Category: Capital Gains Tax

In general, there is no CGT payable on a property disposal which has been used as the main family residence. An investment property which has never been used as a private residence will not qualify. This relief from CGT is commonly known as private residence relief.

Taxpayers are usually entitled to full relief from CGT where all the following conditions are met:

1. The family home has been the taxpayers only or main residence throughout the period of ownership.
2. The taxpayer has not let part of the house out – this does not include having a lodger.
3. No part of the family home has been used exclusively for business purposes (using a room as a temporary or occasional office does not count as exclusive business use).
4. The garden or grounds including the buildings on them are not greater than 5,000 square metres (just over an acre) in total.
5. The property was not purchased just to make a gain.

If a property has been occupied at any time as an individual’s private residence, the last 9 months of ownership are disregarded for CGT purposes – even if the individual was not living in the property when it was sold. The time period can be extended to 36 months under certain limited circumstances. There are also special rules for homeowners that work or live away from home.

Married couples and civil partners can only count one property as their main home at any one time.

Capital Gains Tax (CGT) is a tax on the profit made from selling certain assets such as property, shares or other investments. CGT is usually charged at a flat rate of 20% and applies to most chargeable gains made by individuals.

If taxpayers only pay basic rate tax and make a small capital gain, they may only be subject to CGT at a reduced rate of 10%. Once the total of taxable income and gains exceed the higher rate threshold, the excess will be subject to 20% CGT. An 8% surcharge applies to the sale of chargeable residential property (apart from a principal private residence) and carried interest (the share of profits or gains that is paid to asset managers). There is also an annual CGT exemption for individuals that is currently £12,300.

There are a number of asset disposals, which are not subject to CGT.

These include:

• your car
• your main residence – known as a principal private residence, but there are some important caveats to be aware of
• personal possessions worth up to £6,000 each, such as jewellery, paintings or antiques
• stocks and shares you hold in tax-free investment savings accounts, such as ISAs and PEPs
• UK Government or 'gilt-edged' securities, for example, National Savings Certificates, Premium Bonds and loan stock issued by the Treasury
• betting, lottery or pools winnings
• personal injury compensation
• foreign currency you bought for your own or your family's personal use outside the UK

So, if you are lucky enough to win the National Lottery this weekend, it is unlikely you will have to pay CGT!

Note that none of the above exemptions apply when the gains arise through trading or business activities as distinct from occasional sales and disposals.

One of the most often used and valuable of the Capital Gains Tax (CGT) exemptions covers the sale of the family home. In general, there is no CGT to pay on a property which has been used as the main family residence. An investment property which has never been used will not qualify. This relief from CGT is commonly known as private residence relief or PRR.

The rules are different if you live abroad. A CGT charge on the sale of UK residential property by non-UK residents was introduced in April 2015. Only the amount of the overall gain relating to the period after 5 April 2015 is chargeable to tax. In certain circumstances PRR may apply where the property is the owner’s only or main residence.

A UK non-resident that sells UK residential property needs to deliver a non-resident CGT (NRCGT) return and pay any CGT within 60 days of selling a relevant property. The return must be made whether or not there is any NRCGT to be paid, if there is a loss on the disposal, and when the taxpayer is due to report the disposal on their Self-Assessment tax return.

There are penalties for failing to file the NRCGT return within the deadline as well as for failing to pay any tax due on time.

Business Asset Roll-over Relief is a valuable relief that allows the deferral of Capital Gains Tax (CGT) on gains made when taxpayers sell or dispose of certain assets and use all or part of the proceeds to buy new business assets. The relief means that the tax on the gain of the old asset is postponed. The amount of the gain is effectively rolled over into the cost of the new asset and any CGT liability is deferred until the new asset is sold.

