Sa108_notes CGN10 Sa108 Notes
User Manual: CGN10
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For the year ended 5 April 2006
Notes on CAPITAL GAINS
CONTENTS
Section 5 – Indexation allowance
Filling in your Capital Gains Pages
CGN2
Section 1 – General - Filling in Pages CG1 to CG8
Definition of quoted shares or other securities for the
Capital Gains Pages
CGN3
Filling in Page CG1
CGN3
Filling in Pages CG2 and CG3
CGN4
Filling in Pages CG4 to CG6
CGN6
Filling in Page CG7
CGN7
Filling in Page CG8
CGN7
Capital losses
CGN7
Section 2 - A simple guide to Capital Gains Tax
CGN7
Section 3 - An introduction to Capital Gains Tax
CGN8
When does indexation allowance apply?
CGN15
How is indexation allowance calculated?
CGN15
What about losses?
CGN15
Indexation allowance table for disposals after
31 March 1998
CGN16
Which costs attract indexation allowance?
CGN17
What about part disposals?
CGN17
What about transfers to spouses or civil partners?
CGN17
What about assets held at 31 March 1982?
CGN17
What about disposals of shares or securities?
CGN17
Section 6 - Taper relief
CGN18
Introduction
CGN18
What is a business asset?
CGN18
Section 7 - Reliefs and elections
CGN18
Chargeable gains
CGN8
Who pays Capital Gains Tax?
CGN8
Your home
CGN18
Assets
CGN8
Other reliefs
CGN18
Exempt assets
CGN8
Disposals
CGN9
Small receipts
CGN9
Building society mergers, conversions and take-overs
CGN9
Company reconstructions and take-overs
CGN9
●
IR261: Foreign Tax Credit Relief: Capital gains
Allowable losses set against income
CGN10
●
IR276: Incorporation relief
Other taxable gains
CGN10
●
Gains of earlier years
CGN10
IR277: Trusts with settlor interest and trusts for the vulnerable:
taper and losses
●
IR278: Temporary non-residents and Capital Gains Tax
●
IR279: Taper relief
●
IR280: Rebasing - assets held at 31 March 1982
●
IR281: Husband and wife, civil partners, divorce, dissolution
and separation
●
IR282: Death, personal representatives and legatees
Section 8 – Worked examples of gains and losses
CGN21
HELP SHEETS
Help Sheets giving more detailed information about particular tax
rules for capital gains are available from our Orderline and website.
Section 4 - Calculating gains and losses
CGN10
How to calculate gains and losses
CGN10
A simple calculation
CGN10
How is a loss allowed?
CGN11
Carry back of losses
CGN11
Do losses have to be claimed?
CGN11
●
IR283: Private residence relief
How to make a claim for a loss
CGN11
●
IR284: Shares and Capital Gains Tax
Is there a time limit for claiming losses?
CGN12
●
What is the date of disposal (or acquisition)?
CGN12
IR285: Share reorganisations, company take-overs and
Capital Gains Tax
What are disposal proceeds?
CGN12
●
What expenses can be deducted?
CGN13
What acquisition costs can be deducted?
CGN13
IR286: Negligible value claims and Income Tax losses on
disposals of shares you have subscribed for in qualifying
trading companies
What enhancement costs can be deducted?
CGN13
●
IR287: Employee share and security schemes and Capital Gains Tax
CGN13
●
IR288: Partnerships and Capital Gains Tax
●
IR290: Business asset roll-over relief
IR292: Land and leases, the valuation of land and Capital Gains Tax
What incidental costs can be deducted?
SA108 (Notes)
CGN2
CGN15
What is expenditure on establishing, preserving or
defending your title to an asset?
CGN13
●
What is meant by market value?
CGN13
●
IR293: Chattels and Capital Gains Tax
Estimates and valuations
CGN14
●
IR294: Trusts and Capital Gains Tax
Valuations already checked by us
CGN14
●
IR295: Relief for gifts and similar transactions
Who are connected persons?
CGN14
●
IR296: Debts and Capital Gains Tax
What is a wasting asset?
CGN14
●
IR297: Enterprise Investment Scheme and Capital Gains Tax
Is there any adjustment for capital allowances?
CGN14
●
IR298: Venture Capital Trusts and Capital Gains Tax
What is rebasing
CGN14
●
IR299: Non-resident trusts and Capital Gains Tax
What is indexation allowance?
CGN15
●
What are part disposals?
CGN15
IR301: Calculation of the increase in tax charge on capital gains
from non-resident, dual resident and immigrating trusts
HMRC 12/05net
■ NOTES ON CAPITAL GAINS: PAGE CGN1
continued over
For the year ended 5 April 2006
Notes on CAPITAL GAINS
The notes are divided into 8 sections.
Filling in your Capital Gains Pages
Section 1 (pages CGN2 to CGN7) explains how to fill in the
Capital Gains Pages.
Gather together the material you need, such as:
• contracts for the purchase or sale of assets
• invoices for allowable expenditure
• copies of any valuations obtained.
Section 2 (pages CGN7 and CGN8) provides a simple guide to
Capital Gains Tax.
Fill in the Capital Gains Pages if:
• you disposed of chargeable assets in the year to 5 April 2006
worth more than £34,000, or
• you have allowable losses which must be deducted from your
chargeable gains for the year and your chargeable gains before
deducting losses and applying taper relief total more than
£8,500, or
• you have no allowable losses which must be deducted from your
chargeable gains for the year and after applying taper relief your
taxable gains total more than £8,500, or
• you want to claim an allowable capital loss, or make any other
Capital Gains claim or election for the year.
In working out whether the assets you disposed of were worth
more than £34,000:
• if you gave an asset away or sold it for less than its full value, you
should use its market value rather than any sum you received
• include all assets disposed of wherever in the world they are
situated but exclude exempt assets such as cars or shares held
within a PEP or ISA (see page CGN8)
• exclude your home if the whole gain from its disposal is exempt
as a result of private residence relief. It will be exempt if it has
been your only residence throughout the period you owned it
(ignoring the last three years of ownership) and the area of its
garden and grounds disposed of with it did not exceed half a
hectare (see page CGN18)
• exclude assets disposed of to your spouse or civil partner if
you were living together at some time during the tax year.
You are regarded as living together unless legally separated in
circumstances which are likely to become permanent
(see page CGN17).
In working out your total chargeable gains you should include gains
from all assets apart from exempt assets. You should also include
gains attributed to you from trusts and companies and chargeable
gains you have made without a disposal (see pages CGN4, GGN6
and CGN15 for some examples).
If you have to fill in the Capital Gains Pages you must include all
your capital losses for the year which are to be claimed as allowable
losses. If you do not have to fill in the Capital Gains Pages you can
still complete them if you want to claim a capital loss arising in
this year. If you do not do this you have to claim any losses arising
in this year by 31 January 2012 for them to be available to set
against future gains (see page CGN12). If you want to make any
other claim or election for this year you should also do this by
completing the Capital Gains Pages (see page CGN18).
If you are not domiciled in the UK and are chargeable on the
remittance basis then in applying the above limits:
• include the proceeds from any overseas asset disposed of in this
year or an earlier year to the extent that these have been
remitted to the UK during this year
• include in respect of gains arising on the disposal of any overseas
asset in this year or an earlier year only amounts remitted to the
UK during this year.
The following notes, and the Help Sheets, cannot describe all the
possible circumstances in which you may have to pay Capital Gains
Tax. In more complex cases you may need to obtain professional
advice or you can ask for access to the Capital Gains Manual at any
Enquiry Centre. The Manual is also available at www.hmrc.gov.uk
HMRC 12/05net
Sections 3 to 8 (pages CGN8 to CGN24) provide more
detailed guidance.
Section 1 – General – Filling in Pages CG1 to CG8
Before you start completing the Capital Gains Pages you may find
it useful to familiarise yourself with the requirements of these Pages
by reading these notes.
The notes on pages CGN10 to CGN15 will help you to understand
what information you need provide to your Tax Inspector. If
there are any points you do not understand ask us or your
tax adviser for assistance.
For 2005–06 the Capital Gains Pages are split into two sections.
If all of the transactions you undertook in 2005–06 involved quoted
shares or other securities (for a definition of quoted shares or other
securities for this purpose, see the note on page CGN3), and:
• taper relief (see page CGN18) is not available to you to reduce
any of the gains disclosed, and
• you are not claiming any tax reliefs, other than indexation
allowance, which may reduce your gains
you may use the simple grid on Page CG1 to record your transactions.
If you use Page CG1 you should ignore Pages CG2 to CG6 of the
Capital Gains Pages. However, you must always fill in Page CG8
once you have completed Page CG1. You can also use Page CG7
if there is insufficient space in Column F on Page CG1 for any
additional information you wish to provide.
If, however, you undertook a number of transactions involving both
quoted shares or other securities (as defined on page CGN3) and also
other assets, for example unlisted shares or land or buildings, you
must use Pages CG2 and CG3 (and CG4 to CG7 as appropriate) to
record all of your transactions. You must not use a combination
of Page CG1 for some transactions and Pages CG2 and CG3 to
record your other transactions. Although you may need to
consider some extra boxes on Page CG3, this will ensure that any
allowable losses you may have made are allocated so that you take
best advantage of them under the taper relief rules (see page CGN18
and Help Sheet IR279: Taper relief). You will not be required during
completion of your Capital Gains Pages to give any extra information
on Pages CG4 to CG7 for your quoted share or other security
transactions even though you have to record those transactions
on Pages CG2 and CG3 instead of Page CG1.
To summarise, Page CG1 has been designed to help simplify the
reporting requirements for taxpayers who have undertaken only
straightforward transactions. If we need further information to clarify
any of these transactions, we will write to you. For transactions
involving assets other than quoted shares or other securities, or a
mixture of these and other assets, you must always use Pages CG2
and CG3 (and CG4 to CG7 as appropriate). We ask for more
information in respect of the transactions involving assets other
than quoted shares or other securities as these are often more
complex and require greater review. For example you may be
claiming various tax reliefs which reduce your chargeable gains,
or you may have used an estimate or valuation within your
computation and we may need to check the accuracy of the
estimate or valuation with our specialist valuers (see page CGN14).
Again if we need further information to clarify any of your
transactions, we will write to you.
If you think that you will need more than one copy of Page CG1,
or Pages CG2 and CG3 (together with Pages CG4 to CG6 as
appropriate), to give details of all your disposals, take photocopies
before making any entries. Please put your name and tax reference
■ NOTES ON CAPITAL GAINS: PAGE CGN2
For the year ended 5 April 2006
Notes on CAPITAL GAINS
on each photocopy. If you use photocopies of the Pages please
ignore the numbered boxes on all but the final sheet. On the final
sheet make sure the entries in the boxes reflect the totals of all
the transactions covered by the photocopy pages. Alternatively you
may send in computer-generated schedules to replace Page CG1, or
Pages CG2 and CG3 (together with Pages CG4 to CG6 as appropriate),
provided they follow the form of the paper copy of these Pages.
In some situations, if you receive an amount in respect of an asset
which is small compared to the value of that asset, the receipt may
not be treated as a disposal. You will find more details on where
this may apply, and how to fill in Page CG1 or Pages CG2 and CG3
in these cases, under the heading 'Small receipts' on page CGN9.
You are not required to submit any calculations or other supporting
documents unless specified with your Tax Return. If you want to
provide more information to show how you have calculated your
figures, please give the details on Page CG7. If you want to provide
more information or calculations you are welcome to do so. If you
provide calculations you must still complete Page CG1 or Pages CG2
and CG3 (together with Pages CG4 to CG6 as appropriate).
■
Definition of quoted shares or other securities for
the Capital Gains Pages
For the purposes of completing your Capital Gains Pages only,
'quoted shares or other securities' means any of the following:
• shares or securities of a company which were either quoted on
the London Stock Exchange Daily Official List (SEDOL) or listed
on the Stock Exchange throughout the period you held them
(you may ignore any period when the quote or listing was
suspended temporarily)
• shares or securities of a company which were listed on an
overseas recognised stock exchange (see below) throughout
the period you held them (you may ignore any period when
the listing was suspended temporarily)
If you obtained shares or securities as a result of a share
exchange, or other company reorganisation (see page CGN9)
and the shares or securities you originally held were not quoted
or listed throughout the period you held them, you should not
use Page CG1 to record your gains and losses. Instead all of
your transactions should be recorded on Pages CG2 and CG3
• units in a unit trust which was a UK authorised unit trust
throughout the period you held them
• shares in a company which was a UK open-ended investment
company (OEIC) throughout the period you held them.
A list of recognised stock exchanges is available at
www.hmrc.gov.uk or ask us.
■
Filling in Page CG1
Fill in Page CG1 to give details about your disposals in the year
ended 5 April 2006. This page should only be used if all of your
transactions involved quoted shares or other securities (see page
CGN2) and:
• taper relief (see page CGN18) is not available to you to reduce
any of the gains disclosed, and
• you are not claiming any tax reliefs, other than indexation
allowance, which may reduce any of your gains.
If you use Page CG1, you can ignore Pages CG2 to CG6 of the
Capital Gains Pages. You must always fill in Page CG8 once you
have completed Page CG1. Page CG7 provides space for any
additional information you need to provide.
If you do not fall within the limits described above you must use
Pages CG2 and CG3 (together with Pages CG4 to CG6 as appropriate)
to record all of your transactions. You must not use a combination
of Page CG1 for some transactions and Pages CG2 and CG3 to
record other transactions.
HMRC 12/05net
Column A
Enter in this column details of each disposal. Give the name of the
company (or unit trust), the type of shares or other securities you
have disposed of and the number of shares or units, or face value
of the securities which you have disposed of.
If you have made any chargeable gains or allowable losses in
2005–06 without making a disposal, you should include details
of these gains and losses in the list. This could occur, for example,
because a deferred gain is treated as made in 2005–06 (see the
section on gains of earlier years on page CGN10). You must state
the nature of the event causing the gain to become chargeable and
the particular gain which is now becoming chargeable. If you have
gains attributed to you as settlor or beneficiary, see page CGN10.
Column B
Tick the box in this column on any row where you have used an
estimate or valuation in calculating the gain or loss. For example,
valuations need to be used where an asset you have disposed of
was acquired from, or disposed of to, a connected person (see
page CGN14).
Please give details of why you have used an estimate or valuation in
Column F, or if there is insufficient space, on Page CG7.
