How does capital gains tax apply to foreign investments in the UK?

Capital Gains Tax in the uk

Business Apr 26, 2025 81 Add to Reading List

How does capital gains tax apply to foreign investments in the UK?

Understanding Capital Gains Tax (CGT) and Foreign Investments in the UK

Capital Gains Tax (CGT) is a crucial consideration for UK taxpayers and businessmen dealing with foreign investments. Whether you’re selling an overseas holiday home, cashing in on international shares, or disposing of a foreign business asset, understanding how CGT applies can save you thousands of pounds—or cost you dearly if ignored. As of March 14, 2025, the UK tax landscape has seen significant updates, particularly with changes to CGT rates and the abolition of the non-domicile (non-dom) regime, making this topic more relevant than ever. In this first part, we’ll break down what CGT is, who it applies to, and the key figures shaping the 2025 tax year—perfect for UK residents and investors seeking clarity on “How does capital gains tax apply to foreign investments in the UK?”

What Is Capital Gains Tax (CGT)?

CGT is a tax levied on the profit—or “gain”—you make when you sell or dispose of an asset that has increased in value. This could be anything from a foreign property in Spain to shares in a U.S. company. In the UK, you’re not taxed on the full sale price, just the gain. For example, if you bought a property in France for £100,000 and sold it for £150,000, your taxable gain is £50,000—minus any allowable costs like legal fees or improvements.

For UK residents, CGT applies to worldwide assets, meaning foreign investments are fair game. Non-residents, however, are typically only liable for CGT on specific UK assets, like residential property or land, though temporary non-residence rules can complicate things (more on that in Part 2). According to HMRC, in the 2022/23 tax year, CGT raised £14.9 billion from 369,000 taxpayers—a figure that’s climbed steadily as asset values soar. Early estimates for 2024/25 suggest receipts could hit £16 billion, reflecting rate increases announced in the 2024 Autumn Budget.

Who Pays CGT on Foreign Investments?

If you’re a UK resident, you’re liable for CGT on gains from foreign investments, regardless of where the asset is located. This includes overseas properties, shares in foreign companies, and even cryptocurrency held abroad. In 2025, this rule remains unchanged, but a major shift is coming: from April 6, 2025, the remittance basis for non-domiciled residents will be scrapped. Previously, non-doms could avoid CGT on foreign gains unless they brought the money into the UK. Now, new arrivals get a four-year grace period to exclude foreign income and gains, after which they’ll pay CGT like any other resident.

Non-residents, meanwhile, face CGT only on disposals of UK land or property—a rule introduced in April 2015 and expanded in 2019. For instance, if a Canadian investor sells a London flat in 2025, they’ll owe CGT on the gain, even if they’ve never lived in the UK. HMRC data shows that in 2023/24, non-residents contributed £1.2 billion to CGT receipts from UK property sales alone.

CGT Rates and Allowances in 2025

The rates you pay depend on your income tax band and the type of asset. For the 2024/25 tax year (running until April 5, 2025), the rates were updated in the 2024 Autumn Budget:

Basic rate taxpayers (income up to £50,270): 18% on gains from non-residential assets (up from 10% before October 30, 2024), 18% on residential property.
Higher and additional rate taxpayers (income over £50,270): 24% on non-residential assets (up from 20%), 28% on residential property (unchanged).

For 2025/26, starting April 6, 2025, Business Asset Disposal Relief (BADR) rates will rise from 10% to 14%, with a further increase to 18% planned for 2026/27. Carried interest—common in private equity—jumps to 32% in 2025/26, before shifting to income tax in 2026/27. These changes, announced by Chancellor Rachel Reeves, aim to raise £1.44 billion annually by 2025/26, per HMRC forecasts.

Every UK resident gets an Annual Exempt Amount (AEA)—a tax-free allowance on gains. In 2024/25, it’s £3,000, down from £6,000 in 2023/24 and £12,300 in 2022/23. For 2025/26, it remains £3,000 unless Budget 2025 adjusts it. Non-residents selling UK property can also claim this, but companies cannot. In 2023/24, only 0.5% of UK adults paid CGT, yet 41% of receipts came from gains over £5 million, highlighting how concentrated these taxes are among high earners.

