Selling Investment Property and UK Capital Gains

Published on 02 August 2005
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UK capital gain taxation rules on the sale of investment properties depend on the residence and domicile status of the vendor and also on the physical location of the investment property being sold.

There are some pretty simple hard and fast rules to understand and bear in mind when it comes to selling investment property and UK capital gains and this article details them for you.

If the owner of the investment property for sale is resident in the UK, ordinary resident in the UK and of UK domicile then the UK tax man actually requires capital gains tax be paid on profits arising from worldwide assets held - less the usual annual CGT allowances and exemptions. 

This means that if you own an investment property overseas but are UK resident and UK domiciled you will be liable to pay UK capital gains tax on any profits you generate from the sale of your overseas investment property.  There are of course many double taxation agreements in place between the UK and other countries which mean that you will not be taxed twice on gains made.

If the property owner is UK domiciled but neither resident nor ordinary resident in the UK then they are not usually liable to pay UK CGT.  There are a number of exceptions to this rule however and if you are selling a UK based investment property and have only just expatriated to take up temporary residence elsewhere you should seek taxation advice from an accountant in the UK or from the Inland Revenue directly as to your potential liability. 

If you emigrate for a brief period before returning to the UK you may have to back pay tax on any capital gains that arose from the sale or disposal of assets you held in the UK prior to your departure but which you sold on during your period of absence.  This applies if you were resident in the UK for at least four out of the last seven tax years before you expatriated and if your period of expatriation was for less than five complete tax years.

If the investment property owner is not of UK domicile but has UK residence and the property for sale is physically located overseas they will only become liable for UK CGT on any gain made from the sale based on how much of that gain is remitted to the UK.  If the investment property for sale is physically located in the UK they will be liable for UK CGT on the entire gain less all the usual allowances and personal annual capital gain exceptions.

If the investment property being sold is located in the UK and was formerly the vendor’s primary residence the vendor may be able to reduce his overall capital gain liability depending on how long ago and for how long the property was his primary residence.

If the investment property being sold was a dedicated holiday home that was let out on a short term basis fully furnished, any capital gain is subject to special taxation treatment including taper relief.  But it is quite tricky to fulfill all the criteria set for any relief obtainable and it is necessary to seek taxation advice in this instance.

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