Column C
Enter in Column C the date of disposal for the shares or securities
that gave rise to a chargeable gain or allowable loss. If for example
the date of disposal was 3 June 2005 you should show the date in
the appropriate row of Column C as '03/06/05'.
Pages CGN8 and CGN12 explain when a disposal for Capital Gains
Tax purposes occurs and on what date your disposal will be treated
as having occurred.
Column D
Enter in this column the total disposal proceeds you have received
or will receive from each disposal. Page CGN12 explains what to
include in disposal proceeds.
Column E
Enter in this column the net gain or loss from each transaction,
after indexation allowance, where appropriate (see page CGN15)
has been deducted. Put brackets around any losses to distinguish
them from gains.
There is a simple guide to Capital Gains Tax, including a sample
calculation, in Section 2. Section 4 explains in more detail how to
calculate gains and losses.
Column F
Use Column F to provide further information.
For example:
• if there were transactions with a connected person
(see page CGN14)
• why estimates or valuations have been used (see page CGN14)
• if you have made a disposal of part of a larger holding of shares
(see page CGN15)
• if you have exchanged shares in a company reconstruction or
take-over (see page CGN9).
box F1 Total all of your gains in Column E. Enter the total in
box F1.
box F2 Total all of your losses in Column E. Enter the total in
box F2.
■ NOTES ON CAPITAL GAINS: PAGE CGN3
continued over
For the year ended 5 April 2006
Notes on CAPITAL GAINS
box F3
Subtract your losses in box F2 from your gains in box F1
and enter the result in box F3. If your net gains exceed £8,500
continue to box F4. If your net gains are £8,500 or below you have
no liability to Capital Gains Tax in 2005–06. Enter the amount of
your net gains in box F7 and box 8.7 on Page CG8. Leave box 8.8
on Page CG8 blank. If you have a net loss, you will now need to fill
in the Capital losses summary on Page CG8. Leave blank box F7
and boxes 8.7 and 8.8 on Page CG8.
box F4 Enter in box F4 any income losses (basically certain
trading losses, losses from furnished holiday lettings, post cessation
expenditure or post employment deductions – we or your tax
adviser will be able to confirm which losses will qualify) that you
wish to set against your chargeable gains. You should only enter
the lower of:
• the total losses you can claim, and
• the amount required to reduce the figure of gains, after capital
losses of the year have been set off, to zero.
box F5 Subtract your losses in box F4 from your gains in box F3
and enter the result in box F5. If your net gains exceed £8,500 continue
to box F6. If the net gains are £8,500 or below you have no liability
to Capital Gains Tax in 2005–06. Enter the amount of the net gains in
box F7 and box 8.7 on Page CG8. Leave box 8.8 on Page CG8 blank.
box F6 Subtract any losses brought forward you may have from
an earlier tax year. You should use only enough losses to reduce your
chargeable gains to the level of the annual exempt amount, £8,500.
Update the Capital losses summary on Page CG8.
box F7 Subtract your losses in box F6 from your gains in box F5
and enter the result in box F7. Copy this figure to the total taxable
gains box, box 8.7, on Page CG8.
■
Filling in Pages CG2 and CG3
Fill in Pages CG2 and CG3 to give details about your disposals in
the year ended 5 April 2006 unless all of your transactions were
in quoted shares or other securities and you are able to complete
Page CG1 instead (see 'Filling in Page CG1' on page CGN3). If any
of the transactions you are recording on Pages CG2 and CG3 involve
assets other than quoted shares or other securities, as defined on
page CGN3, you must also give, where appropriate, the additional
information requested on Pages CG4 to CG6. If, however, the
information requested on Pages CG4 to CG6 has already been
supplied in a claim to gifts hold-over relief (see Help Sheet IR295:
Relief for gifts and similar transactions) or as a result of a post transaction
valuation check request (see page CGN14) it need not be repeated
again. The information provided helps determine whether we need
to ask you any more detailed questions about your Tax Return. Fully
completed Pages will help us avoid making unnecessary enquiries.
If you are not domiciled in the UK and have disposed of assets outside
the UK to which remittance basis applies, you should include details
of such assets disposed of in this tax year or an earlier year where
there have been remittances to the UK in this tax year.
If you have made any chargeable gains or allowable losses in
2005–06 without making a disposal, you should include details
of these gains and losses in the list. This could occur, for example,
because a deferred gain is treated as made in 2005–06 or a gain
accrued in 2001–02 to 2004–05 when you were regarded as a
'temporary non-resident', (see the section on gains of earlier years
on page CGN10) or you are claiming that a loan you made to a
trader has become irrecoverable (see the section on other reliefs on
page CGN18). You must state the nature of the event causing the
gain to become chargeable and the particular gain which is now
becoming chargeable.
If you have gains attributed to you as settlor, make a separate entry
for each rate of taper relief relating to those gains, showing the name
of the settlement. Do not make any entries in Columns B to G for
these items. A detailed explanation of how to make entries in respect
of these gains is in Help Sheet IR277: Trusts with settlor interest and
trusts for the vulnerable: taper and losses. If you have gains attributed
to you as beneficiary, see 'Attributed gains and box 8.4' on page
CGN6. The same applies to the 'special case' described in
Help Sheet IR277.
Column AA
Enter in each row of this column the identifying letter (Q, U, L, T or
O) which corresponds to the asset(s) or gains identified in each of
the rows. Please make an entry for every row (both gains and
losses) in Column A.
For transactions in:
• quoted shares or other securities (as defined on page CGN3),
enter Q
• other shares or securities, enter U
• Iand and property, enter L
• other assets (for example, goodwill), enter O.
Where you have gains attributed to you as settlor enter T against
each individual entry.
Column A
Enter in this column details of each asset you have disposed of. For
example, if you have disposed of land or property, unlisted shares or
securities or other assets (other than quoted shares or other securities)
simply give a brief one-line description of the asset. You should then
cross reference each entry to the additional information requested
on, as appropriate, Pages CG4, CG5 or CG6.
If you have disposed of quoted shares or other securities, (as defined
on page CGN3) enter on Page CG2 (or if there is insufficient space,
use Page CG7) the name of the company or unit trust, the type
of shares or securities you have disposed of and how many shares
or securities you have disposed of. You do not need to complete
Page CG4 or CG6 for these transactions, unless you have to record
them in Column AA as 'U' (see the section aside about completing
Column AA).
We have split the section for recording your gains into two. This is
so you can record how much taper relief you are entitled to on
each gain you make. Always use the first section 'Gains on assets
HMRC 12/05net
which are either wholly business or wholly non-business' where you
have made disposals of assets that were wholly business assets, (see
page CGN18) or wholly non-business assets. Use the second
section 'Gains on assets which are partly business and partly
non-business' where you have made disposals of assets that were
partly business assets and partly non-business assets. In Column H
you need to split these gains into a business asset gain and a nonbusiness asset gain to record how much taper relief, if any, is due
on each part. Help Sheet IR279: Taper relief explains an alternative
way of completing this part of the Return where, in certain cases,
you disposed of an asset that became a business asset on
6 April 2000.
Shares or securities that were acquired as a result of a share
exchange, or other company reorganisation (see page CGN9),
where the shares or securities you originally held did not count as
'Q' throughout the period you held them, should be recorded in
Column AA as 'U'.
Do not forget to give the additional information requested in
respect of each individual transaction on:
• Page CG4 for transactions in other shares or securities (U)
• Page CG5 land and property (L)
• Page CG6 other assets (O).
If, however, the information requested on Pages CG4 to CG6 has
already been supplied in a claim to gifts hold-over relief (see Help
Sheet IR295: Relief for gifts and similar transactions) or as a result of a
post transaction valuation check request (see page CGN14) it need
not be repeated again.
■ NOTES ON CAPITAL GAINS: PAGE CGN4
For the year ended 5 April 2006
Notes on CAPITAL GAINS
Column B
Tick the box in this column on any row where you have used an
estimate or valuation in calculating the gain or loss. Please also tick
the 'Yes' box at the top of Page CG8. (You should include details of
any valuations you have used on Pages CG4 to CG6 – see the note
on page CGN14.) For example, valuations need to be used where
an asset you have disposed of was:
• acquired from, or disposed of to, a connected person
(see page CGN14), or
• held by you at 31 March 1982 (see the notes on rebasing
on page CGN14).
Column C
Tick the box in this column on any row in which you are recording
the disposal of an asset you owned, or are treated as having owned,
at 31 March 1982. Please also tick the 'Yes' box at the top of
Page CG8.
Column D
Chargeable gains accruing in 2005–06 may be subject to taper
relief, see page CGN18.
If the asset which you have disposed of was acquired on or after
17 March 1998 you should enter in Column D the actual date of
acquisition of the asset (see page CGN12). If the asset disposed of
was acquired before 17 March 1998 enter 16 March 1998. All dates
should be entered as 6 characters for example, 16 March 1998 should
be entered as '16/03/98'.
If you have disposed of shares or securities which were pooled you
should insert the later of 16 March 1998 and the date when you
first acquired shares in the pool. For more information on disposals
of shares and securities see page CGN17, 'What about disposals of
shares or securities?' and Help Sheet IR284: Shares and Capital Gains Tax.
Column E
Enter in Column E the date of disposal for each asset that gave rise to
a chargeable gain or allowable loss. If, for example, the date of
disposal was 3 June 2005 you should enter the date in the
appropriate row of Column E as '03/06/05'.
Pages CGN8 and CGN12 explain when a disposal for Capital Gains
Tax purposes occurs and on what date your disposal will be treated
as having occurred.
Column F
Enter in this column the total disposal proceeds you have received
or will receive from each disposal; page CGN12 explains what to
include in disposal proceeds. If remittance basis applies, enter only
the amounts of any remittances to the UK in 2005–06 from the
proceeds of the disposal of assets outside the UK (whether the
disposal occurred in 2005–06 or in an earlier year).
Column G
Where the disposal entered on any row is affected by a Capital
Gains Tax claim or election, or a relief is due, you should give
details in Column G. For claims to relief you should also state the
amount of your claim. For example, you may have claimed roll-over
relief, exemption under the terms of a Double Taxation Agreement,
or Enterprise Investment Scheme deferral relief. Or you may have
decided to make an election that affects how your gains or losses
are calculated, such as a rebasing election (see page CGN14).
Section 7 describes the common reliefs and elections.
If you have insufficient space, use Page CG7 to give any
additional information.
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If you make a claim to:
• gifts hold-over relief (for claim form see Help Sheet IR295:
Relief for gifts and similar transactions), or
• Enterprise Investment Scheme deferral relief (the claim form EIS3
is attached to the EIS3 certificate you receive from the company.
For information also see Help Sheet IR297: Enterprise Investment
Scheme and Capital Gains Tax)
you must also attach the official claim form.
For a claim to business asset roll-over relief (for a claim form see
Help Sheet IR290: Business asset roll-over relief), an optional claim
form, which sets out all of the information required, can be found
attached to the respective Help Sheet. If you do not use the claim
forms you must still provide all of the information requested.
If you are making a claim to exemption under the terms of a Double
Taxation Agreement, give details on Page CG7 of the territory in
which the gain falls to be taxed, and the circumstances in which
exemption is claimed.
You do not need to make an entry in Column G simply because you
have deducted indexation allowance in calculating the chargeable
gain. This should simply be deducted in calculating the figure in
Column H. You cannot use indexation allowance to turn a gain into
a loss or to increase a loss (see page CGN15).
Column H
Enter in the Gains part of this column the net gain from each disposal,
after all reliefs, but before losses and taper relief have been taken
into account.
For example, you have a chargeable gain after indexation allowance,
but before losses and taper relief, of £50,000. In Column G you
give details of a claim for Enterprise Investment Scheme deferral
relief of £30,000. In Column H you should enter only the net gain
of £20,000.
If you have recorded gains in rows 9 and 10 under the section 'Gains
on assets which are partly business and partly non-business' make
sure you split those gains into business asset and non-business asset
gains so that you can work out how much taper relief is due, see
Help Sheet IR279: Taper relief.
A loss arising on a disposal should be entered in the Losses section
of Column H. Section 4 explains how to calculate gains and losses.
Section 7 describes some common reliefs. If the remittance basis
applies, enter only the amounts of any remittances to the UK in
respect of gains from the disposal of assets outside the UK (whether
the disposal occurred in 2005–06 or in an earlier year).
Now total your gains and losses at boxes 8.1 and 8.2. You must
complete the whole of Page CG3 if:
• you have gains at box 8.1 of more than £8,500 and no losses
available to you, or
• your gains after deducting losses of the year (and where
applicable losses brought forward from earlier years) are greater
than £8,500.
You need only complete the totals boxes (boxes 8.3 to 8.6) on
Page CG3 (you can ignore the remainder of Page CG3) provided
you have no attributed gains to be included in box 8.4, see page
CGN6, or income losses available to set against your gains, and
you fall into one of the following:
• your gains (box 8.1) after deducting losses of the year (box 8.2)
are £8,500 or less. (If this is the case you have no liability to
Capital Gains Tax in 2005–06, even if taper relief is available to
you. In these circumstances, you may enter the amount of your
net gains (box 8.1 minus 8.2) in box 8.3, the total taxable gains
box and box 8.7 on Page CG8. Enter 0 (zero) in boxes 8.4 to
8.6. Subject to giving any further information required on
Pages CG4 to CG6 you can now proceed to Page CG8.)
■ NOTES ON CAPITAL GAINS: PAGE CGN5
continued over
For the year ended 5 April 2006
Notes on CAPITAL GAINS
• your gains after deducting losses of the year are greater than
£8,500 but you have sufficient losses brought forward, to reduce
those gains to £8,500. (If this is the case you have no liability to
Capital Gains Tax in 2005–06, even if taper relief is available to
you. In these circumstances, you may enter in box 8.6 the
amount of the losses needed to reduce your gains to £8,500,
enter £8,500 in box 8.3, the total taxable gains box, and
box 8.7 on Page CG8. Enter '0' (zero) in boxes 8.4 and 8.5.
Subject to giving any further information required on Pages CG4
to CG6 you can now proceed to Page CG8.)
• your allowable losses at box 8.2 exceed your chargeable gains
at box 8.1. (You may enter '0' (zero) in boxes 8.3 to 8.6 and
the total taxable gains box. Leave box 8.7 on Page CG8 blank.
Provide any further information required on Pages CG4 to CG6
and then fill in the remainder of Page CG8, as appropriate.)
If you have any attributed gains to be included in box 8.4, or
income losses available to set against your gains, or you are unsure
whether you fall into one of the specific situations described above,
you should always complete the whole of Page CG3.
