Capital Gains Tax (CGT) is paid on gains made while selling a property or an asset. In almost every country in the world, the taxpayer must pay a certain amount of CGT on the chargeable gains. Capital Gains Tax in the UK is paid at various rates according to the tax-paying bracket of the individual and the type of property.
CGT rates in the UK are relatively similar to many European countries. Europe, being notorious for higher tax rates, makes the UK’s CGT rates higher in comparison to other countries. In addition, the upcoming Autumn Budget is predicted to increase the CGT rates in the UK further. Let us explore how CGT is charged in the UK and other countries.
How is CGT charged in the UK?
Capital Gains Tax in the UK is paid on the chargeable gains while selling a property, land, or any other asset. The rate of CGT you pay depends on whether you are a basic rate taxpayer or a higher rate taxpayer. Unlike other countries, Capital Gains Tax is paid separately and is also reported in your Self Assessment Tax Return at the end of the year. The country’s tax authority, HM Revenue and Customs (HMRC), looks over CGT and other taxes in the country. The table below shows the CGT rates in the UK, according to the tax bracket and the type of property.
Tax Brackets | Income Range | CGT Rate on Residential Property | CGT Rate on Assets |
|---|---|---|---|
Basic rate taxpayer | £12,571 to £50,270 | 18% | 18% |
Higher rate taxpayer | £50,271 to £125,140 | 24% | 24% |
There is an annual exemption amount of £3,000, which is the tax-free allowance applicable to every individual.
How is CGT taxed around the world?
Although CGT is taxed in most countries, it is difficult to compare because different countries have different relief, and exemptions available. However, there is also a list of countries that do not charge CGT at all. So, let us explore the details of how CGT is taxed in various countries.
1. Australia
Capital Gains Tax (CGT) in Australia is also paid on profits while disposing of a property or asset. However, CGT is a part of your Income Tax and is not a separate tax. So, there is no set CGT rate, but the Income Tax rate ranges from 19% to 45%. So, if you are a higher-rate taxpayer in Australia, you must pay up to 45% CGT while disposing of an asset. However, there is also a 50% discount for Australian residents who have owned the property for more than 1 year.
2. United States
Capital Gains Tax in the US only applies to profits from the sale of assets held for more than a year, known as long-term capital gains. Currently, CGT rates in the US are 0%, 15%, or 20% based on the tax bracket of an individual for a tax year.
There are some countries in the world that do not charge any CGT rate at all. Among them are the Bahamas, Belgium, the Cayman Islands, Gibraltar, Hong Kong, Jersey, Guernsey, the Isle of Man, the Netherlands, New Zealand, Qatar, Saudi Arabia, Singapore, and the UAE. In addition, Switzerland also does not charge any CGT for the sale of private assets.
Why is CGT Rate Predicted to Increase?
The new government has a huge gap of £22 billion in government funding. So, the UK government is in desperate need of funding for all the sectors and its services to function properly. The government can either raise tax rates or cut down on public services to be able to fill this gap. In addition, the government has promised not to raise Income Tax, VAT, and National Insurance. So, property experts believe a CGT rate hike is most likely.
With the new government’s first budget around the corner, tax experts believe that the CGT will be one of the main targets of the government. It is predicted that CGT rates will be raised to align with the Income Tax rates. If this is the case, CGT can reach up to 45% for additional rate taxpayers.
Another prediction for the CGT on the upcoming Autumn Budget is a Double Death Tax. This means CGT will apply to properties passed down from family members on top of Inheritance Tax (IHT).
Will High Net Worth Individuals Leave the UK if CGT Rates Rise?
Tax rates can directly affect a property investment decision. If CGT rates are raised to align with the Income Tax rates, it would put the UK among some of the highest, like Denmark. Tax experts say that CGT rates higher than 40% will discourage property and other investors from investing in the country.
In addition, many High Net Worth (HNW) individuals are already planning to leave the UK due to various other changes, such as IHT and non-dom changes. So, a CGT rate rise, or the introduction of a Double Death Tax will only drive more HNW individuals out of the country. This can seriously impact the investment, property market, businesses, and, ultimately, the economy of the country.
Some property tax experts believe that a CGT rate of 30% would be mostly effective as the government would be able to raise its revenue without discouraging any investment in the country.
Conclusion
Capital Gains Tax (CGT) is paid on the profits or gains made while disposing of an asset. CGT is charged differently in different parts of the world. The UK currently charges a CGT of 18% for basic rate taxpayers and 24% for higher rate taxpayers when selling a residential property. However, many tax and property experts are anticipating a CGT rate rise of up to 45% in the upcoming Autumn Budget.
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