Capital Gains Rental Property – Capital Gains are made when an asset (such as an investment property) is sold for more than it cost. Capital Losses are made when an asset is sold for less than it cost.
Persons liable to Capital Gains Tax:
- UK Residents are subject to Capital Gains Tax (CGT) on all gains.
- Non-residents are not subject to Capital Gains Tax subject to certain rules. To be outside the scope of UK CGT a disposal must be made by a person after the 5th April following the date of emigration, and in a period of non residence lasting no less than five complete tax years.
It follows that persons who are never UK resident are never liable to UK CGT.
Persons who are UK resident but non-domiciled are only subject to CGT to the extent that the proceeds are remitted to the UK
Calculating Capital Gains and Losses on the disposal of investment property:
The detailed calculation of the taxable Capital Gain arising on the disposal of an investment property is complex and should normally be undertaken by a suitably qualified person.
The cost is taken as the headline price plus all legal costs, stamp duty survey fees etc.
The sale proceeds are the headline price less the agents fees, legal fees etc.
The gain is deemed to have accrued evenly over the period of ownership, which is the later of the date acquired or the 31/3/82, and ends when it is disposed of – the sale completion data.
Any gain accruing when it was your own Principle Private Residence is exempt. (Private Residence Relief)
Where a gain is made on a property that has at any time been your Principal Private Residence the gain accruing in a period of up to three years (excluding the period when it was your Principal Private Residence) is exempt
If the property has been your principle private residence and it has been let as residential accommodation there is a further allowance not exceeding the sum of the previous two items and is capped at £40,000. (Letting Relief)
The cost is deducted from the sale proceeds then the exempt amounts are deducted.
Then taper relief is applied if appropriate (not available on disposals made after 5th April 2008).
Then the personal annual exempt amount is deducted.
The remaining amount is taxed as if it were additional income.
Changes made in the March 2008 Budget:
In respect of disposals made after 5th April 2008 taper relief is not available – the gain will not be taxed as if it were additional income, but a flat rate of 18% will apply.
The relevant date in a property transaction is the date when the contract becomes unconditional (most often the exchange of contract date).
Treatment of Losses arising on the disposal of investment property
Losses may be set off against gains of the same year.
Losses may be carried forward and set off against gains of future years. They must be used at the first opportunity and before taper relief is applied.
Losses may NOT be carried back against the gains of an earlier year (except from the year of death).
Special rules restrict the use of Losses when they arose in a transaction involving a disposal to a connected person.
In certain circumstances an individuals trading losses may be offset against the chargeable Capital Gains of the same year.
By Tom Entwistle,
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