CAPITAL GAINS TAX COMPUTATION

Individuals are subject to Capital Gains Tax (CGT) on their chargeable gains of the tax year.
A chargeable gain or allowable loss arises on a chargeable disposal of a chargeable asset by a
chargeable person

The following are treated as chargeable disposals:

 sale or gift of the whole or part of an asset
 exchange of an asset
 loss or total destruction of an asset
 receipts of a capital sum derived from an asset, for example
:compensation received for damage to an asset ,receipts for
the surrender of rights to an asset.

CHARGEABLE ASSETS
All assets are chargeable unless specifically exempted

Exempt Assets
Chattels bought and
Motor vehicles sold <- E6,000
(including vintage Investments held within
cars) an individual savings
account (ISA)

Cash
Wasting chattels (e.g.
racehorses and Qualifying corporate
greyhounds) bonds (QCBs)
Gilt-edged securities

Shares in a venture
National savings capital trust (VCT)
certificates Endowment policy
proceeds
Trading inventory
Foreign currency for
private use
Receivables
Prizes and betting
winnings
Date of Disposal
Determining the date of disposal is very important as it determines the tax year in which a
chargeable gain is assessed or an allowable loss arises.

o Normally - Date of the contract/agreement to transfer the asset (not necessarily the
same date as the actual date of transfer)
o Conditional Contract - Date when all of the conditions are satisfied and the
contract becomes legally binding

CGT Liability Computation : Proforma

Non-residential Residential property
property £
£
Proceeds (Actual proceeds/MV) (Note) X X
Less: Incidental costs of disposal (X) (X)
Cost (X) (X)
Enhancement expenditure (X) (X)
Gains before reliefs and losses X X
CGT reliefs (X) (X)
CY capital losses (Must offset vs CY gains (X) (X)
as far as possible)
Trade losses (X) (X)
Chargeable Gains X X
Less annual exempt amount (AEA) (Bal) (12,300)
B/f capital losses (X) (X)
Taxable gains X X

Tax @ 10%/20% (non-residential) --------x

18%/28%(residential property)----x
CGT liability----------------------------------------X
Less: POA(Payments on Accounts)-------------- X
CGT payable --------------------------------------X
 CAPITAL LOSSES
 Where capital losses arise they are set against capital gains in the same tax year
 The set off is made to the maximum possible extent – it cannot be restricted to avoid
wasting the Annual Exempt Amount (AEA)
 If there are insufficient gains to set off the capital losses in the year they arise, the
unrelieved capital losses
 Current year capital losses are deducted in priority to capital losses brought forward
 The capital losses brought forward, however will then only reduce the net gains to
the level of the AEA, and therefore will not waste the AEA
 Any capital losses brought forward that are unused are carried forward

NEGLIGIBLE VALUE CLAIMS

For tax purposes there is no accepted definition of ‘negligible value’, but generally it applies
to assets that have become worth next to nothing while someone has owned them.

Assets cannot have been of negligible value when you acquired them, they must have become
of negligible value while you have owned them.
If the value of an asset becomes negligible for whatever reason, the owner may claim relief.
They are then treated as having disposed of, and immediately reacquired, the asset at its
negligible value.
This gives rise to an allowable loss
The deemed disposal is treated as occurring:
o at the date of the claim, or
o up to two years before the start of the tax year in which the claim was made.
The back dating of the capital loss applies only if the asset was actually of negligible value at
both the date of the claim and the earlier date.

Losses in the year of death

Losses in the year of death Losses (in excess of gains) arising in the tax year in which an
individual dies can be carried back three tax years on a last in, first out (LIFO) basis.
Carried back losses are set off after the annual exempt amount.

PART DISPOSALS
 A chargeable asset may be only partly disposed of, for example a taxpayer acquires
100 hectares of land and subsequently sells 40 of those hectares.
 This will give rise to a chargeable gain computed in the normal way, but a specific
problem arises however regarding what figure of cost should be used in the gains
calculation.
 It may seem appropriate to use 40/100 of the original cost, given the quantity of land
purchased and then sold. This, however is not the basis used and a market value
based apportionment of the total cost should instead be used
 The cost of the whole asset is multiplied by the following fraction to compute the
allowable cost of the part now sold:

Land: small part disposals

If a small part disposal of land is made then the part disposal can be ignored. Instead the
proceeds are deducted from the cost giving a reduced cost for later disposals. Note this is a
claim (made by the first anniversary of 31 January following the end of the tax year of
disposal) and two additional conditions need to be met:
• Aggregate proceeds from sales of all land and buildings in the same tax year must not
exceed £20,000; and
• Proceeds do not exceed 20% of the market value of the land prior to the disposal.
TRANSFERS BETWEEN SPOUSES AND CIVIL PARTNERS
 The transfer of assets between spouses or civil partners is for CGT purposes deemed
to take place at a value that would give rise to neither a gain nor a loss
 The transfer is said to be a nil gain/ nil loss or no gain / no loss transfer
 Essentially the transferor is deemed to make the disposal at cost and the transferee
acquires the asset at the original cost of the transferor
 The no gain / no loss transfer rules may be used by these taxpayers to utilise the AEA
of both parties, and to take advantage of capital losses and lower capital gains tax
rates.
 For example it would be better for each spouse to yield gains of £10,000 each rather
than one spouse make gains of £20,000. It would also be better for a basic rate
taxpayer to yield taxable gains, taxed at 10% / 18% instead of a higher rate taxpayer
who would be taxed at 20% / 28% on the same gains