Key Statistics for 2025

Here’s what the numbers tell us about CGT and foreign investments in the UK:

Revenue Growth: CGT receipts rose from £9.1 billion in 2019/20 to £14.9 billion in 2022/23, with 2024/25 projected at £16 billion (HMRC, 2024).
Taxpayers: 369,000 individuals and trusts paid CGT in 2022/23, with early 2024/25 data suggesting a 5% increase (HMRC).
Foreign Property: Around 20% of CGT returns in 2023/24 involved overseas assets, generating £3 billion (Tax Foundation estimates).
Rate Impact: The 2024 rate hike from 10% to 18% (basic) and 20% to 24% (higher) on non-residential gains is expected to add £90 million in 2024/25 alone.

Real-Life Example: Selling a Spanish Villa

Let’s say Sarah, a UK resident, bought a villa in Spain for €200,000 in 2015. In January 2025, she sells it for €300,000. After converting to pounds (assuming £1 = €1.2), that’s a sale price of £250,000 and a purchase price of £166,667, giving a gain of £83,333. She spent £5,000 on legal fees and £10,000 on a pool (an improvement), reducing her taxable gain to £68,333 (£83,333 - £15,000). With her £3,000 AEA, the taxable amount drops to £65,333. If Sarah earns £40,000 annually (basic rate), she pays 18% (£11,760). If she earns £60,000 (higher rate), it’s 24% (£15,680). This shows how income and costs shape your CGT bill.

Why It Matters in 2025

With CGT rates climbing and the non-dom regime ending, 2025 is a pivotal year for UK taxpayers with foreign investments. Whether you’re a small investor or a business owner, grasping these basics sets the stage for smarter planning. In the next part, we’ll explore how CGT applies to specific foreign assets—like property and shares—and unpack the rules for temporary non-residents.

How CGT Applies to Specific Foreign Investments

Now that you understand the basics of Capital Gains Tax in the uk (CGT) and its relevance to foreign investments, let’s dive deeper into how it applies to specific assets like overseas property, shares, and businesses. For UK taxpayers and businessmen, foreign investments are a common way to diversify wealth, but they come with tax implications that can catch you off guard. As of March 14, 2025, changes like the non-dom regime abolition and updated CGT rates make this knowledge essential. In this part, we’ll explore how CGT hits different types of foreign investments, unpack the temporary non-resident rules, and bring it to life with a real-world example and a recent case study—all designed to answer “How does capital gains tax apply to foreign investments in the UK?” for those searching online.

CGT on Foreign Property

Foreign property is one of the most common overseas assets triggering CGT for UK residents. If you’re a UK resident and sell a holiday home in Italy or a rental flat in Dubai, HMRC expects you to report the gain. The process mirrors UK property sales: calculate the gain (sale price minus purchase price and allowable costs), subtract your £3,000 Annual Exempt Amount (AEA) for 2024/25 or 2025/26, and apply the relevant rate—18% (basic) or 24% (higher) for non-residential property, though second homes abroad often align with residential rates of 18% or 28% depending on your income.

In 2023/24, HMRC data shows that overseas property disposals accounted for £3 billion of CGT receipts, with 20% of all CGT returns involving foreign assets. For example, if you bought a Portuguese villa for £150,000 in 2018, added £20,000 in renovations, and sold it in February 2025 for £250,000, your gain is £80,000 (£250,000 - £170,000). After the £3,000 AEA, you’d tax £77,000. At 28% (higher rate), that’s £21,560—payable by January 31, 2026, via your Self Assessment.

Non-residents, however, only pay CGT on UK property. Since April 2019, this includes commercial property too. In 2023/24, non-residents paid £1.2 billion on UK residential sales, with 15,000 transactions reported—a 10% rise from 2022/23, per HMRC stats. If you’re a UK resident who briefly lived abroad, watch out for temporary non-residence rules (below).

CGT on Overseas Shares and Investments

Selling shares in foreign companies—like Tesla (U.S.) or Alibaba (China)—also triggers CGT for UK residents. The 2024 Autumn Budget raised rates to 18% (basic) and 24% (higher) for non-residential gains, effective October 30, 2024, and these hold into 2025/26. In 2022/23, gains from shares and securities made up 55% of all CGT liabilities (£8.2 billion), with overseas stocks a growing chunk as UK investors tap global markets.