Column I
Example 1
You have two gains in Column H:
• Gain 1 £20,000; where the percentage rate in Column J is 50%
• Gain 2 £10,000; where the percentage rate in Column J is 100%
You have an allowable loss brought forward of £17,000.
Firstly you should allocate in Column K3, £10,000 of your loss
to Gain 2 as this gain is chargeable at 100%. Next allocate the
remaining £7,000 of your loss in Column K3 to Gain 1 as only
50% of this gain is chargeable.
If you have a number of gains and losses you should consider
each gain in turn and allocate losses so that gains with the smallest
percentages in Column J remain chargeable. If your allowable losses
are greater than your chargeable gains you can carry the surplus
losses forward to be set against gains you make in future years. Do
not forget to fill in the capital losses summary boxes on Page CG8.
Help Sheet IR277: Trusts with settlor interest and trusts for the
vulnerable: taper and losses explains that you just allocate losses to
your personal gains in the order described above and then to any
gains attributed to you as settlor, again in that order.
If the asset disposed of was a business asset, (see page CGN18)
you should enter 'Bus' in the appropriate row(s) of this column.
Total your losses claimed in Columns K2 and K3 and enter the
amounts in boxes 8.5 and 8.6.
If a gain has to be apportioned into a part that relates to a
business asset and a part that relates to a non-business asset use
row 9 or 10.
There are further rules for allocating 'clogged losses'. Clogged losses
are losses that arise on the disposal of assets to connected persons or
where losses are transferred to you by trustees after 15 June 1999
when you become absolutely entitled to settled property. These losses
can only be set against gains of certain types (see page CGN11).
For more information on what is a business asset for the purposes
of taper relief see page CGN18 and Help Sheet IR279: Taper relief.
Column L
Column J
Enter against each individual gain the taper percentage rate
appropriate to the qualifying holding period for the asset disposed
of. The percentage rates are shown in the table on page CGN18.
For example, if you acquired a business asset on 6 April 1999, and
disposed of it in 2005–06, the percentage gain chargeable will be
25%. If the asset was not a business asset then the percentage gain
chargeable will be 80%. Whether or not an asset is a business asset
and what taper relief you are entitled to is explained in Help Sheet
IR279: Taper relief.
Column K and boxes 8.5 and 8.6
There are special rules for allocating your allowable capital losses
against chargeable gains, (see page CGN11). These rules ensure
you use your losses in the most beneficial way so that gains that
qualify for the greatest rates of taper reduction remain chargeable.
If you are setting off losses brought forward from earlier years you
should use only enough losses to reduce your chargeable gains to
the level of the annual exempt amount, see page CGN7. However,
if you have attributed gains and also capital losses, see 'How is a
loss allowed' on page CGN11.
In Column K2 you should enter details of any allowable trading
losses, losses from furnished holiday lettings, post-cessation
expenditure or post employment deductions that you wish to claim
against chargeable gains. You should only enter the lower of:
• the total losses you can claim, and
• the amount required to reduce the figures of gains, after capital
losses of the year have been set off, to zero.
Now allocate your losses starting with Column K1, next consider
Column K2 and finally Column K3. Losses should be firstly allocated
against chargeable gains with the highest percentage rate shown in
Column J. If you still have losses available after setting them against
these gains you should set the remaining losses against the
remaining gains.
HMRC 12/05net
Subtract all losses claimed in Columns K1, K2 and K3 from the
chargeable gains in Column H. Any net gains remaining chargeable
should be entered in the appropriate rows of Column L.
Column M and box 8.3
Each gain remaining chargeable after losses have been set-off in
Column L should now be multiplied by the taper rate appropriate
to that gain. The taper rate is in Column J. For example if a gain in
Column L was £20,000 after losses have been set-off and the taper
rate was 50% then the tapered gain to enter in Column M will be
£10,000 (£20,000 x 50%). If you have more than one gain in
Column L work out each tapered gain in turn, entering all the
figures in Column M as you go.
Add up all of the gains in Column M and enter the total in box 8.3.
Attributed gains and box 8.4
On Page CG7 please enter the name of the trust(s) and on what
basis the attribution(s) have been made to you.
Enter in rows 11 and 12 on Page CG3 any gains of trustees which are
attributed to you as a beneficiary of non-UK resident trusts (row 11)
or from settlor interested trusts where personal losses cannot be
set-off (row 12). (Other attributed gains should be entered in the
main section of Pages CG2 and CG3 above.) Enter the total of
rows 11 and 12 in box 8.4.
Total taxable gains
Add together all of your tapered chargeable gains from box 8.3
and any attributed gains from box 8.4 and enter the total in the
total taxable gains box.
■
Filling in Pages CG4 to CG6
If the transactions you have entered on Pages CG2 and CG3 relate
to asset disposals involving:
• other shares or securities (recorded in Column AA as 'U'), or
• Iand and property (recorded in Column AA as 'L'), or
■ NOTES ON CAPITAL GAINS: PAGE CGN6
For the year ended 5 April 2006
Notes on CAPITAL GAINS
• other assets, other than quoted shares or securities, (recorded in
Column AA as 'O')
you must provide additional information in respect of each
individual transaction on Page CG4, CG5 or CG6.
Page CGN2 tells you when to fill in the Capital Gains Pages. You do
not need to fill in the Pages if your only entries are in the Summary
of earlier years' losses and Total of unused losses to carry forward:
boxes 8.15 to 8.21.
Each Page has space to give details of two transactions. If you have
more than two transactions of each type, please photocopy the Page
before completion and send all completed (photocopied) Pages
with your Capital Gains Pages. If, however, the information
requested on Pages CG4 to CG6 has already been supplied in a
claim to gifts hold-over relief (see Help Sheet IR295: Relief for gifts
and similar transactions) or as a result of a post transaction valuation
check request (see page CGN14) it need not be repeated again.
Clogged losses are losses that can only be set against gains of certain
types (see page CGN11). You must keep these losses separate from
your other losses and ensure that they are used at the appropriate
time. Do not merge the clogged losses into your main loss
record on Page CG8 at any time.
This information will help us with our review of your Tax Return
and may enable us to conclude that no enquiry is necessary.
Occasionally we will need extra information. We will write and ask
you for this if the need arises. If you are not sure at any point what
information you should provide, we or your tax adviser will be able
to help.
At its simplest Capital Gains Tax is a tax you pay if you make a gain
from selling something you own. Some things, such as your home,
your car or shares held in a PEP or ISA, are usually outside the charge
to tax (see page CGN8).
■
Filling in Page CG7
If you are asked to give additional information to support any entry
on Pages CG1 to CG3, or just need more space, please use this Page.
■
Filling in Page CG8
box 8.7
Enter the total taxable gains from box F7 on Page CG1
or from the total taxable gains box on Page CG3.
box 8.8 You do not have to pay tax on the first £8,500 of
chargeable gains that you made in 2005–06. This amount is referred
to as your 'annual exempt amount'. Deduct £8,500 from the figure
in box 8.7. Enter the result in box 8.8. The figure in box 8.8 is the
net amount of chargeable gains on which you must pay Capital
Gains Tax for 2005–06.
box 8.9 You may have to pay tax because you have received,
or you are treated as having received, capital or a benefit from any
non-resident or dual resident trusts. If so, ask the Orderline for Help
Sheet IR301: Calculation of the increase in tax charge on Capital Gains
from non-resident, dual resident and immigrating trusts to work out
the amount of tax to go in box 8.9. Enter the name (and the tax
reference if known) of the trust in the 'Additional information' box
on Page CG7. If you are not sure if this applies to you, ask us or
your tax adviser.
Clogged losses
Section 2 – A simple guide to Capital Gains Tax
You may be one of the many people who hold shares directly in
major UK companies. If you sell any of these shares, you will have
to consider whether you have to pay Capital Gains Tax. This section
deals only with the case in which you bought shares listed on the
Stock Exchange in one lot after 5 April 1982 through a broker, and
where you sold the shares in the same way. In any other case, or if
you are in any doubt, you should read the notes in Sections 3 to 7.
You need to work out your gain using the rules for Capital Gains Tax.
This gain is called your chargeable gain. You must pay Capital
Gains Tax if your net chargeable gains for 2005–06 exceed £8,500
after deducting any allowable losses or taper relief. Section 1
beginning on page CGN2 shows how to fill in the Capital
Gains Pages.
So how do you start? Here is a simple example. Let us say that on
1 March 1988 you bought 3,000 shares in a company for £2.50
each. Your broker charged a fee of £100. On 5 August 2005 you
sold those shares for £4.50 each. Your broker charged a fee of £200.
Your gain is:
Sale price
£13,500
minus Broker's fee
£200
£13,300
Cost
plus Broker's fee and any stamp duty
£7,500
£100
Net gain
Capital losses
boxes 8.10 to 8.14 These boxes summarise the losses you
have made this year and the various ways in which they have been
used. In box 8.10 enter the total sum of all the losses you have
made during the year. This figure can be copied from box 8.2 on
Page CG3 or box F2 on Page CG1. If you are claiming to set capital
losses against your income, see the notes on page CGN10, please
ensure that you complete boxes 8.13A and 8.13B as well as the
total box, 8.13. Any remaining losses are carried forward to use
against gains of later years.
boxes 8.15 to 8.17 These boxes summarise the allowable
losses that you have claimed and the amount of unused losses to
be carried forward to use against gains of later years.
£7,600
£5,700
You must then deduct indexation allowance which is an adjustment
for the effects of inflation from this gain. Indexation allowance is
available to April 1998. You multiply the cost of buying the shares
(£7,600 in the example) by a figure known as the indexation factor
and deduct the resulting amount from your net gain. The notes
beginning on page CGN15 explain how to find the indexation factor
from the table on page CGN16. In this case the indexation factor is
0.562 and so your indexation allowance is:
£7,600 x 0.562 = £4,272
Deduct this from your gain to give your chargeable gain. This will be:
Net gain
£5,700
minus indexation allowance
£4,272
Chargeable gain
£1,428
boxes 8.18 and 8.19
These boxes summarise the losses
you have made in earlier years that have not yet been used against
chargeable gains. See the notes on pages CGN11 and CGN12 for
details of how they are set against chargeable gains.
boxes 8.20 and 8.21
carry forward.
HMRC 12/05net
These boxes summarise your losses to
Taper relief may be due on this disposal and this is explained on
page CGN18. If this is your only chargeable gain in 2005–06, you will
have no Capital Gains Tax to pay because you can make chargeable
gains of up to £8,500 before you pay Capital Gains Tax.
If you have made a loss on your sale, the rules are different. You
cannot deduct any indexation allowance to increase the loss. Nor can
you deduct all of your indexation allowance if it would turn your
■ NOTES ON CAPITAL GAINS: PAGE CGN7
continued over
For the year ended 5 April 2006
Notes on CAPITAL GAINS
gain into a loss. If your indexation allowance is greater than your
gain, you can only deduct enough to reduce your gain to zero.
in which you resume residence in the UK, see Help Sheet IR278:
Temporary non-residents and Capital Gains Tax.
Losses you make from sales in the year must be deducted from
your indexed chargeable gains to decide whether your total gains
are greater than £8,500. You can also deduct losses you have made
from sales in earlier years if they have not yet been deducted from
gains you made in earlier years. See Section 4 on 'Calculating gains
and losses' for more information.
If you are not sure whether you are resident, ordinarily resident or
domiciled in the UK, you should ask the Orderline for the Notes for the
Non-residence etc. Pages which explain residence and domicile in
more detail and, if appropriate, complete the Non-residence etc. Pages.
Section 3 – An introduction to Capital Gains Tax
These notes are a simplified summary of the Capital Gains Tax law
as it applies in some common cases. If you are in any doubt about
whether you have Capital Gains Tax to pay, ask us or your
tax adviser.
■
Chargeable gains
A chargeable gain is made when something you own, an asset,:
• is wholly or partly disposed of (or treated as disposed of), and
• its value has increased since you acquired it, or since
31 March 1982 if that is later, or
• its value at the date of disposal is greater than the reduced
value for which you are deemed to have acquired the asset
because of an earlier relief.
You do not pay tax on the price you receive for the asset, but
only on the increase in its value while you have owned it. If it
has lost value in that time, you deduct that loss from any gains you
make on other assets in the same year or later. Section 4 helps you
work out your gains and losses.
You may also be treated as making a gain in other circumstances,
for example where:
• a gain on an earlier disposal of an asset has been deferred, and a
particular event, for example, the disposal of another asset, or the
lapse of time has ended the deferral period, or
• the value of an asset you own has had its value decreased by a
transfer of rights, or by any other means that would not by itself
be regarded as a disposal, or
• you dispose of a wasting asset, which has not diminished in
value as quickly as was expected (see Help Sheet IR293: Chattels
and Capital Gains Tax), or
• you derive a capital sum such as compensation for damage or
an insurance receipt from your ownership of an asset, or
• you dispose of an asset that you acquired from your spouse
or civil partner, or
• you recover money for which you have had some relief under
the capital gains rules. Ask the Orderline for Help Sheet IR296:
Debts and Capital Gains Tax, or
• you are the settlor or beneficiary of a trust (see 'Other taxable
gains' on page CGN10).
■
Who pays Capital Gains Tax?
You must pay Capital Gains Tax on all your chargeable gains, after
deducting allowable losses and applying taper relief if you are resident
or ordinarily resident, and domiciled in the UK in 2005–06.
Normally the location of assets is irrelevant but if you are not
domiciled in the UK, you pay tax on gains made on the disposal of
assets situated outside the UK, only when the gains are remitted to
the UK (the 'remittance' basis). Domicile does not affect the
taxation of gains on the disposal of assets situated in the UK.
If you are neither resident nor ordinarily resident in the UK, you are
taxable on gains made in 2005–06 from assets of any permanent
establishment in the UK through which you are trading or carrying
on a profession or vocation. If you left the UK after 5 April 2005
you may also be taxable on gains made in 2005–06 from disposals
after the date of your departure. You may also be taxable on gains
made from any other assets which you owned while you were
resident or ordinarily resident in the UK and disposed of in 2005–06
if your period of residence outside the UK does not exceed five full
tax years. However, any such gains will not be taxable until the year
HMRC 12/05net
■
Assets
Any form of property, wherever it is situated, may be an asset that
attracts Capital Gains Tax. The most common assets include:
• stocks, shares and units in unit trusts
• land and property
• business assets, such as goodwill.
