Taxation of capital gains on UK property

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In general the UK only taxes individuals who are UK tax resident to capital gains tax. The main exception is on residential property.

The legislation allows three ways in which such gains can be taxed however in most cases tax will be charged based on the proceeds less the value at 5 April 2015 (or if the property was purchased after 5 April 2015 the cost at purchase).

Non-resident companies have potentially been liable to UK capital gains tax on the disposal of UK residential property since 1 April 2013 if the property was valued at more than £2 million.

That threshold has now dropped to £500,000 and covers most properties in the London area.

Disposals of commercial property by non-resident investors remain exempt from UK capital gains tax.

A word of caution is needed though: the tax rules summarised above assume that the investment in real estate is a genuine investment, made in order to generate rental income and with a view to long-term capital growth.

If however property is acquired with the sole or main object of realising a profit on disposal, with or without any development of the property, any gain on disposal will normally be treated as income rather than as capital gains.

It will therefore be subject to UK taxation as income and the beneficial treatment of capital gains referred to above will not be available.