Sa108_notes CGN10 Sa108 Notes

User Manual: CGN10

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■NOTES ON CAPITAL GAINS: PAGE CGN1

HMRC 12/05net continued over

Notes on CAPITAL GAINS

For the year ended 5 April 2006

CONTENTS

Filling in your Capital Gains Pages CGN2

Section 1 – General - Filling in Pages CG1 to CG8 CGN2

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

Chargeable gains CGN8

Who pays Capital Gains Tax? CGN8

Assets CGN8

Exempt assets CGN8

Disposals CGN9

Small receipts CGN9

Building society mergers, conversions and take-overs CGN9

Company reconstructions and take-overs CGN9

Allowable losses set against income CGN10

Other taxable gains CGN10

Gains of earlier years CGN10

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

How to make a claim for a loss CGN11

Is there a time limit for claiming losses? CGN12

What is the date of disposal (or acquisition)? CGN12

What are disposal proceeds? CGN12

What expenses can be deducted? CGN13

What acquisition costs can be deducted? CGN13

What enhancement costs can be deducted? CGN13

What incidental costs can be deducted? CGN13

What is expenditure on establishing, preserving or

defending your title to an asset? CGN13

What is meant by market value? CGN13

Estimates and valuations CGN14

Valuations already checked by us CGN14

Who are connected persons? CGN14

What is a wasting asset? CGN14

Is there any adjustment for capital allowances? CGN14

What is rebasing CGN14

What is indexation allowance? CGN15

What are part disposals? CGN15

Section 5 – Indexation allowance CGN15

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

Your home CGN18

Other reliefs CGN18

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.

●IR261: Foreign Tax Credit Relief: Capital gains

●IR276: Incorporation relief

●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

●IR283: Private residence relief

●IR284: Shares and Capital Gains Tax

●IR285: Share reorganisations, company take-overs and

Capital Gains Tax

●IR286: Negligible value claims and Income Tax losses on

disposals of shares you have subscribed for in qualifying

trading companies

●IR287: Employee share and security schemes and Capital Gains Tax

●IR288: Partnerships and Capital Gains Tax

●IR290: Business asset roll-over relief

●IR292: Land and leases, the valuation of land and Capital Gains Tax

●IR293: Chattels and Capital Gains Tax

●IR294: Trusts and Capital Gains Tax

●IR295: Relief for gifts and similar transactions

●IR296: Debts and Capital Gains Tax

●IR297: Enterprise Investment Scheme and Capital Gains Tax

●IR298: Venture Capital Trusts and Capital Gains Tax

●IR299: Non-resident trusts and Capital Gains Tax

●IR301: Calculation of the increase in tax charge on capital gains

from non-resident, dual resident and immigrating trusts

SA108 (Notes)

■NOTES ON CAPITAL GAINS: PAGE CGN2

HMRC 12/05net

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.

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

The notes are divided into 8 sections.

Section 1 (pages CGN2 to CGN7) explains how to fill in the

Capital Gains Pages.

Section 2 (pages CGN7 and CGN8) provides a simple guide to

Capital Gains Tax.

Sections 3 to 8 (pages CGN8 to CGN24) provide more

detailed guidance.

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

Section 1 – General – Filling in Pages CG1 to CG8

Filling in your Capital Gains Pages

Notes on CAPITAL GAINS

For the year ended 5 April 2006

■NOTES ON CAPITAL GAINS: PAGE CGN3

HMRC 12/05net

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).

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.

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.

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.

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.

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.

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.

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.

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).

Total all of your gains in Column E. Enter the total in

box F1.

Total all of your losses in Column E. Enter the total in

box F2.

box F2

box F1

Column F

Column E

Column D

Column C

Column B

Column A

■Filling in Page CG1

■Definition of quoted shares or other securities for

the Capital Gains Pages

continued over

Notes on CAPITAL GAINS

For the year ended 5 April 2006

■NOTES ON CAPITAL GAINS: PAGE CGN4

HMRC 12/05net

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.

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.

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.

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.

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.

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.

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

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 non-

business 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.

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.

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 Tagainst

each individual entry.

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.

Column AA

Column A

■Filling in Pages CG2 and CG3

box F7

box F6

box F5

box F4

box F3

Notes on CAPITAL GAINS

For the year ended 5 April 2006

■NOTES ON CAPITAL GAINS: PAGE CGN5

HMRC 12/05net

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).

