Proceeds of sale less any selling costs X
Cost of asset including purchase plus any enhancement expenditure* Y
Capital Gain/(Loss)X-Y
Determination of Asset Cost and Market Value:
If the asset was acquired before March 31, 1982, the cost of the asset is replaced with its market value as of that date, plus any additional expenses incurred for its improvement after that date.
For non-residents, the market value may be determined as of April 5, 2015, for residential properties, and April 5, 2019, for non-residential properties. This is also augmented by any enhancement expenditure made after the respective relevant date, but only if the asset was held on that specific date.
Exclusion of Maintenance and Finance Costs:
Enhancement expenditure does not encompass maintenance or finance-related costs. If you perform work on a property and subsequently sell it immediately, this might be considered as trading income instead of a capital gain.
Date of Disposal for Capital Gains Tax:
It is essential to note that, for Capital Gains tax purposes, the date of disposal is when contracts are exchanged or when the contract becomes unconditional. It does not coincide with the date you receive the funds (completion date), unless both the exchange of contracts and completion transpire on the same day.
Reliefs and Annual Exemption:
Certain reliefs are discussed in other articles. Following the deduction of these reliefs, there exists an annual exemption that is subtracted from the net gains, taking into account any losses incurred during the year.
The annual exemption amount is £6,000 per annum for the tax year 2023/24, decreasing to £3,000 per annum starting from the tax year 2024/25.
Taxation Rates:
With the exception of residential properties, gains are subject to taxation at a rate of 10% on any surplus basic rate band applicable for income tax purposes, and 20% on the remainder.
For residential properties, gains are taxed at a rate of 18% on any surplus basic rate band for income tax purposes, and 28% on the remainder.
If you qualify for Business Asset Disposal Relief, the gain is subject to a tax rate of 10%.
Capital Gains Tax for Non-Residents:
Non-residents generally do not incur Capital Gains Tax unless they dispose of dwellings after April 5, 2015, other land and buildings (including companies holding more than 75% land or buildings) after April 5, 2019, or assets used in a UK trade.
There may be a tax liability if you dispose of an asset and return to the UK within five years of leaving.
For UK Residents:
When selling a residential property and incurring Capital Gains Tax, the profit should be disclosed to HMRC, and the corresponding tax settled within 60 days of the sale’s completion.
For Non-UK Residents:
In the case of any property sale, regardless of whether there is a tax liability, a report must be submitted to HMRC within 60 days of the sale’s completion. If there is a Capital Gains Tax obligation, it must also be paid within this same 60-day period following the completion of the sale.
DISCLAIMER
© Thandi Nicholls Ltd 2023 All Rights Reserved – The above articles are provided for guidance only and may not cover your personal circumstances so you should not rely on them. It is important that you seek appropriate professional advice which takes into account your personal circumstances where you can provide the full facts of the case and all documents related to your case. Thandi Nicholls Ltd t/a uklandlordtax.co.uk, S S Thandi and M S Bains cannot be held responsible for the consequences of any action or the consequences of deciding not to act.