The capital gains rules for shares apply generally to units in a unit
trust but with some modifications. For more information, ask the
Orderline for Help Sheet IR284: Shares and Capital Gains Tax. Shares
or units in a monthly savings scheme may also come under the
special scheme in Statement of Practice SP2/99, available from
us or at www.hmrc.gov.uk
Some assets are exempt from Capital Gains Tax. Common exempted
assets are listed below.
The gains made on some assets may be wholly or partly relieved
from tax. The explanation of the common reliefs on page CGN18.
■
Exempt assets
The following types of asset are exempt from Capital Gains Tax:
• private cars
• personal effects and goods worth £6,000 or less when you
dispose of them
• Savings Certificates, Premium Bonds and British Savings Bonds
• stocks and shares held within a Personal Equity Plan (PEP) or an
Individual Savings Account (ISA)
• bonuses from Tax Exempt Special Savings Accounts (TESSAs)
• UK Government stocks (gilts)
• personal injury compensation
• foreign currency for your, or your family's, personal use
• life assurance policies and deferred annuity contracts, unless at
any time acquired for actual consideration
• betting, lottery or pools winnings
• SAYE terminal bonuses
• compensation for mis-sold personal pensions taken out as a
result of disadvantageous advice given between 29 April 1988
and 30 June 1994
• shares issued after 18 March 1986 where relief has been given
under the Business Expansion Scheme and not withdrawn
• Enterprise Investment Scheme shares where Income Tax relief
has been given (and not withdrawn)
• Venture Capital Trust shares acquired within the annual limits
and under certain conditions.
If your only disposals are of these types of asset and you have
no chargeable gains, you should not tick the 'Yes' boxes in
Question 8 of your Tax Return.
If a gain on the disposal of an asset would be exempt from Capital
Gains Tax, normally any loss you make on that asset will not be an
allowable loss. There is one exception. If such a loss arises on shares
which have Enterprise Investment Scheme Income Tax relief attached
to them, the loss is allowable, for more information go to
hmrc.gov.uk/guidance/eis-index.htm
Gains from the disposal of personal effects or goods, each of which
was worth £6,000 or less, when you disposed of them, are exempt.
You may be able to use any loss that you make on such a disposal.
This is dealt with in more detail in Help Sheet IR293: Chattels and
Capital Gains Tax, available from the Orderline.
In most cases you will not pay tax on any gain you make when you
dispose of your home. See the section dealing with the disposal of
your home on page CGN18.
■ NOTES ON CAPITAL GAINS: PAGE CGN8
For the year ended 5 April 2006
Notes on CAPITAL GAINS
■
Disposals
Capital Gains Tax is payable on gains from the disposal of assets.
A disposal will occur when you:
• sell, or
• give away, or
• exchange an asset or part of an asset, or
• receive a capital sum from your ownership of an asset, or
• the value of an asset you own has been reduced to increase the
value of an asset owned by some other person.
A capital sum is a sum that is not part of your taxable income.
You can claim to be treated as making a disposal if an asset you
own has become of negligible value. This may give you a loss that
you can set against your gains.
If you dispose of only part of an asset, you can only use part of the
cost in calculating your gain. Part disposals are explained more fully
on page CGN15.
Any disposal which is made by your nominee, or by a person who
is a bare trustee in relation to assets to which you are absolutely
entitled, will be treated as your disposal.
Some disposals do not result in a charge to Capital Gains Tax.
For example:
• when somebody dies and their assets pass to their personal
representatives, or
• where shares are disposed of in exchange for other shares
– see the notes on 'Company reconstructions and take-overs'
on this page.
If you transfer an asset to your spouse or civil partner and you are
living together, you will not be taxed. Instead, any gain or loss is
deferred until the asset is disposed of by your spouse or civil partner.
Your spouse or civil partner may then pay tax on any gain made
during the whole time that one or other of you has owned the asset.
If you are a member of a partnership, there are special rules dealing
with the disposal or acquisition you make when there is a change in
your share of partnership assets. If you need advice, ask the Orderline
for Help Sheet IR288: Partnerships and Capital Gains Tax.
■
Small receipts
In some situations, an amount received in respect of an asset, which
would otherwise be treated as a part disposal of the asset, need not
be treated as a disposal at all if the amount is small compared to the
value of the asset. This applies where amounts are received:
• as a capital distribution in respect of shares. This includes
amounts received where rights to further shares which are
allotted to you are sold nil paid, or
• as compensation, or under an insurance policy, for damage or
injury to the asset, or
• for giving up or agreeing not to exercise rights, or
• for use or exploitation of the asset, or
• in some cases where there is a compulsory acquisition of land.
Where the receipt is not treated as a disposal, the amount will need
to be deducted from the expenditure available to set against any
later disposal of the asset. If the amount of the receipt exceeds the
available expenditure, a gain may still arise on receipt. Ask us or
your tax adviser for further details.
If you receive cash on an exchange of shares for qualifying
corporate bonds, or on a conversion of securities, any gain arising
on the cash element may also be deferred if the amount is small
compared to the value of the shares. Again, you should ask us or
your tax adviser for further details.
■
What is small?
• does not exceed 5% of the value of the asset in respect of which
it is paid, and
• the amount you receive is less than the allowable cost of
the asset
then you do not need to enter the amount as a disposal on Page
CG1 or Pages CG2 and CG3.
If the amount exceeds these limits, but you think that it should be
regarded in the circumstances as small, you should:
• enter the gain or loss on the list of disposals on Page CG1 or
Page CG2, and
• explain on Page CG7 why you think the amount should be
treated as small;
but do not include the gain or loss in the totals on Page CG1 or
boxes 8.1 or 8.2 on Page CG3. We may ask for further details in
these cases.
■
Building society mergers, conversions and take-overs
If you have:
• received cash as a result of a merger of two or more societies, or
• received cash, or been issued with shares, or received both cash
and shares, as a result of either
- a conversion of a building society to a company, or
- a take-over of a building society by a company,
there may be liability to either Income Tax or Capital Gains Tax.
The building society may be able to tell you whether there is any
tax liability. If not, ask us or your tax adviser.
If you have received cash which is liable to Capital Gains Tax (which is
likely if you received it following a conversion or take-over of a building
society), then you should include details in the list on Page CG2.
If you need more detailed guidance on how to work out the gain,
ask us or your tax adviser.
If you have received shares, then you only need to provide details
of any gain you make when you dispose of the shares or authorise
someone to dispose of them on your behalf.
■
Company reconstructions and take-overs
If you have exchanged shares or securities of a company for other
shares or securities, as part of a company reconstruction or take-over,
you may be treated as having acquired the new shares or securities
at the same price, and on the same date, as the old. It will not be
counted as a disposal for tax purposes.
You may, however, be treated as making a disposal if the company
reconstruction or take-over is not carried out for commercial reasons,
or is made in order to avoid tax. Companies can apply in advance to
us for clearance from these anti-avoidance rules. The clearance will
only be valid if the take-over, reconstruction or amalgamation is
carried out in accordance with the clearance application.
If you think you have obtained shares or securities as part of a
company reconstruction or take-over, or you need advice about the
anti-avoidance rules, ask the Orderline for Help Sheet IR285: Share
reorganisations, company take-overs and Capital Gains Tax.
If you have exchanged shares or securities for a right to receive an
unknown number of shares or securities in the future, the right may
be treated as if it were a security so that the company
reconstruction rules apply to the exchange of the original shares or
securities for the right, see Help Sheet IR285: Share reorganisations,
company take-overs and Capital Gains Tax. An election for such a right
conferred in 2005-06 not to be treated as a security, should be
made by giving details in Column G on Page CG2. The time limit
for such an election is 12 months from 31 January in the tax year
following the tax year in which the right is conferred, that is,
31 January 2008 for 2005-06.
If in the situations described above the amount you receive:
• does not exceed £3,000, or
HMRC 12/05net
■ NOTES ON CAPITAL GAINS: PAGE CGN9
continued over
For the year ended 5 April 2006
Notes on CAPITAL GAINS
■
Allowable losses set against income
■
If you have losses from the disposal of certain shares in an
unquoted company, you may be able to set those losses against
your income, rather than your gains. The rules for making such a
claim are explained in Help Sheet IR286: Negligible value claims and
Income Tax losses on disposals of shares you have subscribed for in
qualifying trading companies, and for Enterprise Investment Scheme
companies in Help Sheet IR297: Enterprise Investment Scheme and
Capital Gains Tax, available from the Orderline. Further detail is
available at hmrc.gov.uk/guidance/eis-index.htm
If you are making a claim on your Tax Return to set such losses
against your income, enter the amount of the loss in box 8.13A
or box 8.13B. You must also give details of your capital loss on
Pages CG2 and CG3.
■
Other taxable gains
In certain circumstances you may have to pay Capital Gains Tax on
gains by a company or a trust in which you have an interest.
This includes gains made by:
• certain types of company not resident in the UK and in which
you are a participator. (Include these gains on rows 1 to 8 on
Page CG2 but please note that taper relief is not available against
these gains. Your personal losses may be set against them.), or
• a trust resident in the UK from which you or your spouse or civil
partner can or do benefit and of which you are the settlor (see
paragraph on page CGN4 at the end of the section headed
'Column A'), or
• a trust not resident in the UK at that time, the gains of which are
attributed to you because you have received capital payments or
benefits (ask the Orderline for Help Sheet 301: Calculation of the
increase in tax charge on capital gains from non-resident, dual
resident and immigrating trusts). (Enter these gains in row 11
on Page CG3.), or
• the gains of a trust not resident in the UK which are attributed
to you because you are a settlor (ask the Orderline for Help Sheet
IR299: Non-resident trusts and Capital Gains Tax). (See paragraph
on page CGN4 at the end of the section headed 'Column A').
If you think you may be liable to Capital Gains Tax on gains made by
any such company or trust, ask us or your tax adviser.
■
Gains of earlier years
Some gains that were made before 2005–06 may be taxable in
2005–06, for example, where:
• roll-over relief was claimed on the purchase of a wasting asset,
see Help Sheet IR290: Business asset roll-over relief, or
• gifts hold-over relief has been claimed on a transfer of an asset
to you and you have become non-resident, see Help Sheet IR295:
Relief for gifts and similar transactions, or
• a gain has been deferred as a result of a share reorganisation
in which you have been issued with qualifying corporate bonds,
see Help Sheet IR285: Share reorganisations, company take-overs
and Capital Gains Tax, or
• you have claimed a deferral of a gain on a subscription for Enterprise
Investment Scheme or Venture Capital Trust shares, see Help Sheet
IR297: Enterprise Investment Scheme and Capital Gains Tax or Help
Sheet IR298: Venture Capital Trusts and Capital Gains Tax, or
• a gain accrued in 2001–02, 2002–03, 2003–04 or 2004–05 when
you were regarded as a 'temporary non-resident', see Help Sheet
IR278: Temporary non-residents and Capital Gains Tax.
You must include these gains in the Capital Gains Pages.
Section 4 – Calculating gains and losses
These notes are a simplified summary of the Capital Gains Tax rules,
as they apply in some common cases. If you are in any doubt about
your liability, ask us or your tax adviser.
HMRC 12/05net
How to calculate gains and losses
To calculate the gain you have made on the disposal of an asset deduct:
• the allowable costs, and
• the indexation allowance
from the proceeds you receive on the disposal. The amount of the
gain can be affected by the date of disposal, see page CGN12 for
examples showing how to work out your gain or loss.
If you have disposed of shares or securities there are special rules
for identifying the assets involved and working out the gain or loss.
See Help Sheet IR284: Shares and Capital Gains Tax, available from
the Orderline.
Shares in an approved investment trust or an open-ended investment
company, or units in an authorised unit trust, which are invested in a
monthly savings scheme may also come within the special simplified
scheme in Statement of Practice SP2/99, available from us or at
www.hmrc.gov.uk
Help Sheet IR287: Employee share schemes and Capital Gains Tax,
available from the Orderline, explains more about shares which you
acquired in connection with your employment or by exercising an
employee share option.
■
A simple calculation
At its simplest a calculation of a chargeable gain will use the format:
See notes on page
Disposal proceeds (a)
minus
CGN12
Cost of acquisition (b)
CGN13
Enhancement costs (c)
CGN13
Incidental acquisition costs (d)
CGN13
Incidental disposal costs (e)
CGN13
Total costs
minus
equals
Indexation allowance on
(b), (c) and (d) (to April 1998 only)
x
CGN15
Chargeable gain
CGN7
A Working Sheet based on this simple calculation is on page CGN24.
If after deducting indexation allowance you still have a chargeable
gain, you may be entitled to taper relief. This is explained on page
CGN18. The remainder of your calculation will look like this:
Chargeable gain (from above)
£x
Percentage of gain chargeable after taper relief
(based on the qualifying holding period after
5 April 1998 for the asset now disposed of)
Tapered gain: chargeable gain multiplied by taper % =
x%
£
If the asset disposed of does not qualify for taper relief your
final gain will be the same as the chargeable gain above.
This simple calculation will not work if:
• the disposal is a part disposal, see page CGN15, or
• relief is due, see page CGN18, or
• you have losses to set against the chargeable gain, see
page CGN11, or
• it is a disposal of shares or securities, unless it is a disposal of
the whole of your holding of a particular class of shares and,
if indexation or taper are due, all these shares attract the same
rate of indexation or taper relief.
If you have made a loss on your sale, the rules are different. First,
you cannot deduct any indexation allowance to increase the loss.
Nor can you deduct all of your indexation allowance if it would
turn your gain into a loss. If your indexation allowance is greater
than your gain, you can only deduct enough to reduce your gain
to zero. Second, the taper relief rules do not apply to losses.
■ NOTES ON CAPITAL GAINS: PAGE CGN10
For the year ended 5 April 2006
Notes on CAPITAL GAINS
Instead you should set your losses against any chargeable gains you
have made before you consider applying taper relief to those gains.
You can also be treated as having made a loss when:
• certain loans you have made to persons who are trading cannot
be recovered, or
• you have had to make payments as a result of guarantees you
have given for loans to persons who are trading.
In each case you must make a claim. Help Sheet IR296: Debts and
Capital Gains Tax explains how to make a claim.
■
How is a loss allowed?