Where only part of the proceeds from the sale of the old asset is used to buy a new asset a partial rollover claim can be made. It is also possible to claim for provisional rollover relief where the taxpayer expects to buy new assets but haven’t done so yet. Interestingly, rollover relief can also be claimed if taxpayers use the proceeds from the sale of the old asset to improve assets, they already own. The total amount of rollover relief is dependent on the total amount reinvested to purchase new assets.

There are qualifying conditions to be met to ensure entitlement to this relief. This includes ensuring that new assets are purchased within 3 years of selling or disposing of the old ones (or up to one year before). Under certain circumstances, HMRC has the discretion to extend these time limits. In addition, both the old and new assets must be used by your business and the business must be trading when you sell the old assets and buy the new ones. Taxpayers must claim relief within 4 years of the end of the tax year when they bought the new asset (or sold the old one, if that happened after).

The Capital Gains Tax (CGT) reporting and payment date for UK residents that sell a residential property changed with effect from 6 April 2020. This change meant that any CGT due on the sale of a residential property needed to be reported and a payment on account of any CGT due made within 30 days of the completion of the transaction.

In the Autumn Budget, the Chancellor announced that the deadline for making CGT returns and associated payments on account would be changed from 30 days after completion to 60 days with immediate effect (from 27 October 2021).

In practice, this change only applies to the sale of any residential property that does not qualify for Private Residence Relief (PRR). The PRR relief applies to qualifying residential properly used wholly as a main family residence. 

HMRC has listed the following types of property sales that are affected:

• a property that you have not used as your main home;
• a holiday home;
• a property which you let out for people to live in;
• a property that you’ve inherited and have not used as your main home.

There can be penalties and interest if any CGT due on the sale of a UK property is not paid within the stated 60-day time limit. Relevant disposals that completed before 27 October 2021 remain subject to the 30-day deadline.

Gift Hold-Over Relief is effectively a deferral of Capital Gains Tax (CGT) when assets are given away (including certain shares) or sold for less than they are worth to help benefit the buyer. The relief means that any gain on the asset is 'Held-Over' until the recipient of the gift sells or disposes of them. This is done by reducing the donee's acquisition cost by the amount of the held-over gain.

The person gifting a qualifying asset is not subject to CGT on the gift. However, CGT may be payable where the asset is sold for less than it’s worth. Gifts between spouses and civil partners do not trigger capital gains. A claim for the relief must be made jointly with the person to whom the gift was made.

If you are giving away business assets you must:

• be a sole trader or business partner, or have at least 5% of voting rights in a company (known as your 'personal company')
• use the assets in your business or personal company

You can usually get partial relief if you used the assets partly for your business.

If you are giving away shares, then the shares must be in a company that's either:

• not listed on any recognised stock exchange
• your personal company

The company's main activities must be in trading, for example providing goods or services, rather than non-trading activities like investment.

In most cases, there is no Capital Gains Tax (CGT) to be paid on the transfer of assets to a spouse or civil partner. There is, however, still a disposal that has taken place for CGT purposes effectively at no gain or loss on the date of the transfer. When the asset ultimately comes to be sold, the gain or loss will be calculated based on the original cost when the asset was first owned by the spouse or civil partner.

There are a few exceptions that couples should be aware of when the relief does not apply. This relates to the use of goods which are sold on by the transferee’s business and for couples that were separated and not living together for the entire tax year when the assets were transferred. Spouses or civil partners that lived together at any point in the tax year when the assets were transferred can still benefit from these rules. If a transfer did not qualify then the asset must be retrospectively valued at the date of the transfer and the transferor is liable for any gain or loss.

There are similar rules for assets that are gifted to charities. However, CGT may be due where an asset is sold to a charity for more than was paid for it and less than the market value. The gain in this case would be calculated based on what the charity paid rather than the market value of the asset.

Capital Gains Tax (CGT) is normally charged at a simple flat rate of 20% and this applies to most chargeable gains made by individuals. If taxpayers only pay basic rate tax and make a small capital gain, they may only be subject to a reduced rate of 10%. Once the total of taxable income and gains exceed the higher rate threshold, the excess will be subject to 20% CGT.

