If you're a UK resident living abroad as an expat and you wish to sell your property, you may need to pay capital gains tax in the UK. There are also circumstances where you may need to pay capital gains tax even if you are not a UK resident, so it’s important to take this into account as part of your tax planning.
What is capital gains tax?
Capital gains tax is a tax that is owed when you sell or ‘dispose of’ something that you own, assuming it has increased in value.
In the UK, it is most often paid on the sale of property that is not your main residence, on shares that are not in an ISA or PIP, or on business assets; although it is also due on any personal possession valued over £6,000 (excluding most vehicles).
You may be liable to pay capital gains tax on property that you sell, no matter where in the world it is located. If you become a non-UK resident for any length of time and then return, you may be liable to pay capital gains tax on any property you sold while you were a non-resident.
Other countries all have their own definitions of when capital gains tax is levied, and upon which assets. As soon as you start mixing tax systems from different countries, things can get very complicated extremely quickly, so it’s always best to consult with a professional if at all unsure.
How is capital gains tax calculated?
Capital gains tax in the UK is only charged on profit over the annual capital gains tax allowance (also called the annual exempt amount), which is currently set at £12,300. If no profit is made from the sale, or if the profit is below this amount, no capital gains tax will be charged.
When an asset is sold, the profit from that sale will be calculated using the difference between the purchase price and the sale price, less any expenses such as estate agent fees, solicitor’s fees, advertising etc. Additional expenses accrued upon the original purchase of the asset, such as stamp duty, survey fees, and land duty may also be deducted.
The amount of profit left over after these deductions are made is known as the ‘chargeable gain’, and capital gains tax is levied on this amount.
How much is capital gains tax?
UK capital gains tax is split into two categories: property (such as your second home, business premises, buy-to-let investments, land, or inherited property) and all other assets. Property is charged at a higher capital gains tax rate than other assets such as jewellery or other possessions.
Capital gains tax on property is split into two bands, the basic rate and the higher rate, charged at 20 per cent and 28 per cent, respectively. Capital gains tax on other assets is also split into a basic rate and higher rate, but the rates are lower, at 10 per cent and 20 per cent respectively. Whether a sale is charged at the lower rate, the higher rate, or a combination of two rates depends on the total taxable income of the person making the sale.
If the person making the sale is a higher rate taxpayer (i.e. their total taxable income was £50,001 or more for the most recent tax year), the entire chargeable gain will be taxed at the higher rate.
If the person making the sale is a basic rate taxpayer (i.e. their taxable income for the most recent tax year was £50,000 or lower), then they will pay the lower, basic rate on the proportion of their basic rate band that is available.
For example, if someone had income totalling £32,000 for the tax year and sold a property for a total chargeable gain of £28,000, the first £18,000 of this would be charged at the basic rate of 20 per cent, and the remaining £10,000 would be charged at the higher rate of 28 per cent.
The total tax calculation for this example would therefore be as follows:
£18,000 x 20% = £3,600
£10,000 x 28% = £2,800
Total capital gains tax due = £6,400
The basic capital gains tax rates of some other European countries are as follows (please note that exemptions and modifications may apply):
- France: 30 per cent
- Spain: 23 per cent
- Portugal: 28 per cent
- Italy: 28 per cent
- Germany: 26.375 per cent
- Ireland: 33 per cent
- The Netherlands: 30 per cent
When do you pay capital gains tax?
You pay capital gains tax whenever an ‘asset’ is sold for a profit, assuming the profit is greater than the capital gains tax allowance.
The definition of an asset is broad, but in the UK it typically includes:
- Most personal property worth over £6,000, excluding vehicles for personal use.
- Property that is not your personal home.
- Your main home if you’ve let it out (excluding lodgers), used it for business, or if it is extremely large.
- Shares that are not part of an ISA or PIP.
- Business assets.
You may also have to pay capital gains tax on the sale or disposal of certain crypto-currencies like Bitcoin.
Other countries may have their own definitions of an asset and their own exemptions, thresholds and/or allowances. These are many and varied, so if unsure it’s best to consult a professional with expertise in the tax laws of the country in question.
How do you calculate capital gains tax on overseas property?
If an individual chooses to sell their overseas property as a resident, they will be subject to all the local capital gains tax laws of the country they are resident in. These vary from country to country. If selling an overseas property while resident in the UK then different rates may apply, but capital gains tax will still be payable in the country of the sale.
If an individual resident abroad chooses to sell their UK property, then it is possible that capital gains tax will be deducted in both the country of residence and the UK. This depends on the country of residence’s tax system but Spain, for example, levies capital gains tax on overseas sales. The UK government has signed ‘Double Taxation Treaties’ with many countries (including Spain) in order to work out exactly where capital gains tax is due in these situations.
Capital gains tax for overseas property can be an extremely complicated subject, so it is highly recommended that you consult an expert in such matters before proceeding with any sale.