Capital Gains Tax
Capital Gains Tax (CGT) is a tax on gains, or profit, made on the disposal of assets, whether the disposal occurs due to the sale of the asset or gifting. The most common capital gains are realised from the sale of stocks, bonds, precious metals, and property. It is distinct from tax on regular income.
DISPOSING OF AN ASSET INCLUDES
- Selling it
- Giving it away as a gift, or transferring it to someone else
- Swapping it for something else
- Getting compensation for it – like an insurance payout if it’s been lost or destroyed
Where is Capital gains tax?
Capital gains tax is common throughout the world and is particularly high in
- USA
- Canada
- Australia
- the UK
- Ireland
- Germany
- France
- Portugal
- Spain
- Italy
- with Denmark having the highest top marginal rate at 42%
Some countries distinguish between short-term and long-term holdings and property. Most have different rates of taxation for individuals and corporations.
Some countries do not impose any capital gains tax, including the UAE.
Returning to the UK
The UK tax system, like others, operates on a worldwide basis. This means that if you are a returning British expatriate, your income and capital gains will generally be taxable in the UK, regardless of the country in which they arise.
In the UK, you pay capital gains tax on the gain when you dispose of chargeable assets such as:
- Most personal possessions worth £6,000 or more, apart from your car
- Property that’s not your main home
- Your main home if you’ve let it out, used it for business or it’s very large
- Shares that are not in an ISA or PEP
- Business assets
If you make a profit on the sale of certain types of property, the gain after deductions will be taxable at the main rate of either 10% or 20%, depending on your income tax bracket. The rates for residential property not eligible for Private Residence Relief are 18% and 28%.
Even though you may be deemed a non-resident for income tax purposes, you are treated as temporarily non-resident for capital gains tax purposes for up to 5 years. Certain gains made during that time are taxed in the year you return to the UK within five years.
CAPITAL GAINS TAX CALCULATION
It is worth noting the following when preparing a capital gains tax calculation:
- You only have to pay capital gains tax on your total gains above an annual tax-free allowance.
- You do not usually pay tax on gifts to your husband, wife, civil partner or a charity.
- There are different rules concerning non-domiciled spouses and partners.
- Depending on the asset, you may be able to reduce any tax you pay by claiming a relief.
- You may also get relief if there’s a double-taxation agreement between the UK and the country where you dispose of your asset.
- Any net capital losses can be applied before the annual exemption. Unused capital losses are carried forward against future capital gains.
- Trusts and other structures can limit capital gains tax liability, as well as the holding and disposing of assets within a corporation
More tax options
Expats can remain liable for UK inheritance tax without knowing. Most people think only UK assets are subject to UK IHT, but this is not the case. Read more
Pension income is taxable at marginal rates. As such, planning how you receive your pension income is important and careful forethought may result in substantial savings. Read more
Understanding the agreements in place between the country your assets are in and the country you are residing in is an important part of planning, particularly for those retiring overseas with UK pensions. Read more.
What are the tax rules in your country?
We always recommend that you seek professional advice before finalising any declaration or capital gains tax calculation.