A higher rate of CGT applies to gains on the disposal of residential property (apart from a principal private residence). The rates are 18% for basic rate taxpayers and 28% for higher rate taxpayers. Again, if the gain pushes a taxpayer into the higher rate, then CGT will be payable at both rates.

The usual due date for paying any CGT owed to HMRC is the 31 January following the end of the tax year in which the capital gain was made. However, since April 2020, any CGT due on the sale of a residential property needs to be paid within 30 days. In practice, this change only applies to the sale of residential property that does not qualify for Private Residence Relief (PRR).

There is also an annual CGT exemption for individuals that is currently £12,300. A husband and wife each have a separate exemption. Same-sex couples who acquire a legal status as civil partners are treated in the same way as married couples for CGT purposes.

There are various methods at your disposal to reduce or delay the amount of Capital Gains Tax (CGT) when you sell a property that has been used for business purposes.

For example, Business Asset Rollover Relief allows for deferral of CGT on gains made when taxpayers sell or dispose of certain assets (including property) and uses all or part of the proceeds to buy new business assets. The relief means that the tax due on the gain of the property that has been sold is postponed. The amount of the gain is effectively rolled over into the cost of the new asset and any CGT liability is deferred until the new asset is sold. There are qualifying conditions that must be met to ensure entitlement to any relief.

If the main purpose of the business concerns buying and selling property, for example a property development or property trading business, then the business is not liable to CGT when a property is sold.  Instead, properties sold under the name of a Limited company will be liable to Corporation Tax and properties sold under the name of a sole trader or partner will be liable to Income Tax. 

There are also special rules for limited companies that dispose of UK residential dwellings valued at over £500,000 and which are held in a ‘corporate envelope’ (e.g., a company). Qualifying gains made after 6 April 2019 are liable to Corporation Tax.

There is usually no Capital Gains Tax (CGT) to be paid when you sell your main family residence (referred to by HMRC as private residence relief) that has been used as your only or main residence. 

However, there are important points to consider that can affect your entitlement to full CGT relief. These include the following:

Business use

There are special rules for business use of a private residence. Homeowners who work from home do not suffer any restriction to the relief where business use of the home is not related to a specific area e.g., where a home office also doubles as a spare bedroom. Where part of the home is used exclusively for business purposes then part of the proceeds from the sale of the house will relate to a chargeable rather than exempt use.

Main residence

It is increasingly common for taxpayers to own more than one home, and there are issues that homeowners should be aware. An individual, married couple or civil partnership can only benefit from CGT relief on one property. It is possible to choose which property benefits from a CGT exemption but there are special rules which determine the timing and frequency of changing an election and these may need to be considered.

Letting Relief

Homeowners that lived in their home at the same time as tenants, may qualify for Letting Relief on gains they make when they sell the property. Letting Relief does not cover any proportion of the chargeable gain made while the home is empty.

Absences from the family home

If a property has been occupied at any time as an individual’s private residence, the last 9 months of ownership are disregarded for CGT purposes – even if the individual was not living in the property when it was sold. The time can be extended to 36 months under certain limited circumstances. There are also special rules for homeowners that work or live away from home.

Historically, the term bed and breakfasting (sale and repurchase) of shares referred to transactions where shares were sold and then bought back the next morning. This used to have Capital Gains Tax (CGT) benefits by crystallising a gain or a loss but is no longer tax effective over such a short period. The change to the rule occurred in 1998 when new legislation introduced special share matching rules. Under these rules there are limitations including a 30-day waiting period before the shares can be repurchased again.

However, it is possible, under certain circumstances, to use a modified bed and breakfasting type of arrangement to sell an asset only to buy it back again a short time later. A gain could be created to use the annual exempt amount, or a non-resident may bed and breakfast their chargeable assets to establish a higher base cost before they enter the UK tax regime.

