A liability to Capital Gains Tax may arise when a chargeable person makes a chargeable disposal of a chargeable asset. UK resident individuals are chargeable personas. Companies are not chargeable persons. All assets are chargeable assets unless specifically exempted. A chargeable disposal occurs when all or part of a chargeable asset is sold other than in the course of a trade, or is given away, lost or destroyed. An individual’s capital gains liability for a tax year is based upon the chargeable disposals made by that individual during the year. For tax year 2023-2024, the first £6000 of net gains are exempt from Capital Gains Tax. Capital Gains tax for 2023-2023 is currently payable at the standard rate of 10% or at the higher rate of 20%. Gains from the disposal of residential property are taxed at 18% or 28% and gains which qualify for business asset disposal relief are always taxed at 10%.

Capital Gains Losses.

Net Capital losses are carried forward and set against the net gains of subsequent tax years. Net losses incurred in the year of death may be carried back for three years. In certain circumstances, trading losses may be set against capital gains. Capital Gains Tax is normally due on the disposal of a UK residential property within 60 days of a UK residential upon completion of the sale of the property. Payment on account of the CGT is not required. A regime of interest and penalties applies to both capital gains tax and income tax on late payment or late submission. Net capital losses are carried forward and set against the net gains of subsequent tax years. Net losses incurred in the year of death may be carried back for three years.

Calculation of Gains and Losses for Capital Gains Tax

The disposal value of an asset is normally equal to sales proceeds, but if an asset is given away or is sold other than by way of a bargain made at arm’s length, disposal value is normally deemed to be the market value of the asset on the date of disposal.

Disposals between spouses who live together including civil partners are deemed to occur at a disposal value such that neither a gain or a loss arises on the disposal. Allowable costs include the assets acquisition cost, incidental cost, enhancement expenditure, costs of defending the owner’s title and valuation fees.  On a part disposal, the allowable part cost is calculated by multiplying the full cost by the part disposal fraction, Special rules apply for the disposals of land.

Wasting Chattels in Capital Gains Tax

A chattel is an item of a tangible, movable property. A wasting asset is an asset with a predictable useful life of 50 years of less. A wasting asset that is also a chattel is a wasting chattel. Chattels disposed of for £6000 or less are generally exempt from Capital Gains Tax. If a chattel is disposed of for more than £6000, the chargeable gain cannot exceed five thirds of the amount by which disposal proceeds exceed £6000. Wasting chattels are exempt from CGT apart from movable plant and machinery used in business on which capital allowances are available.

Shares and securities

Special matching rules are used to match disposals of shares and securities against acquisitions. Disposals are matched first against shares acquired on the same day as the disposal, then against shares acquired in the next 30 days and then against shares comprising the S104 holding.

The S104 holding is a pool of shares of the same class in the same company that were acquired before the date of the current disposal but have not been matched against previous disposals. It is necessary to keep a record of the total number of shares in this pool and their total allowable expenditure.

In general, the CGT effect of a bonus issue is to increase the number of shares in the s104 holding. Allowable expenditure is not affected. The CGT effect of a rights issue which is taken up by the shareholder is to increase both the number of shares and the allowable expenditure in the S104 holding.

A sale of rights nil paid is treated as a capital distribution.

A capital distribution is treated for CGT purposes as a part disposal unless it qualifies as a small capital distribution, in which case the amount of the distribution is deducted from the acquisition costs of the shares concerned.

If a takeover is entirely for cash, the shareholders of the target company have made chargeable disposals. If a takeover is entirely for shares, no chargeable disposals have taken place. If a takeover is partly for cash and shares, a part disposal has occurred unless the amount of cash can be treated as a small capital distribution.

UK government securities also known as GILTS and qualifying corporate bonds are not chargeable assets for Capital Gains Tax Purposes.