Capital Gains Tax

Introduction

**Capital Gains Tax ('CGT')** is payable on **chargeable gains** made by a **chargeable person** on the **disposal** of **chargeable assets** in a tax year, which runs from **6 April** one year to **5 April** the following year. CGT is governed by the **Taxation of Chargeable Gains Act 1992 ('TCGA 1992')**. Capital gains are chargeable for both individuals and companies: UK-resident individuals are subject to CGT on their **worldwide assets**, while companies are subject to **corporation tax** on their net chargeable gains. This chapter takes you through the chargeable persons and assets, the basis of charge, the calculation of gains and losses, the **rates and annual exempt amount**, the major **reliefs** (roll-over, hold-over, incorporation, business asset disposal relief), capital losses, part disposals, transfers between spouses, the position of **companies** (indexation allowance and share matching), and the **anti-avoidance** provisions.

Assessment focus

For the SQE1 FLK1 assessment (Tax — Business), you must be able to **identify when a chargeable disposal arises**, **calculate the chargeable gain or allowable loss**, apply the **annual exempt amount** and the **correct rates of CGT**, and recognise when a **relief** applies. The SQE frequently tests the **death-of-a-taxpayer rule** (no CGT on death; personal representatives acquire at market value), the **no gain/no loss** rule for spouses and civil partners, and the **business reliefs** — especially **Business Asset Disposal Relief** (18% rate; £1 million lifetime limit) and **roll-over relief**. Questions are single best answer questions (SBAQs) set in **realistic client scenarios** requiring you to **calculate** and **apply** the rules, not merely recall them. This is a closed-book assessment — commit the rates, the annual exempt amount and the relief conditions to memory.

Study tips

1) Learn the **five-step charge to tax**: (i) chargeable disposal, (ii) calculate the gain, (iii) consider reliefs, (iv) deductions/annual exempt amount, (v) apply the appropriate rate. 2) Memorise the **rates**: 18%/24% generally; **18%/24% for residential property**; **18% for Business Asset Disposal Relief** up to a **£1 million** lifetime limit. 3) Remember **no CGT on death** — PRs acquire at **market value** at the date of death, wiping out the deceased's gain. 4) Transfers between **spouses/civil partners are no gain/no loss** — the base cost passes to the recipient. 5) Distinguish the **reliefs**: roll-over (replacement of business assets), hold-over (gifts of business assets), incorporation relief, and Business Asset Disposal Relief. 6) For **companies**: no annual exempt amount, **indexation allowance frozen at December 2017**, only roll-over relief, and special **share matching** rules (FA 1985 pool).