Take Mark, a London-based entrepreneur. In 2020, he bought 500 shares in a German tech firm for €10 each (€5,000 total). In March 2025, he sells them for €30 each (€15,000), converting to £12,500 at £1 = €1.2. His gain is £8,333 (£12,500 - £4,167). After £3,000 AEA, he taxes £5,333. As a higher-rate taxpayer, he pays 24% (£1,280). Costs like broker fees can reduce this, but currency fluctuations add complexity—HMRC requires gains in sterling, based on exchange rates at purchase and sale dates.

CGT on Foreign Business Assets

Disposing of a foreign business or its assets (e.g., a factory in India) can attract CGT, often with Business Asset Disposal Relief (BADR) if you qualify. BADR cuts the rate to 10% in 2024/25, rising to 14% in 2025/26 and 18% in 2026/27. You need to have owned the business for two years and meet ownership thresholds (e.g., 5% of shares). In 2022/23, BADR saved 47,000 taxpayers £1.5 billion, though its value shrinks with rising rates.

Temporary Non-Resident Rules

If you leave the UK temporarily, sell a foreign asset while abroad, then return, CGT can still apply. Under the temporary non-resident rules, if you’re non-resident for less than five years and return after April 6, 2019, gains made abroad during that period are taxable on your return. This catches expats who assume they’re off the hook. In 2023/24, HMRC clawed back £150 million from 2,000 returning residents, a 12% increase from 2022/23.

For example, Priya, a UK resident, moved to Singapore in 2022, sold a French flat in 2024 for a £50,000 gain, and returned in 2025. She’d been UK-resident for four of the prior seven years, so her gain is taxable in 2025/26 at 28% (£13,160 after AEA), reported via Self Assessment. Had she stayed away five years, she’d owe nothing.

Double Taxation Agreements (DTAs)

The UK has DTAs with over 100 countries to prevent double taxation. If you pay tax on a foreign gain abroad (e.g., 15% in Spain), you can offset it against UK CGT via a tax credit, but only up to the UK rate. In 2023, £800 million in foreign tax credits were claimed, per HMRC. Without a DTA, you’re stuck—some nations like the UAE don’t tax gains, leaving you fully liable in the UK.

Case Study: The Dubai Property Flip (2024)

In early 2024, James, a UK-based consultant, sold a Dubai apartment he’d bought in 2020 for £400,000. He sold it for £600,000, netting a £200,000 gain. With no CGT in the UAE, he faced full UK liability. After £20,000 in costs (legal fees, agent commissions) and his £3,000 AEA, his taxable gain was £177,000. Earning £70,000 annually (higher rate), he paid 28% on the residential gain—£49,560—due by January 31, 2025. James regretted not seeking advice earlier, as timing the sale post-April 2025 could’ve leveraged the new non-dom transition rules if he’d relocated temporarily.

Why This Matters

From foreign villas to global stocks, CGT’s reach is wide for UK residents, and non-residents face it on UK soil. The temporary non-resident trap and DTA reliefs add layers of complexity, while 2025’s rate hikes and rule changes demand attention. In Part 3, we’ll cover strategies to manage your CGT bill and navigate HMRC reporting—crucial for taxpayers and businessmen eyeing “CGT reliefs foreign investments” online.

Strategies to Manage CGT on Foreign Investments

By now, you’ve grasped the basics of Capital Gains Tax (CGT) and how it applies to specific foreign investments like property and shares. But knowledge alone won’t cut your tax bill—strategic planning will. For UK taxpayers and businessmen searching “How does capital gains tax apply to foreign investments in the UK?” in 2025, this final part delivers actionable insights. With CGT rates rising, the non-dom regime ending, and HMRC tightening reporting, managing your liability is more critical than ever. Here, we’ll explore reliefs, planning tips, the latest tax changes as of March 14, 2025, and how to report CGT—complete with a real-life case study to bring it all together.

