If you are a higher-rate taxpayer, or an additional rate taxpayer, or to the extent that the gains take you over the limit of the basic rate band, you will pay:
- 28% on residential property;
- 20% on other assets.
What is exempt from capital gains tax in 2021/22?
- Each person has an annual exemption of £12,300 (frozen until April 2026);
- Trusts have an annual exemption of £6,150 (frozen until April 2026);
- Your main residence (although there are many detailed rules e.g. about periods where not occupied, and about the extent of the garden and grounds that go with the dwelling, which needs careful attention with larger properties) ;
- Gifts to charities or your spouse or civil partner.
Business assets disposal relief and investors’ relief
You may be eligible for business assets disposal relief (BADR), formerly entrepreneurs’ relief (renamed in March 2020), if you dispose of all or part of your business as a sole trader or business partner. This is taxed at 10% for amounts up to £1 million, and then at 20%.
You may receive investors’ relief if you sell qualifying shares in an unlisted share trading company held by individuals. This is taxed at 10% subject to a limit of £10 million. Qualifying shares are those newly issued to the individual, on or after 17 March 2016, and held for a period of at least three years from 6 April 2016.
You must report gains to the UK’s tax authority, HM Revenue and Customs (HMRC) if the proceeds are four times the annual exemption, i.e. over £49,200 in 2021/22, or the gains exceed the annual exemption. A claim for loss relief must be made to HMRC within four years in order to be able to use that loss against future gains.
Capital gains tax returns for sale of UK residential property
Capital gains tax returns must be submitted to HMRC within 30 days of completion, and any capital gains tax paid by that date, on sales of UK residential property where there is capital gains tax to pay.
For non-UK residents a capital gains tax return must be submitted to HMRC and any tax paid within 30 days of completion for all direct or indirect disposals of UK land and property, irrespective of whether there is any tax to pay.
What are double tax relief and unilateral relief?
The same gains may be taxed in more than one country, but you may be able to avoid paying tax twice if either unilateral relief, or double-tax-relief applies.
If you are unclear whether you need to pay capital gains tax, or at what rate, you may wish to speak to a professional tax advisor.