The total allowable losses of 2005–06 are deducted from the total
chargeable gains for the year, with the exception of certain attributed
gains. You cannot set personal losses against gains which are
treated as yours because you are a beneficiary of a non-resident trust
or where the gains are treated as yours in the 'special case' described
in Help Sheet IR277: Trusts with settlor interest and trusts for the
vulnerable: taper and losses. Your personal losses can be set against
other attributed trust gains but only to the extent that they cannot be
set against your personal gains, see Help Sheet IR277. The deduction
of losses takes place before the application of taper relief, (see page
CGN18). If the allowable loss is greater than the chargeable gains
these losses are carried forward to be set against gains you make in
future years.
When you set losses brought forward against chargeable gains of a
later year, you use only enough losses to reduce the chargeable gains,
before taper, to the level of the annual exempt amount. Losses
from 1996–97 and later years must be used in priority to any other
losses you may have from 1995–96 and earlier years. Allowable
losses must be set against the gains for the year in which they arose
before you carry them forward to later years. These points are
illustrated in Example 21, headed 'Allowable losses' in Section 8,
page CGN21.
If you have attributed gains from which you may not deduct personal
losses, in determining what losses brought forward are required to
reduce the chargeable gains to the level of the annual exempt amount,
you first reduce the annual exempt amount by the amount of those
attributed gains.
Clogged losses
Clogged losses are losses that can only be set against gains of
certain types. These are:
a. Losses on disposals to connected persons, see page CGN14.
These losses can only be set against gains on disposals to the
same connected person. Subject to that restriction all the
normal rules relating to those losses apply.
b. Losses transferred to you by trustees when you become absolutely
entitled to settled property, but only where the transfer occurred
after 15 June 1999. In this case the losses can only be set against
gains arising on the same asset, or an asset derived from that
asset. In this situation the losses are set against those gains in
priority to any other losses whether of the same year or brought
forward and are treated as if they were losses of the current year.
In order to keep these losses separate and ensure that they are
allowed at the appropriate time, if you have any clogged losses of
the year, or clogged losses of any earlier year, please make a copy
of the lower part of Page CG8 for each clogged loss. This copy is
referred to here as a 'shadow' Page CG8.
Do not merge the clogged losses into your main Page CG8 loss record
at any time. You should keep a copy of any shadow Page CG8 at
least until the clogged losses have been fully utilised. Do not send
copies of shadow Pages unless we ask you to.
Completion of Page CG1
If you complete Page CG1 and have a loss during the year which
is 'clogged', write the word 'clogged' in Column F and give an
explanation on Page CG7. If you use clogged losses of the year or
clogged losses brought forward, include the amounts used in
HMRC 12/05net
box F2 and/or box F6, as appropriate, and give the amounts and
an explanation on Page CG7. Enter the use of any actual losses on
the loss record on Page CG8, and the use of clogged losses on any
shadow Page CG8, as required.
If clogged losses are included in Column E, or in box F2 or F6, tick
the appropriate 'Yes' box on Page CG8.
Completion of Pages CG2 and CG3
If you complete Pages CG2 and CG3 and have a clogged loss write
the word 'clogged' alongside the description in Column A and give
an explanation on Page CG7. Include the full amount of the
clogged loss in the figure in box 8.2 but divide this total loss
between box 8.10 on the loss record on Page CG8 and any
shadow Page CG8, as required.
If you set clogged losses against gains in Columns K1 or K3, give
the amounts and an explanation on Page CG7. Enter the use of any
actual losses on the loss record on Page CG8 and the use of clogged
losses on any shadow Page CG8, as required.
If clogged losses are included in any of the Columns H, K1 or K3,
tick the appropriate 'Yes' box on Page CG8.
■
Carry back of losses
Personal representatives completing a Tax Return for the period up
to the date of death in the year in which a person has died, should
be aware that the losses of that period can be carried back to be
set against gains of the three preceding years. Further information
is available in Help Sheet IR282: Death, personal representatives
and legatees.
You may claim to carry back losses made on the expiry or termination
of a mineral lease against gains made from mineral royalties.
You may also be able to elect to carry back allowable losses arising
on a disposal after 9 April 2003 of a right to deferred
unascertainable consideration.
If you are making a claim or election on your Tax Return to set
such losses against earlier years' gains you should enter the
amount of the loss in box 8.12 and also enter details of your
claim on Page CG7.
■
Do losses have to be claimed?
A loss made in 1996–97 or later years has to be claimed. These losses
are not allowable losses until you have given notice of the amount of
the loss to your Tax Inspector. If you ticked one of the 'Yes' boxes in
Question 8 on page 2 of your Return you must include all allowable
losses for the year in the losses section on either Page CG1 or
Pages CG2 and CG3 and, if appropriate, Pages CG4 to CG6. We
will treat these entries as your claim to allowable losses. You do not
have any choice about the order in which allowable losses are used.
They must be deducted from gains in the order set out in the
notes above.
You do not have to claim losses for 1995–96 and earlier years. The
accumulated amount of such losses should be entered in box 8.18.
If you are using some of these losses against gains of 2005–06 the
amounts being used should be entered in the boxes for allowable
losses brought forward on Page CG3, Column K3 and box 8.6 of
your 2005–06 Tax Return. Such losses will form part of this Tax Return
and your Tax Inspector may make enquiries into them. There is no
time limit before which these earlier losses must be used.
■
How to make a claim for a loss
The rules for completing Returns mean that many losses will have to
be included in the Tax Return for the year in which they are made.
In 2005–06, if the total worth of all the chargeable assets you disposed
of was more than £34,000 or you have made chargeable gains of
more than £8,500, you must include all allowable losses you want to
claim for the year in the losses section on Pages CG1 or CG2 and,
if appropriate, Pages CG4 to CG6. By giving the details requested
on Pages CG1 or CG2 and, if appropriate, Pages CG4 to CG6 we
will treat the entries as your claim to allowable losses.
■ NOTES ON CAPITAL GAINS: PAGE CGN11
continued over
For the year ended 5 April 2006
Notes on CAPITAL GAINS
If you have already sent the Return and you discover a loss that
should have been claimed on your Tax Return you should, if the
time for amending your Tax Return:
The distinction between future payments and the right to receive
future payments is important when you do not receive all of the
money to which you are entitled straight away.
• has not yet passed – write to us giving details of your loss and
amend the Tax Return
• has already passed but you are still in time to make a claim, see
the next section – send us a letter notifying the amount of the loss.
If your loss is one that you do not need to claim right away see the
next section, 'Is there a time limit for claiming losses?' for details of
when the loss should be claimed.
If the total amount to which you are entitled is known or can
be calculated, include the full amount you are due to receive. No
allowance can be made for the possibility that the whole sum may
not be paid to you. However, if it becomes clear later on that you
will never receive some part of the total amount originally due, the
calculation of the gain can be adjusted.
■
Is there a time limit for claiming losses?
Allowable losses for 1996–97 and later years have to be claimed
within five years and ten months of the end of the tax year in
which they were made. This applies whether the losses are used in
that time period or not. The latest date for claiming losses made in
2005–06 is 31 January 2012.
If losses brought forward have been claimed in the Tax Return for the
year they were made, or by a separate claim, they will still have to be
included in a later year's Tax Return when they are used. There is no
time limit for claiming losses for 1995–96 and earlier years which can
be carried forward indefinitely until there are gains against which
they can be set (see 'Do losses have to be claimed?' on page CGN11).
■
What is the date of disposal (or acquisition)?
If the disposal (or acquisition) is by way of a contract, the date
of disposal (or acquisition) is usually the date of the contract.
In a small number of cases the contract may be conditional. This will
be so if one or more conditions have to be met before the contract
becomes binding. In these cases the date of disposal (or acquisition)
is the date on which the last of the conditions is met.
In other cases where there is no contract the date of disposal (or
acquisition) will usually be the date when ownership of the asset
is effectively transferred.
There are exceptions. For example, in most of the cases where
you get a capital sum from your ownership of an asset the date
of disposal is the date you receive the capital sum.
Example 2
You sell a piece of land under an unconditional contract dated
2 April 2006.
The land was conveyed to the purchaser on 2 May 2006.
Your disposal, for the purpose of working out your gain or loss,
is treated as taking place on 2 April 2006.
Your disposal is in the tax year ending on 5 April 2006 and you
should include any gain or loss in your Tax Return for 2005–06.
■
What are disposal proceeds?
In most cases your calculation should begin with the total amount
of disposal proceeds you will receive. This may include:
• cash payable now or in the future, or
• the value of any asset received in exchange for the asset you
have disposed of, or
• the value of a right to receive future payments.
The disposal proceeds should include cash, or anything that can be
turned into cash, but not anything that is taxable as part of your income.
If disposal proceeds include any amount taken into account as a
balancing charge in calculating your income, ask the Orderline for
Help Sheet IR293: Chattels and Capital Gains Tax.
Example 3
You exchange a painting you own, which is worth £30,000, for a
painting that you consider to be worth £33,000. Your calculation
of the gain or loss on the first painting should begin with
£33,000, the value of the painting you have received.
HMRC 12/05net
If you will receive the total amount due in instalments over a period
exceeding 18 months, you may not have to pay the tax which is due
on the gain in one sum. Ask us for details.
Example 4
You sell shares in a company in December 2005 for £50,000,
together with a sum equal to 10% of the profits made by the
company in the year ended 30 June 2005. You should begin your
calculation by bringing in the £50,000 and the sum equal to the
percentage of profits to which you are entitled. Accounts can be
prepared and the sum can be calculated.
If some part of the amount to which you are entitled cannot yet be
calculated when you make the disposal because of an unknown
factor, you should include the value of the right to that future sum.
When you receive the amount to which you are entitled, you will
make a further gain or loss on the disposal of that right.
Example 5
You sell land for £40,000 and you will also be entitled to receive
50% of any increase in the value of the land, if the purchaser is
able to obtain planning permission for a housing development.
When you make the disposal you cannot know whether
planning permission will be obtained or what effect that will
have on the value of the land. So you do not know how much you
will finally get. You should begin your calculation by bringing in
the £40,000 together with your estimate of the value of your
right to further money.
In some circumstances, the amount you are to receive should be
replaced in your calculation by the market value of the asset you
have disposed of. The phrase 'market value' is explained on page
CGN13. Market value will apply where the disposal is, for example:
• to a connected person, or
• otherwise than by a bargain made at arm's length, for example a
gift (unless the no gain/no loss rules apply, see 'What about
transfers to spouses or civil partners?' on page CGN17), or
• wholly or partly for a consideration that cannot be valued.
The phrase 'connected person' is explained on page CGN14.
List the total disposal proceeds of each of your disposals on
Page CG1 or Page CG2 of the Capital Gains Pages.
Example 6
You transfer a piece of land worth £10,000 to your former spouse
in a divorce settlement, in exchange for their undertaking to give
up all claims against you. The consideration given cannot be valued.
You should begin your calculation by bringing in disposal
proceeds of £10,000.
A disposal which is otherwise than by way of a bargain made at
arm's length is most often where one party intends in that transaction
to confer a gratuitous benefit on the other.
Example 7
You sell land worth £40,000 to a friend for £25,000 as a token of
your friendship. You should begin your calculation on the disposal
of the land by bringing in disposal proceeds of £40,000.
■ NOTES ON CAPITAL GAINS: PAGE CGN12
For the year ended 5 April 2006
Notes on CAPITAL GAINS
■
What expenses can be deducted?
In working out a gain, the expenses you can deduct fall into four
categories. These are:
• acquisition costs
• enhancement costs
• incidental costs of acquisition and disposal
• expenditure on establishing, preserving or defending your title
to an asset.
These phrases are explained in the following notes.
Expenses you deduct must be expenditure on the asset disposed of.
These must not be expenses that you can claim against income.
Expenditure which has been taken into account in a claim to capital
allowances can be deducted. You cannot claim for the cost of
normal maintenance and repairs, or payments of interest or
alternative finance payments. An alternative finance payment is the
charge made by your finance provider over and above the original
cost of the asset in the alternative finance arrangement.
The expenses you can deduct may be reduced if the asset you
have sold is a wasting asset. This phrase is explained on page
CGN14. If you have only made a part disposal of an asset, you can
only deduct part of the expenditure on that asset. See page CGN15
for more details about part disposals.
■
What acquisition costs can be deducted?
You can deduct any amount you gave wholly and exclusively for
the acquisition of the asset. If you bought the asset using an
alternative finance arrangement the acquisition cost is the original
cost of the asset under the arrangement, and does not include any
alternative finance payments. In certain circumstances the amount
you gave may be replaced by the market value of the asset when
you acquired it. The phrase market value is explained in more
detail in the next column.
Market value will apply where you acquired the asset, for example:
• from a connected person, or
• otherwise than by a bargain made at arm's length, for example,
a gift (unless the no gain/no loss rules apply, see 'What about
transfers to spouses or civil partners?' on page CGN17), or
• wholly or partly for a consideration that cannot be valued, or
• where rebasing to 31 March 1982 applies (see page CGN14).
If the asset is not one you acquired but one you created yourself
(for example, a copyright or the goodwill of a business), deduct
any capital expenditure you incurred wholly and exclusively in
creating the asset.
If you held the asset at 31 March 1982, rebasing will apply and the
calculation should be based on the value at 31 March 1982 unless
the comparison calculation described in the section headed 'What
is rebasing?' on page CGN14 applies.
If you:
• inherit an asset, or
• have become absolutely entitled to settled property,
you are treated as acquiring it at its market value at the date of
death of the testator (or exceptionally the date on which the
personal representative acquired it) or the date on which you
became absolutely entitled, as appropriate, and not on the date on
which you actually acquired it.
■
What enhancement costs can be deducted?
You can deduct any amount you spent wholly and exclusively for
the purpose of enhancing the value of the asset.
Only expenditure that is still reflected in the state or nature of the
asset at the date of sale is allowable.
HMRC 12/05net
Example 8
You built an extension onto a property that you let, but
demolished it before sale. The cost of that extension cannot be
deducted because it is no longer reflected in the state of the asset
at the date of sale. The costs of demolition may be allowable.
■
What incidental costs can be deducted?
You can deduct expenditure you incurred wholly and exclusively on
the acquisition or disposal of the asset, and which is either:
• fees, commission or remuneration paid for professional advice, or
• the costs of transfer or conveyance, or
• stamp duty.
Advertising costs, to find a buyer or a seller, can be deducted and
so can the costs of any valuations or apportionments you obtain
to work out the gain or loss on a disposal.
You cannot deduct any subsequent costs you incur if we disagree
with your valuation.
■
What is expenditure on establishing, preserving or
defending your title to an asset?
You can deduct expenditure you have incurred wholly and exclusively
in establishing, preserving or defending your title to an asset, or your
rights over an asset.