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.

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.

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.

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).

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.

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).

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.)

Column H

Column G

Column F

Column E

Column D

Column C

Column B

continued over

Notes on CAPITAL GAINS

For the year ended 5 April 2006

■NOTES ON CAPITAL GAINS: PAGE CGN6

HMRC 12/05net

• 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.

If the asset disposed of was a business asset, (see page CGN18)

you should enter 'Bus' in the appropriate row(s) of this column.

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.

For more information on what is a business asset for the purposes

of taper relief see page CGN18 and Help Sheet IR279: Taper relief.

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.

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.

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.

Total your losses claimed in Columns K2 and K3 and enter the

amounts in boxes 8.5 and 8.6.

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).

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.

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.

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.

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.

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

■Filling in Pages CG4 to CG6

Total taxable gains

Attributed gains and box 8.4

Column M and box 8.3

Column L

Column K and boxes 8.5 and 8.6

Column J

Column I

Notes on CAPITAL GAINS

For the year ended 5 April 2006

■NOTES ON CAPITAL GAINS: PAGE CGN7

HMRC 12/05net

• 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.

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.

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.

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.

Enter the total taxable gains from box F7 on Page CG1

or from the total taxable gains box on Page CG3.

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.

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.

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.

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.

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.

These boxes summarise your losses to

carry forward.

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.

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.

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).

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 £7,500

plus Broker's fee and any stamp duty £100 £7,600

Net gain £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

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

Section 2 – A simple guide to Capital Gains Tax

Clogged losses

boxes 8.20 and 8.21

boxes 8.18 and 8.19

boxes 8.15 to 8.17

boxes 8.10 to 8.14

Capital losses

box 8.9

box 8.8

box 8.7

■Filling in Page CG8

■Filling in Page CG7

continued over

Notes on CAPITAL GAINS

For the year ended 5 April 2006

■NOTES ON CAPITAL GAINS: PAGE CGN8

HMRC 12/05net

gain into a loss. If your indexation allowance is greater than your

gain, you can only deduct enough to reduce your gain to zero.

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.

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.

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).

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

in which you resume residence in the UK, see Help Sheet IR278:

Temporary non-residents and Capital Gains Tax.

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.

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.

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.

■Exempt assets

■Assets

■Who pays Capital Gains Tax?

■Chargeable gains

Section 3 – An introduction to Capital Gains Tax

Notes on CAPITAL GAINS

For the year ended 5 April 2006

■NOTES ON CAPITAL GAINS: PAGE CGN9

HMRC 12/05net

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.

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.

If in the situations described above the amount you receive:

•does not exceed £3,000, or

•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.

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.

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.

■Company reconstructions and take-overs

■Building society mergers, conversions and take-overs

■What is small?

■Small receipts

■Disposals

continued over

Notes on CAPITAL GAINS

For the year ended 5 April 2006

■NOTES ON CAPITAL GAINS: PAGE CGN10

HMRC 12/05net

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.

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.

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.

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.

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.

At its simplest a calculation of a chargeable gain will use the format:

See notes on page

Disposal proceeds (a) CGN12

minus Cost of acquisition (b) CGN13

Enhancement costs (c) CGN13

Incidental acquisition costs (d) CGN13

Incidental disposal costs (e) CGN13

Total costs x

minus Indexation allowance on

(b), (c) and (d) (to April 1998 only) CGN15

equals 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) x %

Tapered gain: chargeable gain multiplied by taper % = £

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.

■A simple calculation

■How to calculate gains and losses

Section 4 – Calculating gains and losses

■Gains of earlier years

■Other taxable gains

■Allowable losses set against income

Notes on CAPITAL GAINS

For the year ended 5 April 2006

■NOTES ON CAPITAL GAINS: PAGE CGN11

HMRC 12/05net

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.

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 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

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.

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.

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.

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.

■How to make a claim for a loss

■Do losses have to be claimed?

■Carry back of losses

Clogged losses

■How is a loss allowed?

continued over

Notes on CAPITAL GAINS

For the year ended 5 April 2006

■NOTES ON CAPITAL GAINS: PAGE CGN12

HMRC 12/05net

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:

•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.

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).

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.

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.

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.

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.

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.

■What are disposal proceeds?

