Capital gains tax (CGT) is a tax charged in the UK on the sale of any asset that has increased in value. It is calculated on the difference between the sales proceeds and the original purchase cost. It is a significant source of revenue for HMRC, particularly from residential property disposals, contributing £1.6 billion in the tax year 2023-24. This revenue was generated from a total of 134,000 disposals during that period.
Unlike some other taxes, CGT is assessed separately for husbands, wives, and civil partners, except in cases of inter-spousal transfers, which are treated as no-gain,
no-loss transactions. While calculating CGT is generally straightforward when an individual sells an asset owned individually, complications often arise when partners jointly own the property in question. In this article, we will understand how the capital gains tax is computed on the disposal of a jointly owned property.
Who Pays CGT on a Jointly Owned Property?
When a jointly owned property is sold, it is necessary to identify the person responsible for capital gains tax liability. To identify the chargeable person, the beneficial owner of the property must be determined. The beneficial owner is the person who benefits from the asset. It is generally assumed that the property is equally owned and benefited by both parties, resulting in each person being subject to tax on 50% of the chargeable gain.
However, spouses and civil partners often modify their beneficial ownership in a property through Form 17, declaring the change in beneficial ownership. In such cases, the ownership percentages specified in the declaration will be used to compute each person's capital gains tax.
Even without such a declaration, the gain can be attributed to one individual rather than being split evenly if certain conditions are met. The gain will be assessed as if the property were solely owned by one partner if:
- If one spouse or civil partner paid all the cost of the property, and it is held in the name of that spouse alone.
- If only one spouse or civil partner retains the full disposal proceeds.
Once the beneficial ownership is identified, the taxable gain is allocated to each person based on their ownership share. The resulting gain is multiplied by the applicable rates to compute their tax liability.
Does Ownership Type Affect How CGT Is Split?
Under English and Welsh property law, jointly owned property is held in one of two ways:
Where a property is owned as joint tenants, the co-owners collectively own the whole property rather than distinct shares. For CGT purposes, each joint tenant is treated as owning an equal portion. Two joint tenants each own 50%, three joint tenants each own one third, and so on. If one joint tenant dies, ownership passes automatically to the surviving owner or owners.
Where a property is owned as tenants in common, each owner holds a defined share that can be in any proportion such as 50:50, 60:40, 70:30, or any other split agreed at the time of purchase or subsequently. That share can be left to anyone in a will. For CGT purposes, each owner is taxed on their actual beneficial share of the gain, not an assumed equal portion.
While rental income from jointly held property is subject to a 50:50 income tax default regardless of ownership type, no such override applies for CGT. A married couple holding a buy-to-let as tenants in common in a 70:30 split will each be assessed on their respective 70% and 30% of the gain.
If you currently hold property as joint tenants and wish to move to tenants in common to reflect unequal contributions then this can be done by severing the joint tenancy. Severing the joint tenancy between spouses or civil partners does not itself trigger a CGT charge. A deed of trust should record the agreed shares.
What CGT Rates Apply to Jointly Owned Property?
Although the capital gains tax rates for most disposals are relatively low, the rates for residential property disposals can go as high as 24%, which is a 4% decrease from the previous tax year. The applicable CGT rate is determined by the taxpayer's tax band, making the taxpayer's taxable income a critical factor in calculating the capital gains tax payable. The reason behind this is to charge higher CGT to individuals whose additional sources of income exceeds the basic tax rate threshold. One structural benefit of jointly owned property is that each co-owner receives their own annual exempt amount which is £3,000 per person for the 2024/25 and 2025/26 tax years (reduced from £6,000 in 2023/24 and £12,300 in earlier years).
Tax Band | Other Disposals | Residential Property Disposals |
|---|---|---|
Basic rate taxpayer | 18% | 18% |
Higher and additional rate taxpayer | 24% | 24% |
How is CGT Calculated on a Jointly Owned Property?
Mr and Mrs Shelby are planning to sell their buy-to-let property and have found a buyer willing to pay £600,000. Mr Shelby initially purchased the property for £200,000. Several years ago, Mr Shelby transferred 60% of the beneficial ownership to Mrs Shelby through Form 17 declaration. Mrs. Shelby has no income for the tax year 2024/25. However, Mr Shelby earns £40,000 a year from a part-time job. His taxable income is, therefore, £27,430 (£40,000-£12,570). The portion of his gain that fits within the remaining basic rate band (£37,700 – £27,430 = £10,270) will be taxed at 18%, and any gain above that will be taxed at 24%.
Particulars | Amount |
|---|---|
Sales Proceeds | £600,000 |
Less: legal costs on sales | (£5,000) |
Legal: purchase costs | (£200,000) |
Capital Gain | £395,000 |
As Mrs Shelby has a 60% beneficial ownership of the property, she will be subject to CGT on £237,000 (60% of £395,000). The capital gains tax on the remaining £158,000 (40% of £395,000) will be paid by Mr Shelby. Assuming neither of them has utilised their annual exempt amount for the year, their CGT liability is calculated as follows:
Particular | Mr. Shelby | Mrs. Shelby |
|---|---|---|
Capital gain | £158,000 | £237,000 |
Less: Annual exempt amount | -£3,000 | -£3,000 |
Taxable gain | £155,000 | £234,000 |
Capital gains tax liability: | Cell | Cell |
Basic rate band | £1,848.60 [18% of £10,270] | £6,786 [18% of £37,700] |
Higher rate band | £34,735.20 | £47,112 |
Capital gains tax liability | £36,583.80 | £53,898 |
The total capital gains tax liability for Mr and Mrs Shelby is £90,481.80. They must inform HMRC of the disposal within 60 days of the sale completion date.
