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The tax treatment of selling a property is different depending on whether the property was acquired with a view to resale or for rental income and long term investment. Those who acquire or develop 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.
Individuals are subject to CGT at 18% or 28% depending on their level of UK income, and the annual CGT exempt amount is available. Trading income by contrast is taxed at rates up to 45%.
Companies are subject to corporation tax on their gains at the corporation tax rate, currently 19% (17% from April 2020). Indexation allowance is available up to December 2017. Companies are taxed on trading profits at the same rates but without any indexation allowance.
Whether a property is trading or investment is a question of fact which depends primarily on intention at the time of acquisition. Some reliefs such as indexation allowance and rollover relief are available only for investment properties. Some reliefs such as Entrepreneurs Relief and Substantial Shareholding Exemption are only available where a company owns trading property.
Non-UK residents are not generally within the scope of UK CGT but for UK property, they are now taxed in broadly the same way as UK residents, although for non-residents who already owned UK property at April 2019 some favourable rules still apply. More information on how non-residents are taxed on property income and gains can be found here.
For more information or help from one of our property tax specialists, please contact us using our enquiry form.