Assessment of CGT
CGT is assessed for all gains and losses by the taxpayer in the tax year 6th April to the following 5th April. The Tax is payable by the 31st January in the following year.
The date which triggers CGT liability is the date of the sale contract rather than the date upon which it is completed. If the contract is conditional, it is the date on which the pre-conditions are satisfied.This can mean that the CGT liability may arise before the actual sale is completed.
The exemptions from UK CGT are significantly more generous than in Ireland. Non- residents are completely exempt. Each individual has an exemption of £11,300 (2017/8) (in contrast to an individual’s exemption of €1,270 in Ireland).
The value for CGT purposes, will generally be the sale price. This will be the case where the sale is on a commercial basis with a third party. However, if the bargain is not at arms length and the asset is deliberately sold for an undervalue the legislation requires substitution of market value for the sale price. If the disposal is to a connected person e.g. a relative or family company or trustee it is deemed that the bargain is not at arms length and market value is always substituted.
In calculating CGT, certain expenditure is allowed as a deduction. These include the following:-
- the original purchase price or value given
- incidental cost of acquisition (e.g. stamp duty, legal costs etc.)
- enhancement expenditure which means expenditure wholly and exclusively incurred for enhancing an asset i.e. permanent capital additions and improvements (as opposed to repairs)
- incidental costs of sale (e.g. legal, auctioneers fees)
Where an asset was held at 31st March 1982 the market value on those dates is substituted for the actual acquisition
Enhancement expenditure is allowed as a deduction provided it is reflected in the asset at the time of disposal. Improvements which have worn out by the time of disposal are excluded. Expenditure which is allowed against income tax (e.g. repairs) will not be allowed against CGT on the sale of the property and vice versa.
Losses
Capital losses can be offset against capital gains. Capital losses can be brought forward until fully offset. Capital losses cannot be offset against an individual’s income.
Losses arising from transactions with connected persons e.g. relatives, companies under control etc. can only be offset against gains arising from transactions with the same person but can not otherwise be set off against other capital gains.
Losses brought forward do not need to be set against gains that are covered by the annual exemptions. All current year losses must be set against gains before using the annual exemptions.
Capital losses cannot generally be offset against income. Under certain circumstances, trading losses which have been already offset against income from other sources for a year may be set off against capital gains for the same year or against income and capital gains in the previous year. This only applies to businesses.
Assets can be transferred between spouses and civil partners in order to use both CGT allowance on a future sale. Assets transferred between spouses are effectively not subject to CGT.
Residence & Liability
UK CGT applies if an individual is resident or ordinarily resident in the UK. Rules in relation to resident and ordinarily residence are determined in the same way as for income tax. A UK resident is liable to CGT on his worldwide gains.
Non resident persons are liable to CGT on the disposal of residential property in the UK since 6 April 2015. The gain is calculated relative to that date if the asset was then held.
Where an non resident and a non ordinarily resident person carries on a trade or business through a branch or agency CGT may be charged on the disposal of assets of the branch despite the fact that they would normally be outside the charge.
Exemptions
Gains on the sale of virtually all types of assets are potentially subject to CGT. However, the principal assets, which are exempt from CGT, are as follows:-
- principal private residence
- certain moveable goods
- personal property with useful life of less than 50 years, unless used in a business
- moveable items where the sale consideration is less than £6,000
- certain compensation and damages
- debts (not third party)
- National Savings Certificate
- shares in ISA’s and PEP’s
- shares issued by way of Business Expansion Schemes
- shares that qualify for income relief under the Enterprise Investment Scheme
- shares in a Venture Capital trust
- motor cars
- woodlands
- gifts to charity
- certain life policies
A chattel means a tangible moveable asset. An example would be pictures, collectible items etc. Assets with a useful life expectancy of less than 50 years are exempt from CGT regardless of the amount of proceeds. Correspondingly there is no relief for losses on the sale or destruction of such items.
In the case of other chattels, a gain will only arise if it is not covered by the exemption. An exemption applies if the sale proceeds do not exceed £6,000. There are rules where an asset forms part of a set such limits the exemption of £6,000 to the entire set.