Can You Reduce CGT by Adjusting Ownership Before You Sell?
As the illustration above shows, the ownership split between co-owners directly affects how much CGT each person pays. Where one co-owner is a higher-rate taxpayer and the other is not, holding a greater share in the lower-rate owner's name reduces the overall liability.
For spouses and civil partners, transferring a share of the property before sale does not itself trigger CGT. The transfer is treated as no-gain no-loss and the recipient takes on the transferring spouse's original base cost. Any such change must be genuine, documented through a deed of trust, and completed before exchange of contracts, as the CGT position is fixed once contracts are exchanged.
For unmarried co-owners, a transfer of a share is treated as a disposal at market value and may itself trigger a CGT liability. Professional advice should be taken before making any changes to ownership structure ahead of a sale.
Does Private Residence Relief Apply to Jointly Owned Property?
Private Residence Relief (PRR) exempts CGT on gains from a property that has been your only or main residence throughout ownership. Where a property is jointly owned, each co-owner's PRR entitlement is assessed individually meaning two co-owners selling the same property can face very different CGT positions.
A common scenario is a property one partner previously lived in before purchasing jointly, or a former home later let out. The co-owner who resided there qualifies for full or partial PRR; the other, who never lived there, receives none. PRR cannot be shared or transferred between co-owners.
Where PRR applies, it covers the proportion of the ownership period during which the property was the owner's only or main home, plus the final nine months of ownership even if the owner had already moved out before sale.
Married couples and civil partners face an additional constraint: from the point they live together, they can only have one main residence between them. If each spouse owned a property before marriage, they have two years from the date of marriage or civil partnership registration to nominate which qualifies. Miss that window and HMRC decides on the facts. Any jointly owned property that is not the nominated residence stops accruing PRR from the point the couple begin living together.
Lettings relief may further reduce the chargeable gain, but only where the owner continued to live in part of the property while letting out another part. It does not apply where the property was let out after the owner moved out, which covers most buy-to-let landlords.
How is CGT payable on the sale of a residential property co-owned by a resident and a non-resident?
When both co-owners of the property are UK residents, the computation of capital gains tax is straightforward, with each co-owner taxed on their share of the gain. However, when one of the co-owners is a non-resident, complexities begin to arise as there are some major differences.
Non-residents were not subject to CGT on residential property before 6 April 2015, so they are only liable for CGT on the property's value increase since 6 April 2015. In contrast, UK residents are liable for CGT on the entire gain since the purchase of the property. This makes it difficult to determine a fair proportion of the gain. Additionally, non-residents are required to file a Non-Resident Capital Gains Tax (NRCGT) return, while UK residents must file a CGT return.
Let's understand how this works with Joe and Jill's disposals.
Joe and Jill are the co-owners of a residential property in the UK. While Joe is a UK tax resident, Jill is not. Consequently, Joe is subject to capital gains tax and must file a CGT return to inform HMRC of the disposal. Jill, on the other hand, will need to file a NRCGT return instead.
The property was purchased in 2010 for £100,000, revalued to £150,000 in 2015, and sold for £250,000 in the current tax year. As a UK tax resident, Joe is subject to capital gains tax on the entire gain of £150,000 (£250,000-£100,000). In contrast, Jill is only liable to tax on the gain realised since 2015, amounting to £100,000 (£250,000-£150,000).
Since each co-owner owns 50% of the property, Joe's share of capital gain is £75,000 (50% of £150,000), and Jill's share of capital gains is £50,000 (50% of £100,000). This transaction can be summarised as follows:
Joe's capital gains:
Particulars | Amount |
|---|---|
Sales proceeds | £250,000 |
Less: initial purchase price | (£100,000) |
Capital gains | £150,000 |
Joe's share of gains [50% of £150,000] | £75,000 |
Jill's capital gains:
Particulars | Amount |
|---|---|
Sales proceeds | £250,000 |
Less: the value of the property on 6 April 2015 | (£150,000) |
Capital gains | £100,000 |
Jill's share of gains [50% of £100,000] | £50,000 |
The capital gains tax computation procedure and the tax rates remain the same for both residents and non-residents once their share of gains is calculated. Both co-owners must file the applicable CGT returns within 60 days from the sales completion date.
Conclusion
Capital gains tax on jointly owned property is never as straightforward as other properties owned individually. The beneficial ownership share, and the applicable CGT must be identified to calculate each partner's capital gains tax liability. Finding these can be easy when there is a beneficial ownership declaration such as Form 17.
However, in the absence of such declarations, we may need to look at other factors, such as who was responsible for paying the purchase cost and who retained the sales proceeds, etc. Further difficulties develop when one of the co-owners is a non-resident. It is advisable to talk to professional accountants to understand reporting and paying obligations for the disposal of jointly owned properties.
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FAQs
Yes. Each co-owner is assessed to CGT on their own share of the gain and must report and pay their own liability separately, there is no joint CGT return.
Yes. Each co-owner receives their own annual exempt amount, currently £3,000 for 2025/26. On a jointly owned disposal this means up to £6,000 of the total gain is sheltered from CGT in aggregate, provided neither owner has used their exemption against other gains in the same tax year.
The deceased co-owner's share passes to their estate or, where the property is held as joint tenants, automatically to the surviving owner. The surviving owner inherits the deceased's share at its market value at the date of death, which becomes their new base cost for CGT purposes on any future disposal.
UK residents are liable to CGT on gains from overseas property in the same way as UK property. The gain is calculated in the same manner, though foreign tax paid on the disposal may be creditable against the UK CGT liability under double taxation relief. Non-residents are generally not liable to CGT on overseas property disposals.
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