How much is Capital Gains Tax for UK resident taxpayers, trusts, non doms, expats and non-resident individuals.
The general position is that capital gains tax is a tax that is levied on gains arising from the disposal of certain types of asset.
As well as taking in the type of asset being disposed of, it is also important to asses the status of the person disposing of the asset as well. For example, a non-resident individual or entity might be outside the scope of UK capital gains tax even where the asset is in the UK.
Similarly, an individual’s domicile might also have an impact on the position. Other entities or ‘wrappers’ might also benefit from particular exemptions and reliefs – for example, pension schemes and ISAs.
In this article, we provide a summary of the general position of capital gains affecting UK resident taxpayers, trusts, non doms, expats and non-resident individuals.
How much is capital gains tax for the self-employed and partnerships?
A self-employed person, or someone operating in a partnership, will usually be liable to capital gains tax to the extent that any gains exceed the annual exemption. This is usually referred to as the taxable gain.
Generally, the following rates will apply to that taxable gain:
|Individuals||Capital Gains Tax Rate 2017-18|
|Basic rate taxpayer – most chargeable assets||10%|
|Basic rate taxpayer – on residential property (where not covered by main residence relief)||18%|
|Higher rate taxpayer – most chargeable assets||20%|
|Higher rate taxpayer – on residential property (where not covered by main residence relief)||28%|
|Entrepreneurs’ relief – lifetime cap of £10 million||10%|
|Investors’ relief – lifetime cap of £10 million||10%|
How much is capital gains tax: trusts
While trusts can offer benefits in resect of protection and control for asset owners, there are wider tax planning implications to consider of using this type of vehicle – this will include a consideration of the capital gains tax position at various relevant times.
Capital gains tax in respect of trusts may be payable when:
- Transferring assets into a trust;
- When Trustees sell an asset;
- When a beneficiary receives some or all of the assets from a trust; or
- When all trustees are no longer UK resident.
Trustees (or personal representatives of a person who has died) will usually be liable to pay capital gains tax, at the prevailing tax rate:
|Trustees||Capital Gains Tax Rate 2017-18|
|Rate for most chargeable assets||20%|
|Rate for residential property||28%|
How much is capital gains tax for non doms?
Non-UK domiciled individuals residing in the UK will, in basic terms, always be subject tax on gains on UK assets.
However, if they are taxed on the remittance basis, they should only be subject to capital gains tax on foreign gains if these are brought to, or otherwise enjoyed in, the UK.
This remittance basis is free of charge and applies automatically until such a time that a non dom has been resident in the UK for 7 out of the previous 9 tax years. After that, the non dom will have to pay for the privilege of leaving his or her foreign income and gains offshore without suffering tax. This is called the remittance basis charge.
It is worth stressing that even where one is taxable on the remittance basis one is still taxable on foreign income and gains brought to the UK
Under recent rule changes, the remittance basis of taxation is no longer available where non doms have been resident in the UK for 15 out of 20 tax years. It is from this point they will be ‘deemed domiciled’ for all UK tax purposes.
How much is capital gains tax for UK property owning expats and non-UK residents?
An enduring principle of UK taxation has been that a non-UK resident investor, save for a few anti-avoidance provisions, is not subject to UK CGT.
However, this rule is now severely blurred. Firstly, since April 2015, non-UK residents, or expats, with a UK non-residential property incur UK capital gains tax on the proportion of any gains that have arisen after April 6th 2015.
The applicable rate will be determined by your income band:
- 28% higher rate taxpayer
- 18% basic rate taxpayer
Particularly affected are expats and non-UK residents owning UK rental properties.
The rule change has caused many property owners to review their tax position and the financial status of any UK property portfolio, taking wider tax planning considerations into account (such as IHT).
Secondly, at Autumn Budget 2017, it was announced the the CGT rules would be extended for non-UK investors in UK commercial property. Both these new rules would, and the residential rules would be extended to, include gains on the sale of shares in property rich companies. These rules are under consultation but are expected to arrive by April 2019.
How much is capital gains tax for UK expats?
Under current rules, an individual now has to hold non-resident status for a minimum of five complete UK tax years to take full advantage of his or her non-UK residence status when disposing of assets.
Up until this five-year mark, you are treated as ‘temporarily non-resident’ for capital gains tax purposes. If you return to the UK before the five-year threshold, relevant gains made during that time will be taxed in the year you return to the UK.
The main carve out to this rule is for assets that were purchased after you left the UK.
There are also double taxation issues to account for which will be dependant on your host country and the governing DTA rules with the UK.
Planning will be essential to ensure you are both meeting your liabilities under current rules in all relevant jurisdictions, and making optimum use of reliefs and exemptions where possible.
How much is capital gains tax: using exemptions
Whatever your personal circumstances, a key consideration when calculating your capital gains liability is the availability of certain CGT exemptions.
Seeking professional advice will ensure you are making full and effective use of these exemptions, which include:
- The sale of your only or main residence (note CGT liability will arise in relation to parts of the property used for business purposes such as renting)
- Personal possessions of a value less than £6,000
- Transfers of assets between spouses and civil partners
- Wasting assets i.e. where asset value decreases over time
- Personal cars
- Gifts to charity
- SAYE savings certificates and premium bonds
- Lottery winnings and other gambling prizes
- Life assurance policy of the original owner
How much is capital gains tax: using reliefs
Where you are liable to CGT on the disposal of an asset you should also consider whether there are any applicable reliefs. Always seek advice in this regard because, unfortunately, the tax rules have grown increasingly complex and fluid and even benign, statutory reliefs may contain bear traps for the unwitting:
- Rollover/holdover relief on replacement of business assets – allowing you to defer the CGT on a gain of a business asset where this is matched with a replacement of a new business asset in the period commencing one year before and ending three years after the disposal.
- Business incorporation relief – available when you transfer your business into a limited company in exchange for shares.
- Holdover gift relief – on some gifts of business assets, or gifts made into trusts mean the tax does not become payable until the person, or trustee who receives the gift disposes of it.
- Entrepreneurs’ relief – for disposals after 5th April 2008. This provides for an effective rate of 10% on the disposal of all or part of your business. There is a lifetime limit of £10 million applicable.
How much is capital gains tax? Enterprise Tax Consultants can help.
As specialist tax advisers, we can assist with all aspects of capital gains tax, including advice on which capital gains tax rate applies to you, as part of an effective approach to tax planning.
We have particular expertise in advising non doms and non residents, where cross-border liabilities and the myriad of tax rules can result in confusion and error.
We offer the following services, among others:
Contact us for a no-obligation initial conversation about Capital Gains Tax planning with one of our chartered tax specialists.