Capital Gains Tax

Chargeable persons: Individuals (UK-resident), trustees, personal representatives. Companies do NOT pay CGT — they pay corporation tax on chargeable gains.

Chargeable disposals: Any disposal of a chargeable asset, including: sale, gift, exchange, loss or destruction of an asset, receipt of a capital sum from an asset (e.g., insurance proceeds), and the appropriation of an asset to trading stock. Transfer on death is NOT a disposal for CGT — the recipient inherits at market value (a CGT-free uplift).

Chargeable assets: ALL assets are chargeable unless specifically exempt.

Exempt assets (no CGT):

• Principal private residence (subject to PPR relief — see below)
• Motor cars (all cars, regardless of value)
• Government securities (gilts) and qualifying corporate bonds
• ISA and pension fund investments
• Wasting chattels (tangible movable assets with a predictable useful life of ≤ 50 years — e.g., machinery, livestock — but NOT if capital allowances were claimed)
• Prizes, betting winnings, lottery winnings
• Compensation for personal injury or wrong
• Chattels sold for ≤ £6,000 (see chattels rules)
• Transfers between spouses/civil partners (no gain, no loss — transfer at the transferor's base cost)

Exempt disposals: Gifts to charity, transfers on death, disposals by certain bodies (local authorities, pension funds).

Basic computation:

Market value rule: Where a disposal is NOT at arm's length — gifts, disposals to connected persons (relatives, spouse/civil partner, business partners), disposals at undervalue — the market value at the date of disposal is substituted for the actual proceeds. Connected persons include: spouse/civil partner, lineal relatives (parents, grandparents, children, grandchildren) and their spouses, siblings and their spouses, and business partners and their relatives.

When only part of an asset is disposed of (e.g., selling part of a plot of land), the allowable cost must be apportioned between the part disposed and the part retained.

Cost allocated to part disposed = Total cost × A / (A + B)

Where:

• A = Disposal proceeds (or market value) of the part disposed
• B = Market value of the part retained at the date of disposal

The remaining cost (total cost minus the amount allocated to the part disposed) is carried forward as the base cost of the part retained, for use in any future disposal.

A chattel is a tangible movable asset — physical items that can be moved (e.g., paintings, jewellery, antiques, furniture). Special rules apply:

Wasting chattels (tangible movable assets with a predictable useful life ≤ 50 years): Exempt from CGT entirely. Exception: if capital allowances have been claimed on the asset (e.g., plant and machinery used in a trade), the wasting chattel exemption does not apply and a gain or loss is calculated in the normal way.

Annual exempt amount (AEA): Each individual has an AEA of £3,000 (2024/25). Net gains below the AEA are tax-free. The AEA cannot be carried forward — use it or lose it.

CGT rates (2024/25):

Whether the taxpayer is basic or higher rate depends on the individual's taxable income. If the gain (added on top of taxable income) exceeds the basic rate band (£37,700), the excess is taxed at the higher rate. Part of a gain may be taxed at both rates if it straddles the boundary.

Capital losses:

• Current year losses: Must be set off against gains of the same tax year before the AEA is applied. Losses are set off in full — even if this wastes the AEA.
• Brought-forward losses (from prior years): Set off against gains of the current year, but only to the extent needed to reduce net gains to the AEA level. This preserves the AEA — brought-forward losses are not wasted.
• Capital losses can only be set against capital gains — NOT against income.
• Capital losses can be carried forward indefinitely but cannot be carried back (except on death).

PPR relief exempts from CGT any gain arising on the disposal of an individual's only or main residence, provided it has been their main residence throughout the period of ownership.

If the property was not the main residence for the ENTIRE period:

The gain is time-apportioned. The exempt portion is based on the periods of actual occupation plus certain deemed periods of occupation.

Exempt gain = Total gain × (Months of occupation + Deemed occupation) / Total months of ownership

The last 9 months of ownership are ALWAYS deemed to be a period of occupation (regardless of whether the individual actually lived there), provided the property was their main residence at some point.

Other deemed periods of occupation (provided there is actual occupation both before AND after the absence):

• Any reason, up to 3 years in total (lifetime cap)
• Any period of working overseas (no time limit — the entire period abroad counts as deemed occupation)
• Up to 4 years of working elsewhere in the UK (where the employer requires the employee to work away from the area of the home)

Letting relief: If part of the PPR was let out during a period when it would NOT qualify for PPR relief, a further relief (letting relief) may apply — the lower of: (a) the PPR relief itself, (b) £40,000, or (c) the gain attributable to the letting period. Note: from 6 April 2020, letting relief only applies where the owner is in shared occupation with the tenant.

