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Taxes on selling property

The UK’s tax system for taxing sales of UK property is complex. Recent legislation changes have made it more complex than ever.

The tax treatment is different depending on whether the property is acquired with a view to resale or for rental income and long term investment. Those who acquire for resale are normally regarded as “trading” and profits on sale are taxable as income, whether the property owner is UK or non-UK resident.

Where property is acquired to hold for rental income, this is generally regarded as “investment”. Sales of investment property are normally subject to Capital Gains Tax or CGT for short.

It is often beneficial to be treated as investment rather than trading. Individuals are subject to CGT at lower rates than on trading income, and companies can benefit from indexation allowance, which compensates for inflation. Non-UK residents are in some cases not liable for CGT, whereas they are subject to tax on trading income arising in the UK. It is a question of fact, not taxpayer choice, whether a property is investment or trading.

A special CGT regime (known as “ATED”) applies to residential property owned by a company or other non-natural person. The tax most commonly applies where the property is used by its ultimate owners as a home. As well as a penal capital gains tax rate, the ATED regime also imposes an annual charge and a 15% SDLT (transfer tax) rate on acquisition. There are exceptions to these charges for genuine property traders and investors.

We have more information on ATED.

The CGT position differs depending on whether the taxpayer is UK resident or not. UK residents are normally subject to CGT on sale of all their assets, whether in the UK or overseas. There are special rules for certain individuals who live in the UK, but are not regarded as domiciled here – such individuals are in some cases only taxed on disposals of non-UK assets if proceeds are remitted back to the UK.

For non-residents, the position is more complex. In summary:

  • If a non-resident carries on a trade in the UK through a permanent place of business, tax is charged on gains arising on sale of assets (including property) used for the purpose of the trade.
  • Gains on sale of UK residential property held as an investment are subject to UK tax. There are important exemptions for certain types of communal property and for widely owned companies and funds. We have more information on the CGT system for non-residents owning UK residential property.
  • UK residential property owned by a company or other non-natural person is subject to the special ATED regime – see above. This regime applies equally to UK and non-UK companies and most commonly where the property is used by its ultimate owners as a home.  We have more information on the ATED tax charges.
  • Individuals who have been UK resident who are temporarily non-UK resident can be subject to UK tax on capital gains made while non-resident if they return to the UK.
  • Where property is acquired or developed with a view to resale, the gain on sale can sometimes be taxed as income under anti-avoidance rules – these rules apply to both UK and non-UK residents.

Other than as above, non-UK residents are not normally liable to tax on sales of commercial property held as an investment.

For more information or help from one of our property tax specialists, please contact us using the enquiry form below.