This may include, for example, the legal costs of a dispute with a
neighbouring landowner whose fence encroaches on your land.
■
What is meant by market value?
In some cases the price you paid when you obtained the asset, or
the price you received when you disposed of it, is replaced by the
market value of the asset in working out your gain or loss.
If the asset you have disposed of was held by you at 31 March 1982,
rebasing will apply – rebasing is explained on page CGN14. If so,
the price you paid for the asset may be replaced in the calculation
by the market value of the asset at 31 March 1982.
There is a special rule that applies if you have disposed of assets by
a series of linked disposals to connected persons, so that the value
of the assets transferred, taken separately, is less than their
combined value. The value of each separate asset is replaced in
your calculation by a proportion of the total market value of all the
assets in the series. You can exclude from the series any disposals
that took place more than six years before the last disposal in the
series. The market value is the price an asset might reasonably have
been expected to fetch on the open market at the date of that
acquisition or disposal.
In the case of shares or securities quoted on the Stock Exchange
Daily Official List (SEDOL) the market value is calculated in a special
way. For those assets the market value in all normal circumstances is
the lower of:
• a figure one-quarter up from the lower of the two prices in the
quotation for the relevant day, and
• the figure halfway between the highest and the lowest prices of
recorded bargains for that day.
Example 9
You own the freehold interest in a piece of land. That interest is
worth £100,000. You grant your brother a lease over that land.
The lease is worth £20,000. Four years later you sell your
brother the freehold interest for its then market value of
£60,000. Because the freehold, and the lease, considered
separately, are worth less than the unrestricted freehold you
have only realised a total of £80,000 in disposing of land worth
£100,000. Because this was a series of transactions, you must
replace the £20,000 you got from the grant of the lease by
£25,000 (£20,000/£80,000 x £100,000) in working out your gain.
You must replace the £60,000 you got for the freehold interest
by £75,000 (£60,000/£80,000 x £100,000) in working out the gain
on that disposal.
■ NOTES ON CAPITAL GAINS: PAGE CGN13
continued over
For the year ended 5 April 2006
Notes on CAPITAL GAINS
■
Estimates and valuations
If you have used any estimated figures to work out your gains and
losses, tick the appropriate box in Column B on Page CG1 or CG2
and describe which figures you estimated and why you had to
estimate on Page CG1, or Pages CG4 to CG6 if you have filled in
the grid on Pages CG2 and CG3. Please also tick the 'Yes' box at
the top of Page CG8.
You should include any valuations you have used to work out your
gains or losses, for example, because the asset was acquired from,
or was disposed of to, a connected person or because you held the
asset at 31 March 1982. You should tick the appropriate box in
Column B, whether you have prepared your own estimate of the
value of the asset, or have taken professional advice.
The values you have used may need to be checked for accuracy.
We use specialist valuers to value some assets, mainly unquoted
shares, land, goodwill and works of art. You will be able to discuss
the values you have used with the valuers. If the valuation cannot be
agreed after discussion you can appeal to an independent tribunal.
If we do not enquire into a computation, you should not assume
that valuations used in that computation are agreed.
■
Valuations already checked by us
If you have already asked us on form CG34 to check any of the
valuations you have used in your calculations, put a note to that
effect on Pages CG1 or CG4 to CG6. We need to know which
valuations have been agreed already and which have not yet
been agreed.
■
Who are connected persons?
If you dispose of an asset to a connected person, or acquired an
asset on a disposal by a connected person, the price you pay or
receive is replaced by the market value of the asset in working out
your gain or loss on the disposal of that asset.
Connected persons are:
• your husband or wife or civil partner (but if you are living
together any gains are deferred), see Help Sheet IR281:
Husband and wife, civil partners, divorce, dissolution and separation
• your brothers and sisters and your spouse's or civil partner's
brothers and sisters
• your parents, grandparents and other ancestors and your
spouse's or civil partner's parents, grandparents or
other ancestors
• your children and other lineal descendants and your spouse's or
civil partner's children and other lineal descendants
• the husbands or wives or civil partners of any of the relatives
listed above
• your business partners and their relatives, together with the
husbands and wives or civil partners of those partners, except
for genuine commercial acquisitions or disposals of
partnership assets
• any company that you control, either by yourself or with any
of the persons listed above
• the trustees of a settlement of which you, or living individual
who is connected with you, are the settlor.
If you make a loss on the disposal of an asset to a connected
person, you can set that loss only against gains you make on
disposals to that same connected person. Enter details on
Pages CG1 or CG4 to CG6. See also the section on 'Clogged losses'
on page CGN11.
■
If you have disposed of such an asset, ask the Orderline for
Help Sheet IR293: Chattels and Capital Gains Tax, which explains
how to make the calculations.
■
Is there any adjustment for capital allowances?
You may have claimed capital allowances on the assets you
disposed of. You do not need to adjust the Capital Gains Tax
calculation if the disposal has produced a chargeable gain reduced
to zero by indexation allowance. If the disposal produces an
allowable loss, the amount of the loss is reduced by restricting the
expenses by the net capital allowances. 'Net capital allowances'
means total capital allowances minus any balancing charges. This
restriction can only reduce the loss to zero. It cannot produce a gain.
Example 10
In March 1996 you bought a printing press for £100,000. You
sold it in June 2005 for £27,000. The net capital allowances after
deducting the balancing charge are £73,000. The loss of £73,000
is reduced to zero by restricting the allowable expenses by the
amount of the capital allowances.
■
What is rebasing?
A gain or loss is basically restricted to the amount of the gain or
loss since 31 March 1982. You can:
• elect (within the time limit allowed, see below) to have gains
and losses on all assets covered by the election calculated by
reference to the value of the assets on 31 March 1982, or
• compare that calculation with the calculation based on the
original cost of the asset, and
- if there is a gain on both calculations, the smaller gain
is taxable,
- if there is a loss on both calculations, the smaller loss is
allowable, or
- if one calculation produces a loss, while the other produces a
gain, you will be treated as having made neither a gain nor
a loss.
If you:
• have acquired an asset from your spouse or civil partner at a
time when you were living together, and
• your spouse or civil partner owned that asset at 31 March 1982,
you can be treated as if you owned that asset at 31 March 1982, in
order to work out your gain or loss. The asset will be covered by
the election or non-election of your spouse or civil partner, unless
the asset was transferred to you before 6 April 1988.
Your election is called a 'rebasing election' and will apply to all of
the assets you held at 31 March 1982. An election may not always
be to your advantage, but if you wish to make the election you
must do so within one year and 10 months of the end of the tax year
in which you first made a disposal of an asset which you held at
31 March 1982. If the first such disposal is made in 2005–06 the
latest date for making an election is 31 January 2008. We have
discretion to allow you a longer period. Once you have made an
election, it will not be possible for you to withdraw it at a later date.
If you have disposed of an asset which you held at 31 March 1982,
ask the Orderline for Help Sheet IR280: Rebasing – assets held at
31 March 1982, which explains these rules in more detail.
Show where you have used a valuation at 31 March 1982 by
ticking the appropriate boxes in Columns B and C on Page CG2.
What is a wasting asset?
A wasting asset is an asset that had a predictable life of 50 years or
less on the date on which you acquired it. All plant and machinery
is treated as a wasting asset.
HMRC 12/05net
When you dispose of a wasting asset the expenses you can deduct
may be reduced to account for the remaining predictable life of
the asset.
If you want to make a rebasing election in your 2005–06 Tax Return
enter 'rebasing election' in Column G on Page CG2 against each
disposal affected by the election.
■ NOTES ON CAPITAL GAINS: PAGE CGN14
For the year ended 5 April 2006
Notes on CAPITAL GAINS
■
• you have made a disposal of pooled shares or securities
(see page CGN17).
What is indexation allowance?
This allowance ensures that only gains adjusted for the effects of
inflation up to April 1998 since you acquired the asset are taken
into account. Indexation allowance is frozen from April 1998.
However, taper relief applies to disposals on or after 6 April 1998,
see Section 6 on page CGN18, which explains how taper relief works.
Indexation allowance works by giving you an allowance equal to
the amount by which the cost of the asset would have risen if its
value had kept pace with inflation between the time you acquired
it and April 1998.
If you held the asset at 31 March 1982 (or you acquired that asset
from your spouse or civil partner and he or she held it on that date)
and the market value of the asset on that date was greater than
when you acquired it, indexation allowance is calculated on that
higher value. There is an exception if you have made an election
described under the section headed 'What is rebasing?'. In that
case, indexation allowance is calculated on the 31 March 1982
value irrespective of cost, unless you acquired the asset from your
spouse or civil partner after 5 April 1988 and they had not made
an election.
Indexation allowance will reduce, or may eliminate, the gains on
which you are taxable. But it cannot be used to create or increase
an allowable loss. See Section 5 below for help with working out
your indexation allowance.
■
What are part disposals?
If you have made a disposal of part of an asset so that part of the
asset is retained by you (or you have retained an interest in the asset),
there are rules to allocate expenditure between the part sold and
the part retained. These are:
• expenditure which relates wholly to the part disposed of is
deductible in full
• expenditure which relates wholly to the part retained is
not deductible
• a proportion of expenditure which partly relates to the part sold
is deductible (the proportion relating to the part retained is not).
Disposal proceeds
+
Value of part retained
Example 11
You sell part of an asset for £25,000. The asset cost you £30,000
and the part of the asset that you have retained is worth £50,000.
You have also incurred expenditure of £5,000 wholly on the part
of the asset you have sold. To work out your gain or loss you can
deduct the £5,000 spent on the part sold together with:
£25,000
£25,000 + £50,000
x
£30,000
=
■
£10,000
Where the part of the asset sold, particularly in the case of shares
and securities, is a recognisable fraction of the asset, the allowable
expenditure may be allocated according to that fraction to avoid
unnecessary valuation work. The expenditure not allowed this time
can be allowed on a later disposal.
Section 5 – Indexation allowance
This section shows you how to work out the indexation allowance on
some simple disposals. But it is only an introduction. If you are in
any doubt about your entitlement to relief, ask us or your
tax adviser. In particular the basic rules are modified if:
When does indexation allowance apply?
In the computation of chargeable gains accruing on or after
6 April 1998 indexation allowance has been frozen. This means that
indexation allowance will be given for periods up to April 1998, but
not after then. So, for an asset held at 6 April 1998 and disposed of
after that date, indexation allowance will be computed for the period
from the date of acquisition (or the date the expenditure was incurred)
to April 1998, but not for the period from April 1998 to the date of
disposal. For assets acquired on or after 1 April 1998 no indexation
allowance can be deducted in computing the chargeable gain.
■
How is indexation allowance calculated?
You work out indexation allowance by multiplying the amount you
spent by the indexation factor. You can find a table of indexation
factors on page CGN16. You need to select the indexation factor
for the year and the month in which you acquired the asset or, for
subsequent expenditure on the asset, the year and month in which
you incurred the expenditure. For example, the indexation factor
for expenditure incurred in June 1989 is 0.409.
Example 12
You buy an asset for £10,000 in June 1989 and sell it for £20,000
in November 2005.
Your indexation allowance will be:
£10,000 x 0.409 = £4,090
You deduct an allowance of £4,090 in calculating your
indexed gain.
■
The deductible proportion is the following fraction:
Disposal proceeds
The changes to the rules are mentioned here, but you may need
Help Sheets to understand them fully. You can also ask to see the
Capital Gains Manual at any Enquiry Centre, which explains the
rules for indexation allowance in detail. The manual is also available
at www.hmrc.gov.uk
What about losses?
You cannot use indexation allowance to turn a gain into a loss or to
increase your loss.
Example 13
You sell an asset in May 2005 for £20,000. It cost you £30,000 in
November 1990. You have made a loss of £10,000. You cannot
deduct any indexation allowance, because the allowance cannot
be used to increase the amount of a loss.
Example 14
You sell an asset in July 2005 for £70,000. It cost you £50,000
in June 1984. Before indexation allowance you make a gain
of £20,000.
Your indexation allowance would be:
£50,000 x 0.823 = £41,150
But your gain before indexation allowance is only £20,000
and indexation allowance cannot turn a gain into a loss. Your
indexation allowance is restricted to £20,000 so that you are
treated as making neither a gain nor a loss.
In a case like this enter the gain in Column E on Page CG1 or
Column H on Page CG3, as nil.
• you have made a disposal of an asset that you held at
31 March 1982, or
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■ NOTES ON CAPITAL GAINS: PAGE CGN15
continued over
For the year ended 5 April 2006
Notes on CAPITAL GAINS
■
Indexation allowance table for disposals after 31 March 1998
You work out indexation allowance by multiplying the amount you spent by the indexation factor. All of the factors you will need are included in
the table below.
For example, if you incurred expenditure in June 1989, look across the Month columns to find June and then look down the column until you
find the row for 1989. Your indexation factor for June 1989 will be 0.409.
Month
Year
Jan
Feb
1982
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
1.047
1.006
0.992
0.987
0.986
0.985
0.987
0.977
0.967
0.971
1983
0.968
0.960
0.956
0.929
0.921
0.917
0.906
0.898
0.889
0.883
0.876
0.871
1984
0.872
0.865
0.859
0.834
0.828
0.823
0.825
0.808
0.804
0.793
0.788
0.789
1985
0.783
0.769
0.752
0.716
0.708
0.704
0.707
0.703
0.704
0.701
0.695
0.693
1986
0.689
0.683
0.681
0.665
0.662
0.663
0.667
0.662
0.654
0.652
0.638
0.632
1987
0.626
0.620
0.616
0.597
0.596
0.596
0.597
0.593
0.588
0.580
0.573
0.574
1988
0.574
0.568
0.562
0.537
0.531
0.525
0.524
0.507
0.500
0.485
0.478
0.474
1989
0.465
0.454
0.448
0.423
0.414
0.409
0.408
0.404
0.395
0.384
0.372
0.369
1990
0.361
0.353
0.339
0.300
0.288
0.283
0.282
0.269
0.258
0.248
0.251
0.252
1991
0.249
0.242
0.237
0.222
0.218
0.213
0.215
0.213
0.208
0.204
0.199
0.198
1992
0.199
0.193
0.189
0.171
0.167
0.167
0.171
0.171
0.166
0.162
0.164
0.168
1993
0.179
0.171
0.167
0.156
0.152
0.153
0.156
0.151
0.146
0.147
0.148
0.146
1994
0.151
0.144
0.141
0.128
0.124
0.124
0.129
0.124
0.121
0.120
0.119
0.114
1995
0.114
0.107
0.102
0.091
0.087
0.085
0.091
0.085
0.080
0.085
0.085
0.079
1996
0.083
0.078
0.073
0.066
0.063
0.063
0.067
0.062
0.057
0.057
0.057
0.053
1997
0.053
0.049
0.046
0.040
0.036
0.032
0.032
0.026
0.021
0.019
0.019
0.016
1998
0.019
0.014
0.011
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■ NOTES ON CAPITAL GAINS: PAGE CGN16
For the year ended 5 April 2006
Notes on CAPITAL GAINS
■
Which costs attract indexation allowance?