Proper advice should be taken before undertaking such transactions to ensure that all tax aspects have been considered. For example, for any bed and breakfast transaction to be effective, there must be a genuine transfer of beneficial ownership of the asset and the share matching rules must be met.

Most individuals hold cryptoassets (such as Bitcoin) as a personal investment, usually for capital appreciation in its value or to make purchases. 

HMRC is clear that these holdings will usually be subject to Capital Gains Tax (CGT) when: 

• selling tokens
• exchanging tokens for a different type of cryptoasset
• using tokens to pay for goods or services
• giving away tokens to another person (unless it is a gift to your spouse or civil partner)
• donating coins to charity 

To check if you need to pay CGT, you will need to work out your gain for each transaction. The way a gain is calculated is different if you sell tokens within 30 days of buying them. If the asset was acquired free of charge, then the market value at the time should be used to calculate the gain. 

Taxpayers can deduct certain allowable costs when working out their gain, including the cost of:

• transaction fees paid before the transaction is added to a blockchain
• advertising for a buyer or seller
• drawing up a contract for the transaction
• making a valuation so they can work out the gain for that transaction

If the taxpayer’s activity is trading, then Income Tax will take priority over CGT and will apply to profits (or losses). 

BADR used to be known as Entrepreneurs’ Relief before 6 April 2020. The name change does not affect the operation of the relief. BADR applies to the sale of a business, shares in a trading company or an individual’s interest in a trading partnership. Where this relief is available CGT of 10% is payable in place of the standard rate. There are a number of qualifying conditions that must be met to qualify for the relief.

You can currently claim a total of £1 million in BADR over your lifetime. The £1m lifetime limit means you can qualify for the relief more than once. The lifetime limit may be higher if you sold assets before 11 March 2020.

Claims for BADR are made either through your Self-Assessment tax return or by filling in Section A of the Business Asset Disposal Relief help sheet. The deadline for claiming relief for the 2019-20 tax year is 31 January 2022.

In general, there is no Capital Gains Tax (CGT) on a property which has been used as a main family residence. This relief from CGT is commonly known as private residence relief.

However, there are some grey areas which might result in CGT being due on the sale of a private residence. One of these areas to consider is when disposing of garden or grounds belonging to the property.

The entitlement to private residence relief is usually only available if the garden or grounds, including the site of the house, is no greater than 5,000 square metres (a little over an acre). Larger gardens and grounds may qualify but only if they are appropriate to the size and character of the property and are required for the reasonable enjoyment of it.

Taxpayers are still entitled to relief if they dispose of land that they occupy as their garden or grounds, up to the permitted area, at the time of disposal. The garden or grounds includes the buildings standing on that land. HMRC’s guidance is clear that a building that is not part of a dwelling house can still qualify for relief if it’s within the permitted area of garden or grounds.

No relief is allowed for land let or used for a business or for land that has been fenced or divided off from your garden for development.

When a taxpayer owns a business as a sole trader or in partnership, a capital gain will be deemed to arise if the business is converted into a company by reference to the market value of the business assets including goodwill. This could give rise to a chargeable gain based broadly on the difference between the market value of the assets and their original cost.

However, in most cases the incorporation of the business will be completed in such a way so as to satisfy the conditions necessary to secure incorporation relief. One such condition is that the entire business with the whole of its assets (or the whole of its assets other than cash) must be transferred as a going concern wholly or partly in exchange for shares in the new company.

It is important to note that where the necessary conditions are met, incorporation relief is given automatically and there is no need to make a claim. The relief works by reducing the base cost of the new assets by a proportion of the gain arising from the disposal of the old assets.

Although the relief is automatic it is possible to make an election in writing for incorporation relief not to apply. An election must be made before the second anniversary of 31 January next following the tax year in which the transfer took place e.g., an election in respect of a transfer made in the 2020-21 tax year must be made by 31 January 2024. The election deadline is reduced by one year if the shares are disposed of in the year following that in which the business was incorporated.