Capital Gains Tax on Jointly Owned Property in the UK: A Complete Guide

Oct 30, 2024

“Learn capital gains-related rules and processes associated with jointly owned properties”

The profit or gain from the sale of fixed assets, such as real estate, is subject to capital gains tax, or CGT. If the property is owned by more than one person such as a spouse civil partner, business partner or any other person, then each person is entitled to pay tax on his share of the profit earned. However, the amount you must pay differs with the type of ownership, allowable allowances, and the particular relief you qualify for. This guide focuses on the general rules on CGT on jointly held property in the UK.

Ownership Types and CGT Implications

The application of Capital Gains Tax (CGT), particularly with relation to exemptions, liability, and tax rates, is greatly influenced by the kind of ownership of an asset.

CGT Implications for Joint Tenants: When owners hold an equal share in a property (50/50), then both owners are liable for CGT on half the total gain each. For instance, A property is sold by two joint tenants for a $100,000 profit. 50% of the gain, or $50,000, must be reported by each tenant on their tax return.
CGT Implications for Tenants in Common Each person who is a tenant in common has a defined share of a property, which may not be equal (e.g., 60%-40%). Each owner is free to sell, give away, or will their portion to third parties. On their proportionate part of the gain, each owner pays CGT. For example, two tenants sell a property for a profit of $100,000. If one owns 60% and the other owns 40%, the gains will be divided accordingly:

60% of the gain = $60,000
40% of the gain = $40,000

Capital Gains Tax Rates and Allowances

The CGT rates and the allowable amounts also differ from one country to another and depend on characteristics such as asset category, holding period and taxpayers’ income. In the UK, the CGT is charged as:

18% for basic-rate taxpayers.
28% for taxpayers with higher and additional rates on gains above the basic rate band.
Every person has an annual CGT exemption of £6,000.

Key CGT Reliefs and Exemptions

In the case of CGT, several reliefs and exemptions can be claimed to mitigate or perhaps even eliminate a taxpayer’s CGT bill.

Private Residence Relief (PRR)

If the property has been the main residence all the years it was owned, then the CGT is exempt. Partial PRR may lower the taxable gain if you only partially resided in a property before you sell that.

Lettings Relief

You may be eligible for up to £40,000 in lettings relief per owner if the property was formerly your primary residence but was later rented out.

Capital Gains Tax on Transfers Between Civil Partners or Spouses

CGT includes any gains made on the sale of assets, but this tax does not apply to transfers between spouses or civil partners. The property transfer can be used for tax gain, for instance, changing the ownership after a year to the partner who earns less and thus reducing the overall CGT which will be incurred in the future sale.

In summary, depending on the ownership arrangement, CGT is divided among jointly owned property. Personal CGT reliefs and allowances are available to each owner, potentially lowering their tax liability. For properties which have been a main home at some point or let out at any given time, Private Residential Relief (PRR) and lettings relief could greatly reduce the amount of tax due on the profit. For buying or selling a property in the UK, turn to Estate Agent Power.