BADR (formerly Entrepreneurs' Relief) taxes qualifying gains at a reduced rate of 10% instead of the normal 20% rate, subject to a lifetime limit of £1,000,000 of qualifying gains.

Qualifying disposals:

• Disposal of all or part of a business carried on as a sole trader or partner
• Disposal of assets used in the business when the business ceases (within 3 years of cessation)
• Disposal of shares in a personal trading company — the individual must:
  • Hold at least 5% of the ordinary share capital and 5% of the voting rights
  • Be an officer or employee of the company (or a group company)
  • The company must be a trading company (or holding company of a trading group)
  • These conditions must be met for at least 2 years before the disposal

Lifetime limit: The total qualifying gains on which BADR can be claimed is capped at £1,000,000. Once the lifetime limit is reached, no further BADR is available. At 10% tax, the maximum CGT saving is £100,000 (gains taxed at 10% instead of 20%).

Interaction with AEA: The AEA is deducted from gains BEFORE BADR is applied. BADR gains are treated as the lowest part of the gain (taxed first at 10%), with any remaining non-BADR gains taxed at 10%/20% depending on the individual's income level.

Rollover relief (s.152 TCGA 1992) allows a trader to defer (not exempt) a gain on the disposal of a qualifying business asset by reinvesting the proceeds in a replacement qualifying business asset.

Conditions:

• The old and new assets must be qualifying assets (land and buildings used in the trade, fixed plant and machinery, goodwill — note goodwill only for sole traders/partnerships, not companies)
• Both must be used in the taxpayer's trade
• The replacement must be acquired within the period starting 12 months before and ending 36 months after the disposal of the old asset

Full reinvestment: If the entire disposal proceeds are reinvested, the entire gain is deferred — it is "rolled over" into the replacement asset by reducing the base cost of the new asset by the amount of the gain.

Partial reinvestment: If only part of the proceeds is reinvested, the gain deferred is limited. The gain that CANNOT be deferred = the amount of proceeds NOT reinvested. The remainder of the gain is deferred.

Effect: The gain is not taxed now — it is deferred until the replacement asset is eventually disposed of (unless further rollover relief is claimed). The base cost of the replacement asset is reduced, so the deferred gain will be "caught" in the future.

Gift relief (s.165 TCGA 1992) allows the donor and donee to jointly elect to "hold over" the gain arising on the gift of a qualifying business asset. The effect is that the donor is treated as making no gain, and the donee acquires the asset at a reduced base cost (the donor's base cost, effectively), so the gain is deferred until the donee eventually disposes of the asset.

Qualifying assets:

• Assets used in the donor's (or their personal trading company's) trade
• Shares in an unquoted trading company
• Shares in the donor's personal trading company (quoted or unquoted)

Mechanism:

Deemed proceeds for donor = Market value − Held-over gain = Donor's original cost

Donee's base cost = Market value − Held-over gain = Donor's original cost

The gain is deferred — not exempted. When the donee eventually sells, their gain is calculated from the reduced base cost, so the original gain is captured.

Comparison with rollover relief: Rollover relief requires reinvestment in a replacement asset; gift relief requires a gift of a qualifying business asset. Both defer the gain. Rollover reduces the base cost of the new asset; gift relief reduces the base cost for the donee.

When an individual sells shares in a company of which they hold multiple acquisitions (bought at different times and prices), the matching rules determine which shares are treated as disposed of first.

Matching rules (for individuals) — in order of priority:

1. Same-day acquisitions: Shares acquired on the same day as the disposal are matched first
2. Acquisitions within the next 30 days (the "bed and breakfasting" rule): Shares acquired within 30 days AFTER the disposal are matched next (FIFO within this period). This prevents selling shares to crystallise a loss and immediately rebuying them.
3. The share pool (s.104 pool): All other shares are held in a single pool. The pool maintains a running total of: (a) the number of shares, and (b) the total allowable cost. When shares are sold from the pool, the allowable cost is calculated as: (shares disposed ÷ total shares in pool) × total pool cost.

Bonus issues: Free additional shares issued to existing shareholders in proportion to their holdings (e.g., 1 for 2). No cost — the bonus shares are added to the pool with nil cost. The total pool cost remains the same; the number of shares increases.

Rights issues: Existing shareholders are offered the right to buy new shares at a price below the market price, in proportion to their holdings. The rights shares are acquired at the rights issue price — this cost is ADDED to the pool cost, and the shares are added to the pool quantity.