Capital Gains Tax for Foreign Buyers in the UK

For foreign buyers interested in UK property investment, understanding the capital gains tax (CGT) regulations is essential for managing potential profits. Here’s an overview of how CGT impacts non-resident property owners and the key changes to watch for from April 2025.

Related blog: 5 Mistakes Foreign Buyers Make When Purchasing Property in the UK

What is Capital Gains Tax (CGT)?

Capital gains tax is a tax on the profit made when you sell an asset that has increased in value, such as property. In the UK, CGT applies to both residents and non-residents who own property. Since April 2015, non-UK residents have been required to pay CGT on gains made from selling UK residential property.

In April 2019, this rule was expanded to include commercial properties, meaning that any non-resident individual or company disposing of UK property may be liable for CGT.

CGT Rates for Foreign Buyers

The CGT rate varies based on your tax status. For non-UK residents, the rates currently stand at 18% for basic-rate taxpayers and 28% for higher-rate taxpayers on gains made from residential property.

For commercial property, the rates are 10% and 20% for basic and higher-rate taxpayers, respectively. The tax applies only to the gain (the difference between the purchase price and the selling price), not the entire sale amount.

Changes in April 2025: From April 2025, CGT rates for non-resident property owners are expected to increase, with residential property gains taxed at 20% for basic-rate taxpayers and 30% for higher-rate taxpayers. This aligns non-resident rates more closely with those for UK-based investors and increases the importance of CGT planning.

Also related: Understanding Stamp Duty Land Tax in the UK for Foreigners

Annual Allowance

Foreign investors benefit from an annual tax-free allowance, just like UK residents. However, recent changes have seen a significant reduction in the allowance. For the 2024/25 tax year, the annual CGT exemption is set to decrease further to £3,000. Only gains above this threshold will be taxed, so investors need to stay aware of the latest allowance levels to plan their CGT liability effectively.

Upcoming Allowance Changes: From April 2025, the annual allowance may be phased out entirely for non-residents, making it even more essential to plan CGT strategies in advance to reduce potential liabilities.

Reporting and Payment Requirements

When you sell a UK property, you must report the sale and pay any CGT owed within 60 days of completing the sale. This is done using the UK’s online property account system. Failing to report within the deadline can result in penalties and interest, so it’s essential to stay on top of reporting requirements. Even if no tax is due, you are still required to file a return.

Reducing Your CGT Bill

There are several strategies to potentially reduce your CGT liability. One is to deduct allowable expenses, such as renovation costs or professional fees, from the gain amount. Another is offsetting any capital losses from other investments against the gain, reducing your taxable amount. Holding onto your property for the long term can also provide opportunities to plan for CGT more effectively, particularly as allowances and rates may change over time.

Non-Resident Capital Gains Tax (NRCGT)

For non-residents, CGT applies to gains made only after April 2015 (for residential properties) or April 2019 (for commercial properties). This means that any gain is calculated based on the property’s value from those dates rather than the original purchase date, which can help reduce the taxable gain. A property valuation at these key dates is usually needed to support the calculation, so it’s wise to get a professional valuation if you plan to sell.

Planning Ahead

UK tax policies are subject to change, and as of April 2025, both CGT rates and allowances for foreign investors will see impactful shifts.

Working with a tax adviser familiar with UK property tax for foreign buyers is crucial to stay updated on any regulatory changes and to plan effectively to minimise CGT. Keeping good records of your property’s purchase details, improvements, and associated costs will also streamline CGT calculations.

Related blog: Accounting Advice for Buying a Property in The UK

Conclusion

By understanding the ins and outs of capital gains tax, foreign buyers can make more informed decisions and maximise their UK property investments. With upcoming changes in CGT rates and allowances, being prepared and proactive is more important than ever for successful property investment.