■What is the date of disposal (or acquisition)?

■Is there a time limit for claiming losses?

Notes on CAPITAL GAINS

For the year ended 5 April 2006

■NOTES ON CAPITAL GAINS: PAGE CGN13

HMRC 12/05net

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.

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.

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.

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.

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.

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.

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.

■What is meant by market value?

■What is expenditure on establishing, preserving or

defending your title to an asset?

■What incidental costs can be deducted?

■What enhancement costs can be deducted?

■What acquisition costs can be deducted?

■What expenses can be deducted?

continued over

Notes on CAPITAL GAINS

For the year ended 5 April 2006

■NOTES ON CAPITAL GAINS: PAGE CGN14

HMRC 12/05net

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.

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.

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.

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.

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 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.

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.

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.

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.

■What is rebasing?

■Is there any adjustment for capital allowances?

■What is a wasting asset?

■Who are connected persons?

■Valuations already checked by us

■Estimates and valuations

Notes on CAPITAL GAINS

For the year ended 5 April 2006

■NOTES ON CAPITAL GAINS: PAGE CGN15

HMRC 12/05net

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.

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).

The deductible proportion is the following fraction:

Disposal proceeds

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 x £30,000 = £10,000

£25,000 + £50,000

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.

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:

•you have made a disposal of an asset that you held at

31 March 1982, or

•you have made a disposal of pooled shares or securities

(see page CGN17).

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

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.

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.

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.

■What about losses?

■How is indexation allowance calculated?

■When does indexation allowance apply?

Section 5 – Indexation allowance

■What are part disposals?

■What is indexation allowance?

continued over

Notes on CAPITAL GAINS

For the year ended 5 April 2006

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.

■Indexation allowance table for disposals after 31 March 1998

■NOTES ON CAPITAL GAINS: PAGE CGN16

HMRC 12/05net

Notes on CAPITAL GAINS

For the year ended 5 April 2006

Month

Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

1982 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

■NOTES ON CAPITAL GAINS: PAGE CGN17

HMRC 12/05net

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 16

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.

You cannot have indexation allowance on the costs of disposing of

an asset, regardless or when you met those costs.

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.

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.

Example 17

You sell part of an asset which cost you £20,000.

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.

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.

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 £83,150

Cost £50,000

Indexation allowance (to April 1998 only)

£50,000 x 0.663 £33,150

no gain/no loss zero

The calculation is exactly the same if the painting is sold to

your husband regardless of any amount he might have paid.

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.

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 can calculate separately indexation allowances on any relevant

expenditure incurred after 31 March 1982 that is allowable in

working out your gains.

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

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.

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

■What about disposals of shares or securities?

■What about assets held at 31 March 1982?

■What about transfers to spouses or civil partners?

■What about part disposals?

■Which costs attract indexation allowance?

continued over

Notes on CAPITAL GAINS

For the year ended 5 April 2006

■NOTES ON CAPITAL GAINS: PAGE CGN18

HMRC 12/05net

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.

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.

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.

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.

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

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.

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.

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.

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.

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?').

■Other reliefs

■Your home

Section 7 - Reliefs and elections

■What is a business asset?

■Introduction

Section 6 - Taper relief

Notes on CAPITAL GAINS

For the year ended 5 April 2006

Gains on business assets

Number of Percentage of

whole years gain chargeable

150

2 or more 25

Gains on non-business assets

Number of Percentage of

whole years gain chargeable

1 100

2 100

395

490

585

680

775

870

965

10 or more 60

■NOTES ON CAPITAL GAINS: PAGE CGN19

HMRC 12/05net

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.

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.

continued over

Notes on CAPITAL GAINS

For the year ended 5 April 2006

■NOTES ON CAPITAL GAINS: PAGE CGN20

HMRC 12/05net

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.

Notes on CAPITAL GAINS

For the year ended 5 April 2006

■NOTES ON CAPITAL GAINS: PAGE CGN21

HMRC 12/05net continued over

Notes on CAPITAL GAINS

For the year ended 5 April 2006

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 £100,000

minus 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 £59,000

minus Indexation allowance

Acquisition costs £21,000

Indexation allowance £21,000 x 0.525 = £11,025

Enhancement expenditure £15,000

Indexation allowance £15,000 x 0.507 = £7,605

Chargeable gain, subject to taper relief £40,370

■The basic calculation

Example 21

An individual has the following chargeable gains and allowable losses:

2003-04 2004-05 2005-06

Gain £10,000 £15,000 £25,000

Losses £25,000 £5,000 zero

The chargeable gain or allowable loss position for each year would be:

2003-04 Gain £10,000

minus losses £10,000

Losses to carry forward £15,000

Losses of the same year are set-off to reduce gains to zero.

