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If you sell a property that has not been your main residence for the whole period of ownership, you may be liable to Capital Gains Tax (CGT) on any gain. If the property is owned through a limited company, you pay Corporation Tax on any gain.
Capital gains tax (CGT) on the sale of a property in personal ownership
When selling a property that has been in your personal ownership, CGT is payable on the taxable gain. This is calculated by taking the sale price and deducting the original purchase price less any costs associated with buying, selling, or improving the property. The following formula sets this out:
Proceeds of sale less any selling cost
X
Cost of Property including purchase costs plus any enhancement expenditure
Y
Capital Gain/Loss
X-Y
If the property was purchased before 31st March 1982, then cost is substituted with the market value on this date plus any enhancement expenditure after this date.
Non-residents can use the market value on 5th April 2015 for residential properties and 5th April 2019 for non-residential properties plus any enhancement expenditure after the relevant date, where the property was held on the relevant date.
After calculating your taxable gain, you are entitled to an annual CGT free allowance, called the annual exemption allowance (AEA). Your AEA can be deducted from your taxable gain, but only if you have not already used it elsewhere. This is currently £3,000 per person per annum.
CGT is due to the remaining gain and can either be taxed at 18% or 24% depending on your marginal rate of tax.
What if my let property has been my private residence?
Private residence relief
If at any time the property has been your only or principal private residence then you should be entitled to some private residence relief. Married couples, civil partners and unmarried individuals can only have one principal private residence at a time. If it has been fully used as your only private residence and there has been no letting or other business activity carried out at the premises throughout the period of ownership, normally Private Residence Relief will apply in full. If you incur a capital loss on your principal private residence then you cannot claim this loss against other gains. If the property occupies more than ½ hectare (approx. 1.25 acres) then you will have to prove that the additional area is required for the reasonable enjoyment of the property having regard to the size and character of the dwelling otherwise the Private Residence relief will be restricted. The final 9 months are treated as eligible for relief whether you were actually living in the premises or not, provided that you have had the property as your principal private residence at some time. If you are disabled or go into long term care it is the final 3 years that are exempted rather than 9 months. So if you leave the property, let it out for 9 months and then sell it at the end of this period there is no chargeable gain.
Tip: If you are claiming that a property is your principal private residence, remember to tell HMRC that you have changed your address.
Owning more than one residence at a time
If you do have more than one residence which is not let out then you can elect for one or other to be treated as your principal private residence. This must be done within two years of acquiring the second property and once this has been done, the election can be varied. Both properties must be used by you as a residence, so for example, if you have a main residence and a holiday home which you use personally, then you should consider making an election. From 6th April 2015, a property does not qualify for relief where it is situated in a different territory to your place of residence and you do not spend at least 90 days in that property. So if you live in the UK, this does not apply to another property that you own in the UK but you would have to stay at least 90 days in your French holiday cottage in any tax year for it to qualify as an elected principal private residence in that tax year. If no election is made then it is a question of fact and generally, it is the property that is most lived in. Where there are two properties, savings in Capital Gains Tax can be made with careful use of the election. So if as a resident of the UK you bought a holiday home in the UK and sold it 9 months later without making an election, you could have a Capital Gains Tax liability with no relief. However, if you had elected for the holiday home to be your principal private residence and then one week later elected for your normal home to become your main residence again, you would not have a Capital Gains Tax liability on the sale of the holiday home as long as it is sold within 9 months of purchase. This would mean that your normal home would have one week out of the period of total ownership as a chargeable gain but this should be so small that it would be covered by your annual exemption. When the final period was 36 months it was worthwhile considering this route
Corporation Tax (CT) on capital gains on the sale of properties owned by a limited company
When selling property in a limited company, any gains are calculated in a similar way but are subject to Corporation Tax rather than Capital Gains Tax.
The tax rate on any gains ranges from 19% to 25%, but the annual exemption allowance cannot be applied within a limited company.
Reporting requirements
UK residents are required to report any Capital Gains Tax liability and pay any Capital Gains Tax due within 60 days of the completion of the sale where there is a liability to Capital Gains Tax. This must be done through HMRC's Digital UK Property Service. However, if no tax is due (e.g. due to the annual exemption or a loss), an online report is not required.
For non-residents who dispose of a property, they must report disposals to HMRC within 60 days of completion of the sale. Unlike UK residents, all disposals must be reported to HMRC irrespective of whether there is tax to pay or not.
The above reporting requirements do not apply to limited companies.