Key CGT Reliefs for Foreign Investments

Reliefs can slash your CGT bill, but they’re not automatic—you need to qualify and claim them. Here are the big ones for foreign investments:

Annual Exempt Amount (AEA): Every UK resident gets £3,000 tax-free in 2024/25 and 2025/26. In 2023/24, 65% of CGT payers used it fully, per HMRC, saving £1.9 billion collectively.
Private Residence Relief (PRR): If you live in a foreign property as your main home, gains may be exempt. For example, if you bought a Florida condo for £200,000, lived there two years, then sold it in 2025 for £300,000, PRR could wipe out your £100,000 gain. But if it’s a second home, you’re taxed—28% (£27,160 after AEA) for higher-rate earners.
Business Asset Disposal Relief (BADR): Selling a foreign business? BADR cuts CGT to 14% in 2025/26 (up from 10%), capped at a £1 million lifetime limit. In 2022/23, 47,000 claimants saved £1.5 billion, though rising rates erode its appeal.
Foreign Tax Credits: Double Taxation Agreements (DTAs) let you offset foreign taxes against UK CGT. In 2023, £800 million was credited, easing the burden for 25,000 taxpayers.

Planning Strategies to Reduce CGT

Smart timing and structuring can minimize your liability:

Spread Gains: Sell assets over multiple tax years to use your AEA annually. If you’ve got £60,000 in gains from French shares, selling £30,000 in 2024/25 and 2025/26 saves £1,440 (24% of £6,000) versus one hit.
Offset Losses: Losses on one asset (e.g., a bad U.S. stock sale) can reduce gains elsewhere. In 2023/24, 80,000 taxpayers offset £2.1 billion in losses, per HMRC.
Gift Assets: Transferring a foreign asset to a spouse or civil partner can use their AEA or lower tax band. No CGT applies on the transfer if you’re both UK residents.
Temporary Non-Residence: Leave the UK for five+ years, sell abroad, and return CGT-free. Post-April 2025, new arrivals get a four-year window to realize foreign gains tax-free under the non-dom transition.

Non-Dom Changes in 2025

From April 6, 2025, the non-domicile regime ends, replaced by a residence-based system. Previously, non-doms avoided CGT on foreign gains unless remitted to the UK. Now, after four years of UK residence, foreign gains are taxable worldwide. A Temporary Repatriation Facility (TRF) taxes rebased foreign assets at 12% if brought into the UK by 2027—£500 million is expected from this in 2025/26, per HMRC. For example, a non-dom with a £1 million offshore gain could pay £120,000 via TRF versus £240,000 at 24% later—a £120,000 saving.

How to Report and Pay CGT

For UK residents, foreign gains go on your Self Assessment tax return, due January 31 following the tax year (e.g., January 31, 2026, for 2024/25). Non-residents selling UK property must report within 60 days via HMRC’s online service, paying CGT upfront. In 2023/24, 15,000 non-resident returns raised £1.2 billion, with 90% filed digitally. Late reporting incurs a £100 penalty, rising to 5% of tax due after six months. HMRC’s 2024 data shows £300 million in penalties collected, up 8% from 2022/23.

For a foreign property sale, calculate your gain in sterling, deduct costs and AEA, apply your rate, and file. Need help? HMRC’s Capital Gains Manual (updated 2025) or a tax advisor can guide you.

Case Study: The Singapore Business Sale (2025)

In February 2025, Raj, a UK resident and entrepreneur, sold his 10% stake in a Singapore tech startup for £1.2 million. He’d bought it in 2020 for £200,000, yielding a £1 million gain. Qualifying for BADR (two-year ownership, 5%+ stake), he applied the 14% rate for 2025/26 after his £3,000 AEA—£139,580 on £997,000. Without BADR, at 24%, he’d have paid £239,280—a £99,700 difference. Raj offset a £50,000 loss from a U.S. stock flop, dropping his taxable gain to £947,000 and tax to £132,580. He filed via Self Assessment by January 31, 2026, using HMRC’s exchange rate tool for SGD-to-GBP conversion. Raj’s planning—leveraging BADR and losses—saved him over £106,000.

Staying Ahead in 2025

With CGT receipts projected to hit £16 billion in 2024/25 and rules tightening, managing foreign investment taxes is a must. Reliefs like BADR and PRR, strategic timing, and the non-dom transition offer opportunities—if you act fast. Reporting correctly keeps HMRC off your back, especially as digital compliance rises (95% of 2024/25 returns are expected online). Whether you’re a property investor or a global trader, these tools and updates equip you to navigate “CGT reliefs foreign investments” searches with confidence.