2004-05 Gain £15,000

minus current year losses £5,000

minus losses brought forward £1,800

Net gain £8,200

minus 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 Gain £25,000

minus losses brought forward £13,200

Net chargeable gain, subject to taper relief £11,800

■Allowable losses

Section 8 – worked examples of gains and losses

■NOTES ON CAPITAL GAINS: PAGE CGN22

HMRC 12/05net

Notes on CAPITAL GAINS

For the year ended 5 April 2006

■Rebasing to 31 March 1982 - No election made

■A part disposal

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 Rebased gain

Disposal proceeds £1,000,000 Disposal proceeds £1,000,000

minus Cost £250,000 minus value at 31.3.82 £200,000

Unindexed gain £750,000 Unindexed gain £800,000

minus Indexation minus 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.

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.

Disposal proceeds £120,000

minus Incidental costs £6,000

£114,000

minus Part of cost of house

£50,000 x £120,000 = £30,000

£120,000 + £80,000

minus Subdividing house

£5,000 x £120,000 = £3,000

£120,000 + £80,000

minus Central heating £2,000

Total costs £35,000 £35,000

Unindexed gain £79,000

minus Indexation allowance

cost of house £30,000 x 0.574 = £17,220

subdivision £3,000 x 0.562 = £1,686

Total indexation £18,906 £18,906

Chargeable gain, subject to taper relief £60,094

■NOTES ON CAPITAL GAINS: PAGE CGN23

HMRC 12/05net the Working Sheet for

simple disposals follows

Notes on CAPITAL GAINS

For the year ended 5 April 2006

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 Pool of qualifying Indexed pool of

of shares expenditure expenditure

A pool is created in May 1988: 2,000 £9,000 £9,000

The rights issue is an 'operative event'

(This phrase is explained in Help Sheet IR284)

Indexation May 1988 to January 1990 £9,000 x 0.125* = £1,125

2,000 £9,000 £10,125

Add the cost of the rights issue shares to the two pools:

4,000 £20,000 £20,000

6,000 £29,000 £30,125

The part disposal in June 2005 is an 'operative event'

Indexation January 1990 to April 1998 £30,125 x 0.361 = £10,875

6,000 £29,000 £41,000

Reduce the two pools by the apportioned amounts of cost and indexation

(600) (£2,900) (£4,100)

5,400 £26,100 £36,900

Calculation of chargeable gain:

Disposal proceeds £6,000

minus Cost £2,900

Unindexed gain £3,100

minus Indexation (£4,100 minus £2,900) £1,200

Chargeable gain, subject to taper relief £1,900

■A disposal of pooled shares

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 £5,250

£5,250

add foreign tax £21,000 x £9,000 = £2,250

Gains chargeable £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).

■Relief for foreign tax paid

*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.

These notes are for guidance only, and reflect the position at the time of writing. They do not affect any rights of appeal.

■NOTES ON CAPITAL GAINS: PAGE CGN24

HMRC 12/05net

Notes on CAPITAL GAINS

For the year ended 5 April 2006

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.)

Disposal Proceeds (see notes on page CGN12)

minus

Cost of acquisiiton (see notes on page CGN13)

Enhancement costs (see notes on page CGN13)

Incidental acquisition costs (see notes on page CGN13)

Incidental disposal costs (see notes on page CGN13)

Total costs (total of boxes B + C + D + E)

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 Expenditure Factor Allowance

and Year (see page CGN16) (expenditure x factor)

Indexation Allowance (total of 'Allowance' column above)

Chargeable gain (box G minus box H).

(Indexation Allowance cannot be used to create a loss so if the result is negative

enter zero.)

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.

Working Sheet for simple disposals

££

boxes B + C + D + E

box A minus box F

box G minus box H

Printed in the U.K. by Adare Group. R2H 2773 12/05

Sa108_notes CGN10 Sa108 Notes

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