You can deduct indexation allowance from your gain if you have
any of the following types of expenditure:
• the cost of an asset, or
• the incidental cost of acquiring an asset, or
• the cost of creating an asset if it was not acquired.
Any of these types of expenditure is treated as having been made
when the asset was acquired or created.
You can also deduct indexation allowance if you have either of the
following types of expenditure:
• expenditure on enhancing the asset, or
• expenditure on establishing, preserving or defending your title
to an asset.
Either of these types of expenditure is treated as having been made
when that expenditure became due and payable.
Example 15
You acquired an asset under a contract made in March 1995.
Payment did not have to be made until June 1995. When you
calculate your indexation allowance you should treat the
expenditure as if it had been made on the acquisition in
March 1995.
Example 18
In August 2005 you give a painting to your husband. It cost
you £50,000 in June 1986. You are treated as having disposed
of it for £83,150 as shown below. He is treated as having
acquired it for the same amount.
Transferred at
Cost
£83,150
£50,000
Indexation allowance (to April 1998 only)
£50,000 x 0.663
no gain/no loss
£33,150
zero
The calculation is exactly the same if the painting is sold to
your husband regardless of any amount he might have paid.
■
What about assets held at 31 March 1982?
If you:
• owned an asset at 31 March 1982, or
• acquired an asset from your spouse or civil partner in a no
gain/no loss transfer after that date, and your spouse or civil
partner held the asset at 31 March 1982,
the rules are modified for that asset.
In May 1996 you entered into a contract with a builder to add
an extension to a let property you own. The cost was due and
payable when the work was finished in September 1996. When
you calculate the indexation allowance you should treat the
expenditure as incurred in September 1996.
Your indexation allowance is calculated on the greater of:
• the total cost you or your spouse or civil partner incurred up to
31 March 1982 on that asset (including its initial acquisition
price), or
• the value of that asset at 31 March 1982, unless
you have made an election for rebasing to 31 March 1982 to
apply to all your disposals. If you have made a rebasing election,
indexation allowance is calculated on the value of the asset at
31 March 1982.
You cannot have indexation allowance on the costs of disposing of
an asset, regardless or when you met those costs.
You can calculate separately indexation allowances on any relevant
expenditure incurred after 31 March 1982 that is allowable in
working out your gains.
Example 16
■
What about part disposals?
If you make a disposal of part of an asset you own, you will only be
able to deduct part of the costs of that asset in working out your
gain or loss. Section 4 explains how the calculation is made.
You can find out about rebasing to 31 March 1982 by asking the
Orderline for Help Sheet IR280: Rebasing - assets held at
31 March 1982.
Example 19
Example 17
You bought an asset in 1979 for £20,000. At 31 March 1982 it
was worth £15,000. You should calculate your indexation
allowance by mutiplying £20,000 by the indexation factor unless
you have made a rebasing election; in which case you should
multiply £15,000 by the indexation factor.
You sell part of an asset which cost you £20,000.
■
Your indexation factor is mutiplied by the part of the cost that can
be deducted - not by the whole of the cost of the asset.
The part disposal formula allows you to deduct £5,000 of that
cost to work out your gain. You should multiply the indexation
factor by £5,000 to work out your indexation allowance.
■
What about transfers to spouses or civil partners?
If you dispose of an asset to your husband or wife or civil partner,
you do not pay Capital Gains Tax if you are living together.
The asset is treated as having been disposed of for an amount that
is enough to ensure that you make neither a gain nor a loss. This
amount includes indexation allowance. This sort of disposal is
referred to here as a no gain/no loss transfer.
Your husband or wife or civil partner will pay tax on any gain they
make when they dispose of the asset. Ask the Orderline for Help
Sheet IR281: Husband and wife, civil partners, divorce, dissolution
and separation.
What about disposals of shares or securities?
Shares acquired (or treated as acquired) after 5 April 1982 and
before 6 April 1998 are treated as a single asset, the share pool, if
they are:
• of the same class
• in the same company
• acquired in the same capacity.
Shares acquired (or treated as acquired) between 7 April 1965 and
5 April 1982 from a separate pool.
The same treatment applies to some securities and similar assets.
The rules for indexation allowance are modified to cope with
share pooling.
Shares etc. acquired on or after 6 April 1998 are not pooled. They
also do not attract any indexation allowance, (see page CGN15). If
you have disposed of shares or securities, ask the Orderline for Help
Sheet IR284: Shares and Capital Gains Tax.
Shares in an approved investment trust or an open-ended
investment company, or units in an authorised until trust, which are
invested in a monthly savings scheme may come within the special
simplified scheme in Statement of Practice SP2/99, available from
us or at www.hmrc.gov.uk
HMRC 12/05net
■ NOTES ON CAPITAL GAINS: PAGE CGN17
continued over
For the year ended 5 April 2006
Notes on CAPITAL GAINS
Help Sheet IR287: Employee share and security schemes and Capital
Gains Tax, available from the Orderline, explains more about shares
which you acquired in connection with your employment or by
exercising an employee share option.
Section 6 - Taper relief
■
Introduction
Taper relief is a relief that reduces the amount of a gain chargeable
to Capital Gains Tax, according to the number of whole years that
asset has been held after 5 April 1998. The greater the number of
whole years that you have held the asset the smaller the percentage
of gain which is chargeable to tax. The amount of the reduction is
shown in the table below and depends on whether the asset is a
business asset or a non-business asset.
Gains on business assets
Number of
whole years
1
2 or more
Percentage of
gain chargeable
50
25
Gains on non-business assets
Number of
whole years
1
2
3
4
5
6
7
8
9
10 or more
100
100
95
90
85
80
75
70
65
60
If you need any further information, ask for Help Sheet IR279:
Taper relief.
In a few limited cases, chargeable gains are not subject to taper
relief. For example, if you are charged on gains made by a company
not resident in the UK because you are a participator in that
company, no taper relief will be due.
What is a business asset?
A business asset for the purposes of taper relief is:
• to 5 April 2004 an asset (other than shares or securities) which is
used for the purpose of a trade, profession or vocation carried on
by you (either alone or in partnership) or by your
qualifying company
• from 6 April 2004 an asset (other than shares or securities) which
is used for the purpose of a trade, profession or vocation carried
on by an individual, and certain partnerships (as described in
Help Sheet IR279) or by your qualifying company
• to 5 April 2000 an asset (other than shares or securities) held for
the purposes of a qualifying office or employment with a trading
employer to which you are required to devote substantially the
whole of your time. From 6 April 2000 there is no requirement
for you to devote substantially the whole of your time to the
office or employment
• shares or securities held by you in your qualifying company.
To 5 April 2000 a qualifying company is a trading company (or the
holding company of a trading group) in which you hold shares
which entitle you to exercise at least 25% of the voting rights in
that company, or 5% of the voting rights if you are a full-time
working officer or employee of that company (or group).
From 6 April 2000 a qualifying company is a trading company (or
the holding company of a trading company) which is not listed
HMRC 12/05net
From 6 April 2000 a company will also be your qualifying company
where, although it is not a trading company, you are an employee
of the company and you do not have material interest in the
company or a company that controls it. Broadly, you will have a
material interest where by one means or another you have more
than a 10% interest. For example, if you have more than 10% of a
particular class of share in the company you will have a
material interest.
Where an asset becomes or ceases to be a business asset during the
period you owned it, you may need to apportion any chargeable
gain into a part that relates to a business asset and a part to a
non-business asset. The appropriate rate of taper is then applied to
each gain. This is explained in Help Sheet IR279: Taper relief.
Percentage of
gain chargeable
The complete taper relief has been included for information,
although for disposals in tax year 2005-06 that you include in this
Return it will only be possible to accumulate eight whole years for
non-business assets if the asset qualifies for the additional (bonus)
year (as described in Help Sheet IR279: Taper relief). The percentage
rates that are shaded will not be available until later tax years.
■
either on the London Stock Exchange or a recognised overseas
exchange or, if listed, you are either an officer or employee of the
company (or group) or you hold shares which entitle you to
exercise at least 5% of the voting rights in that company.
Section 7 - Reliefs and elections
Relief from Capital Gains Tax is given in different ways to meet
different purposes. Some reliefs are given automatically and so
you do not need to make a claim. You should take account of
the amount of any 'automatic' relief that is due when you work
out your gains and losses together with all the other reliefs you
are claiming.
Some reliefs are only given if you claim them. In some cases you
can make a claim in the Tax Return. In others you must make the
claim on a separate form, which you attach to the Tax Return (see
notes on completion of Column G on page CGN5).
You should also use the Capital Gains Pages to make any elections
that determine how your gains are to be worked out.
The most common reliefs and elections are introduced briefly
below, and are dealt with more fully in Help Sheets available from
the Orderline or at www.hmrc.gov.uk see the list on page CGN1.
■
Your home
In most cases you will not pay tax on any gain you make when you
dispose of your only home. Similarly, if there is a loss on the
disposal the loss will not be allowable. You may have to pay tax if,
for example:
• the garden or grounds of your home including the site of the
house exceed half a hectare (a little less than one and a quarter
acres) and some or all of that excess does not qualify for relief
• part or all of your home has at some time not been used as your
home; for example if it has been let or used for business
• you have had a second home, and the property you have
disposed of has not been your main home during your whole
period of ownership
• you acquired your home by way of a gift on which gifts
hold-over relief under Section 260 of the Taxation of Chargeable
Gains Act 1992 is obtained. (Note: Special transitional rules that
may allow some private residence relief to be obtained apply
where the gift was made before 10 December 2003.)
If you are married or in a civil partnership, and you are not
separated from your spouse or civil partner, you can only have one
main residence between you.
If you think that you may be entitled to private residence relief on a
disposal you have made, ask the Orderline for Help Sheet IR283:
Private residence relief.
■
Other reliefs
Roll-over relief allows gains on the disposal of business assets to be
deferred if replacement assets are acquired. If you want this relief,
ask the Orderline for Helpsheet IR290: Business asset roll-over relief.
The definition of business asset for this purpose is not the same as
that for taper relief (in Section 6 - 'What is a business asset?').
■ NOTES ON CAPITAL GAINS: PAGE CGN18
For the year ended 5 April 2006
Notes on CAPITAL GAINS
Complete the claim form attached to Help Sheet IR290. Please
attach the claim form to the Tax Return when you send it back.
If you are claiming in relation to any disposal, enter 'roll-over relief'
and the amount claimed in Column G on page CG2 next to
that disposal.
Gifts hold-over relief allows gains to be deferred when certain
assets are given away. If you want to claim this relief, ask the
Orderline for Helpsheet IR295: relief for gifts and similar transactions.
Claims must be made by completing the claim form attached to
Help Sheet IR295 or a copy of the form. Please attach the claim
form to your Tax Return. Write 'gifts hold-over relief' in Column G
on Page CG2 next to the relevant disposal and enter the amount
claimed. Other reliefs for gifts and similar transactions are described
in Help Sheet IR295: Reliefs for gifts and similar transactions, for
example, gifts to charities and claims to defer payment of tax. In
the case of gifts to charities of listed shares and securities etc. or of
real property the exemption from Capital Gains Tax applies in
addition to, and not as an alternative, to the relief described in the
note to boxes 15A.4 and 15A.5 on page 27 of the Tax Return
Guide. If you want more information go to www.hmrc.gov.uk
Please note that in most cases the claim is a joint claim by you and
the person to whom you gave the asset.
Dependent relative relief allows relief on the disposal of a home
which you provided to a dependent relative before 6 April 1988
and which was occupied by the relative as their sole residence. See
Help Sheet IR283: Private residence relief. If you want this relief, you
must claim it on the Capital Gains Pages by writing 'dependent
relative relief' in Column G on Page CG2 next to the relevant
disposal. Enter the amount of the relief claimed.
Halving relief relieves half of a gain arising from a gain deferred
before April 1988. See Help Sheet IR280: Rebasing - assets held at
31 March 1982. If you want this relief, you must claim it on the
Capital Gains Pages by writing 'halving relief' in Column G on
Page CG2 next to the relevant disposal and entering the amount of
relief claimed.
Enterprise Investment Scheme deferral relief allows gains to be
deferred when you subscribe for Enterprise Investment Scheme
shares. See Help Sheet IR297: Enterprise Investment Scheme and
Capital Gains Tax. Enterprise Investment Scheme deferral relief can
only be claimed on receipt of an EIS3 certificate from the company
invested in. A claim form is attached to the certificate for
completion to claim the relief. When claiming, write 'Enterprise
Investment Scheme deferral relief' or 'Venture Capital Trust deferral
relief' in Column G on Page CG2 next to the relevant disposal and
enter the amount of relief claimed.
Enterprise Investment Scheme and Venture Capital Trust
disposal reliefs. See Help Sheet IR297 and Help Sheet IR298: Venture
Capital Trusts and Capital Gains Tax, as above. Any gain on the
disposal of Enterprise Investment Scheme or Venture Capital Trust
shares may not be chargeable to Capital Gains Tax. If you have
taken advantage of either of these reliefs on the disposal of any
shares, write 'Enterprise Investment Scheme disposal relief' or
'Venture Capital Trust disposal relief' in Column G on Page CG2
next to the relevant disposal and enter the amount of
relief claimed.
Business incorporation relief defers a gain made when a business
is transferred to a company in exchange for shares. This relief is
given automatically. If you have taken advantage of this relief on
any disposal, write 'business incorporation relief' in Column G on
Page CG2 next to the relevant disposal and enter the amount of
the relief. For transfers on or after 6 April 2002 it is possible to elect
out of this relief. Further guidance is given in Help Sheet IR276:
Incorporation relief.
HMRC 12/05net
Unremittable gains. If you have disposed of an asset situated
outside the UK and you are unable to transfer the gains to the UK
because of exchange controls or a shortage of foreign currency in
the overseas country, then you can claim that the unremittable gain
should not be taxable in 2005-06. You can claim relief by writing
'unremittable gains' in Column G on Page CG2 next to the relevant
disposal. Enter the amount claimed.
