1 MINUTE GUIDE TO ... CAPITAL GAINS TAX (CGT)

(April 2004)

Introduction

A substantial number of questions on TaxationWeb's Tax Tips Forum relate to Capital Gains Tax (CGT) issues. The aim of this 1 minute guide is to provide an outline of some of the underlying principles of CGT for taxpayers, and a refresher or aide memoire for professional advisers.

10 Key Points

1. Individuals, personal representatives and trustees are potentially liable to CGT. Companies do not pay CGT, but instead pay Corporation Tax on chargeable gains.
   
   
2. A person liable to CGT must notify the Inland Revenue by 5 October following the end of the relevant tax year, if a self-assessment return has not already been received.
   
   
3. CGT is charged on the total of all chargeable gains in the tax year, less allowable losses, taper relief and the annual CGT exemption.
   
   
4. CGT is chargeable at rates of 10%, 20% or 40%. Whilst CGT is calculated separately from income tax, it is calculated by treating taxable gains as the 'top slice' of income. Trustees and personal representatives were liable to CGT at 34% for 2003/04, but from 6 April 2004 their CGT rate increased to 40%.
   
   
5. CGT is normally payable by 31 January following the end of the relevant tax year (or 3 months after the issue of the self-assessment return, if later). If the disposal proceeds for an asset are payable by instalments following the disposal for a period exceeding 18 months, the taxpayer can apply to pay the tax by instalments over a period not exceeding 8 years. CGT on gifts of some assets may be paid by 10 equal annual instalments, if certain conditions are satisfied.
   
   
6. An individual who is 'resident' and 'ordinarily resident' in the UK is liable to CGT on worldwide assets and gains. An individual who is not resident or ordinarily resident in the UK is generally not liable to CGT, but there are some important exceptions (e.g. gains in disposal of UK assets used to carry on a trade, profession or vocation in the UK).
   
   
7. An individual who is resident and ordinarily resident but not domiciled in the UK is liable to CGT on overseas assets only to the extent that the gain is remitted to the UK.
   
   
8. Individuals who leave the UK and subsequently return are liable to CGT on gains arising during their absence on assets owned prior to their departure if they were UK resident for at least 4 out of the last 7 tax years, and their period of non-residence is less than 5 tax years.
   
   
9. Actual disposal proceeds are replaced by the market value of an asset for CGT purposes in certain circumstances, most notably for disposals between connected persons. An individual is 'connected' with a spouse, close relatives (e.g. brothers, sisters and lineal descendents) and those relatives' spouses.
   
   
10. CGT is charged on all chargeable gains, less allowable losses of the same tax year, less unused allowable losses brought forward. A current year loss is set off in priority to losses brought forward. Capital losses cannot be carried back, with the exception of unused allowable losses of a deceased individual in the tax year of death. Those losses can be carried against chargeable gains of the preceding 3 tax years, starting with gains of the later year.

Disclaimer

The content of these guides is based on tax legislation in operation at the time of publication, which may subsequently have changed. Whilst every care has been taken in its production, no responsibility can be accepted for any action undertaken or refrained from as a consequence of this material. This information is for general guidance only. Specific professional advice should always be obtained based on personal circumstances. TaxationWeb Limited accepts no responsibility whatsoever for any action undertaken or refrained from as a result of the information contained herein.