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.

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 means that any CGT due on the sale of a residential property now needs to be reported and a payment on account of any CGT due made within 30 days of the completion of the transaction.

In practice, this change only applies to the sale of a residential property that does not qualify for Private Residence Relief (PRR). The PRR relief applies to qualifying residential property 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 have inherited and have not used as your main home.

There can be penalties and interest charged if CGT due on the sale of a UK property is not paid within 30 days of the sale. 

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.