Gains becoming remittable. Where a gain was not taxed in an
earlier year because it was unremittable but it can now be remitted
to the UK it is treated as a gain arising in 2005-06. A gain may
become remittable if, for example, exchange controls are lifted.
Include any gains to which this applies whether or not they are
actually remitted to the UK.
Negligible value claims, and claims in respect of certain loans
that have become irrecoverable, which have the effect of
crystallising losses, may be made in Column G on Page CG2.
Further guidance on such claims is given in, respectively, Help Sheet
IR286: Negligible value claims and Income Tax losses on disposals of
shares you have subscribed for in qualifying trading companies and
Help Sheet IR296: Debts and Capital Gains Tax.
Relief for losses against income. This relief is introduced on
Page CGN10. If you are claiming this relief, write 'relief for losses
against income' in Column G on Page CG2 next to the relevant
disposal and enter the whole amount of the loss in Column H
on Page CG3. Enter the amount claimed in boxes 8.13, 8.13A
or 8.13B.
Rebasing. Following the instructions on page CGN14.
Relief for foreign tax paid. If gains chargeable to Capital Gains Tax
have also been charged to tax in another country, you may be able
to claim relief by way of credit for the foreign tax paid ('foreign tax
credit relief'). Foreign tax credit relief is deducted from that part of
your Capital Gains Tax liability that relates to the gain on which the
foreign tax has been paid. If you wish to claim foreign tax credit
relief you should ask the Orderline for the Foreign Pages, if you do
not already have them.
If you have gains which are chargeable on the remittance basis and
wish to claim relief by way of credit for foreign tax paid in respect
of those gains, you will need to add to the amount of net gains
brought to the UK (that is, the gains less the foreign tax) the
appropriate proportion of the foreign tax attributable to the net
gains remitted.
If a gain accured in 2001-02, 2002-03, 2003-04 or 2004-05 when
you were regarded as a 'temporary non-resident' and you wish to
claim relief for foreign tax paid, see Help Sheet IR278: Temporary
non-residents and Capital Gains Tax, available from the Orderline.
It will usually be to your advantage to claim foreign tax credit relief
in respect of foreign tax paid. But this will not be the case where no
Capital Gains Tax is chargeable on a particular gain. For example,
where the disposal results in a loss, or losses brought forward
extinguish any chargeable gains, there may be no UK tax against
which the foreign tax can be credited.
If you do not wish to claim foreign tax credit relief, deduct the
foreign tax paid in calculating the amount of the chargeable gains
or allowable losses to be entered in Column H on Page CG3. You
cannot, however, deduct part of the foreign tax in calculating the
gain on disposal and claim credit for the balance.
If you do wish to claim foreign tax credit relief, you should ask the
Orderline for the Foreign Pages and complete Page F3. If you are
calculating your tax, you will also need Help Sheet IR261: Foreign
Tax Credit Relief: Capital Gains available from the Orderline.
■ NOTES ON CAPITAL GAINS: PAGE CGN19
continued over
For the year ended 5 April 2006
Notes on CAPITAL GAINS
Relief for Special Withholding Tax. If gains chargeable to Capital
Gains Tax have had tax withheld by another country because of the
European Union Savings Directive, you will be able to set the tax
withheld against your UK tax liability.
To claim the Special Witholding Tax, ask the Orderline for the
Foreign Pages of the Return and complete Page F3.
Relief for Inheritance Tax on a Gift or Deemed Disposal.
Inheritance Tax is not usually taken into account in calculating
liability to Capital Gains Tax. In exceptional circumstances, it may
be taken into account when the transferee disposes of the assets.
Further guidance is available in Help Sheet IR295: Reliefs for gifts and
similar transactions.
Gift Aid. If you make payments under Gift Aid (see the notes to
Question 15A on pages 26 and 27 of your Tax Return Guide), you
might obtain relief from tax at the higher rate on capital gains. In
addition, Capital Gains Tax can be taken into account as tax paid in
determining whether you have paid enough tax to match the tax
which the charity can reclaim. If you ask us to calculate your tax for
you, we take this into account when we work out your tax bill. If
you work out your tax the Tax Calculation Guide takes this into
account in the calculation process. (Ask the Orderline for the
Comprehensive Tax Calculation Guide if you have capital gains
and you want to calculate your tax.) If you want more
information about giving to charity please contact us.
Relief on certain disposals of shares to the trustees of an
approved share incentive plan. This relief allows gains on the
disposal of shares that are not quoted on a recognised stock
exchange to be deferred if replacement assets are acquired and
other conditions are met. If you think you may be entitled to this
relief ask the Orderline for Help Sheet IR287: Employee share and
security schemes and Capital Gains Tax.
HMRC 12/05net
■ NOTES ON CAPITAL GAINS: PAGE CGN20
For the year ended 5 April 2006
Notes on CAPITAL GAINS
Section 8 – worked examples of gains and losses
■
The basic calculation
Example 20
A piece of land, which was bought in June 1988 for £20,000, was sold in May 2005 for £100,000. The incidental costs of the
acquisition were £1,000 while the incidental costs of the disposal were £5,000. A barn had been built on the land in August 1988
at a cost of £15,000 and it was still there when the land was sold.
Disposal proceeds
minus
£100,000
Incidental costs
£5,000
Net disposal proceeds
£95,000
Cost
£20,000
plus
Incidental costs
£1,000
plus
Enhancement expenditure
£15,000
Total
£36,000
£36,000
Unindexed gain
minus
£59,000
Indexation allowance
Acquisition costs
£21,000
Indexation allowance
£21,000 x 0.525
Enhancement expenditure
=
£11,025
=
£7,605
£15,000
Indexation allowance
£15,000 x 0.507
Chargeable gain, subject to taper relief
■
£40,370
Allowable losses
Example 21
An individual has the following chargeable gains and allowable losses:
Gain
Losses
2003-04
2004-05
2005-06
£10,000
£25,000
£15,000
£5,000
£25,000
zero
The chargeable gain or allowable loss position for each year would be:
2003-04
minus
Gain
losses
Losses to carry forward
£10,000
£10,000
£15,000
Losses of the same year are set-off to reduce gains to zero.
2004-05
minus
minus
minus
Gain
current year losses
losses brought forward
£15,000
£5,000
£1,800
Net gain
£8,200
annual exempt amount
£8,200
zero
Losses to carry forward
£13,200
(£15,000 minus £1,800)
Losses of the same year are set off in priority to losses brought forward.
Losses brought forward are set off to reduce gains to the annual exempt amount
2005-06
minus
Gain
losses brought forward
Net chargeable gain, subject to taper relief
HMRC 12/05net
■ NOTES ON CAPITAL GAINS: PAGE CGN21
£25,000
£13,200
£11,800
continued over
For the year ended 5 April 2006
Notes on CAPITAL GAINS
■
Rebasing to 31 March 1982 - No election made
Example 22
An asset cost £250,000 on 1 May 1979 inclusive of incidental costs. It is worth £200,000 at 31 March 1982 and was sold on
15 April 2005 for £1,000,000 net of incidental costs. No election was made for rebasing to 31 March 1982.
Original cost
minus
Disposal proceeds
Cost
£1,000,000
£250,000
Unindexed gain
minus
Rebased gain
minus
£750,000
Indexation
Disposal proceeds
value at 31.3.82
Unindexed gain
minus
£1,000,000
£200,000
£800,000
Indexation
£250,000 x 1.047 =
£261,750
£250,000 x 1.047 =
£261,750
Indexed gain
£488,250
Indexed gain
£538,250
The indexed gain to which taper relief should be applied is the lower of the two figures: £488,250. See notes on page CGN14
and Help Sheet IR280.
■
A part disposal
Example 23
A house was bought for letting in December 1987 for £50,000 including incidental costs. In March 1988 it was subdivided into
two flats at a cost of £5,000. One flat was sold in May 2005 for £120,000. Immediately before sale a central heating system was
installed at a cost of £2,000 in the flat that was sold. The incidental expenses of the disposal were £6,000 and the value of the
retained flat was £80,000.
minus
Disposal proceeds
Incidental costs
£120,000
£6,000
£114,000
minus
Part of cost of house
£50,000 x
minus
minus
=
£30,000
£120,000
£120,000 + £80,000
=
£3,000
Subdividing house
£5,000 x
minus
£120,000
£120,000 + £80,000
Central heating
Total costs
Unindexed gain
£2,000
£35,000
Indexation allowance
cost of house
subdivision
£30,000 x 0.574
=
£3,000 x 0.562
=
Total indexation
£17,220
£1,686
£18,906
Chargeable gain, subject to taper relief
HMRC 12/05net
£35,000
£79,000
■ NOTES ON CAPITAL GAINS: PAGE CGN22
£18,906
£60,094
For the year ended 5 April 2006
Notes on CAPITAL GAINS
■
A disposal of pooled shares
Example 24
2,000 shares were bought in May 1988 at a cost of £9,000 including incidental costs. In January 1990 there was a rights issue
of two shares for each one held as a result of which a further 4,000 shares were bought for £20,000. In June 2005 600 shares
were sold for £6,000 net of incidental costs.
Number
of shares
Pool of qualifying
expenditure
Indexed pool of
expenditure
2,000
£9,000
£9,000
A pool is created in May 1988:
The rights issue is an 'operative event'
(This phrase is explained in Help Sheet IR284)
Indexation May 1988 to January 1990
2,000
£9,000 x 0.125*
£9,000
=
£1,125
£10,125
4,000
6,000
£20,000
£29,000
£20,000
£30,125
Add the cost of the rights issue shares to the two pools:
The part disposal in June 2005 is an 'operative event'
Indexation January 1990 to April 1998
£30,125 x 0.361
6,000
£29,000
=
£10,875
£41,000
(£2,900)
£26,100
(£4,100)
£36,900
Reduce the two pools by the apportioned amounts of cost and indexation
(600)
5,400
Calculation of chargeable gain:
minus
Cost
Unindexed gain
Disposal proceeds
£6,000
£2,900
£3,100
minus
Indexation (£4,100 minus £2,900)
£1,200
Chargeable gain, subject to taper relief
£1,900
*The indexation factor (0.125) here cannot be taken from the table on page CGN16. This is because the 'operative event' occurred before
April 1998. We or your tax adviser can supply the right figures to use for any months before April 1998.
■
Relief for foreign tax paid
Example 25
You sold a property abroad realising a gain of £30,000 which is chargeable to UK Capital Gains Tax on the remittance basis.
Foreign tax of £9,000 is paid on the gain. Of the net after-tax gain of £21,000 you bring £5,250 into the UK. You wish to claim
relief by way of credit for the foreign tax paid.
The amount of gains chargeable to UK tax is:
Amount remitted
add foreign tax
£5,250
£5,250
£21,000
x £9,000
Gains chargeable
=
£2,250
£7,500
Foreign tax credit relief is available for foreign tax (£2,250) attributable to the gain remitted.
If the UK Capital Gains Tax on the figure of taxable gains is less than the amount of the foreign tax available for credit,
the excess foreign tax is not repayable nor can it be deducted in calculating the taxable gains. For example, if the gains of £7,500
are taxable at 20%, the tax due of £1,500 will be wholly covered by tax credit relief. No relief of any kind is available for the
excess foreign tax of £750 (that is, £2,250 minus £1,500).
These notes are for guidance only, and reflect the position at the time of writing. They do not affect any rights of appeal.
HMRC 12/05net
■ NOTES ON CAPITAL GAINS: PAGE CGN23
the Working Sheet for
simple disposals follows
For the year ended 5 April 2006
Notes on CAPITAL GAINS
Working Sheet for simple disposals
This Working Sheet follows the format of the simple calculation on page CGN10. Do not use this Sheet if the asset has been acquired by
the exercise of an option or if the disposal is a part-disposal (see page CGN15). You can use this Sheet for a disposal of land or other asset.
You can use it also for a disposal of shares but only if it is a disposal of the whole of your holding of a particular class of shares and, where
indexation or taper relief is due on the gain, the same rate of indexation or taper relief applies to all shares.
Use a separate copy of this Sheet for each disposal and enter the result of each calculation on a separate line on Page CG1 or CG2,
as appropriate. (If you have more than one disposal take photocopies of this Sheet before you start.)
A
Disposal Proceeds (see notes on page CGN12)
£
minus
Cost of acquisiiton (see notes on page CGN13)
B
£
Enhancement costs (see notes on page CGN13)
C
£
Incidental acquisition costs (see notes on page CGN13)
D
£
Incidental disposal costs (see notes on page CGN13)
E
£
boxes B + C + D + E
F
Total costs (total of boxes B + C + D + E)
£
box A minus box F
G
£
Indexation Allowance (total of 'Allowance' column above)
H
£
Chargeable gain (box G minus box H).
(Indexation Allowance cannot be used to create a loss so if the result is negative
enter zero.)
I
Gains or loss (box A minus box F)
If you have made a loss (the figure in box G is negative), this may be an allowable loss.
(See notes on page CGN11.) You do not need to complete the remaining boxes.
If there is a gain in box G and you incurred expenditure before April 1998, calculate any
indexation allowance on expenditure within boxes B, C and D (to April 1998 only).
You may need to use a separate sheet of paper if expenditure was incurred in many
different months. Enter the total indexation allowance in box H.
(See notes on pages CGN14 to CGN17.)
Month
and Year
Expenditure
Factor
Allowance
(see page CGN16) (expenditure x factor)
£
£
£
£
£
£
box G minus box H
£
Asset owned at 31 March 1982
If you or your spouse or civil partner owned the asset at 31 March 1982, you may need to restrict the gain or loss before
proceeding to complete the Capital Gains Pages. (See the notes on page CGN14.)
Completion of the Capital Gains Pages
Use Page CG1 if all of your disposals in the year were of quoted shares or other securities unless taper relief is due on any
of them or any were held at 31 March 1982, or you are claiming a relief. (See definition of quoted shares or other securities
on page CGN3.) Enter the chargeable gain or allowable loss for each separate disposal in Column E.
Otherwise use Pages CG2 and CG3. For each disposal, adjust for any election or reliefs included in Column G and enter
the result in Column H. Page CG3 will then help you allocate any allowable losses and calculate the tapered gain.
HMRC 12/05net
■ NOTES ON CAPITAL GAINS: PAGE CGN24
Printed in the U.K. by Adare Group. R2H 2773 12/05
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