CGT: Connected Persons

Note:
- A partner is connected to fellow partners and their current spouses
- A company is connected to the persons controlling it
- The acquisition and disposal of assets between connected persons are deemed to take
place for a consideration equal to the market value of the asset.
- Losses from sales to a connected person can only be relieved against current and
future gains on disposals to the same connected person.

Business partnerships
Where a partnership disposes of an asset any gain or loss is apportioned to the partners in
their capital profit sharing ratio.
 CHATTELS & WASTING ASSETS
It is important to be able to identify a chattel and a wasting asset as there are special rules for
calculating the gain or loss arising on them.

WHAT ARE CHATTELS?

Chattels are defined as tangible movable property (e.g. a picture or table).

WHAT ARE WASTING ASSETS?

A wasting asset is an asset with a predictable life not exceeding 50 years.
Chattels could be wasting or non-wasting too.
WASTING ASSETS
Chattels Eligible for Capital Allowances:
The following rules apply for chattels eligible for capital allowances (E.g.: Plant and
Machinery):
Sold at a gain:
Calculate the gain as normal, applying the £6,000 rule if applicable. Any capital allowances
given over the life of the asset will have been clawed back with a balancing charge on
disposal.
Sold at a loss:
In the capital loss computation, the net capital allowances (i.e. net of balancing charges on
disposal) are deducted from the allowable expenditure.
Accordingly, plant and machinery which is eligible for capital allowances and sold at a loss,
results in a no gain/no loss situation for CGT purposes.

Other Wasting Assets (e.g.: Copyright)

This category covers wasting assets that are not chattels as they are not tangible and/or not
movable (e.g. a copyright). The allowable expenditure on these assets is deemed to waste
away over the life of the asset on a straight-line basis.
The allowable cost is calculated as:
Cost x (remaining useful life/estimated useful life)

Leases
There are two situations relating to leases that are examinable the assignment of a long lease
the assignment of a short lease.
The assignment of a lease means the complete disposal of the leasehold interest in the
property and is usually by way of a sale or a gift.

CGT on Lease
- Long lease – A lease with>50 years to run at the date of disposal – NORMAL
COMPUTATION
- Short lease – A lease with < 50 years to run at the date of disposal
 On the assignment of a short lease, the cost must be depreciated using the lease
depreciation tables. This reflects the fact that this type of lease is losing value so only
the cost that relates to the period left can be deducted.

X -- is the percentage for the number of years left for the lease to run at the date of the
assignment
Y-- is the percentage for the number of years the lease had to run when first acquired

The table only provides percentages for exact numbers of years. Where the duration is not an
exact number of years the relevant percentage should be found by adding 1/12 of the
difference between the two years on either side of the actual duration for each extra month.
Fourteen or more days count as a month.

ASSET – LOST, DESTROYED OR DAMAGED

A) LOST/DESTROYED
If an asset is lost or destroyed, then the receipt of insurance proceeds is treated as a normal
disposal.
However, relief is available if the insurance monies are used to purchase a replacement asset
within a period of 12 months.
Chargeable calculations when:

1) No insurance proceeds received

Compute a capital loss using the normal CGT computation
2) Insurance proceeds received, no replacement of asset
Chargeable gain/loss is computed using the normal CGT computation pro forma.
3) Insurance proceeds received, asset replaced within 12 months
-Full proceeds used:
Gain (Insurance proceeds – cost of first asset) can be set off against the replacement asset to
calculate the base cost of the replacement asset.
-Partial proceeds used:
The insurance proceeds not reinvested is immediately taxed as chargeable gain.
The remainder of the gain (actual gain – chargeable gain) is then set off against the cost of
the replacement asset to calculate its base cost.
 B) DAMAGED
If an asset is damaged, then the receipt of insurance proceeds is treated as a part disposal.
However, if all the proceeds are used to restore the asset, then a claim can be made to ignore
the part disposal rules.
1) Proceeds not used in restoration work
Normal part disposal capital gains computation is used, wherein
Allowable cost = Cost x A / (A + B)
Where: A = Compensation received
B = Market value of the remainder at the time of the part disposal (i.e. value in its damaged
condition)

2) Proceeds fully used in restoration work

Where all of the insurance proceeds are used in restoring the asset the taxpayer may claim to
deduct the proceeds from the cost of the asset rather than be treated as having made a part
disposal of the asset.
Revised Base Cost = Original cost + Restoration expenditure – Insurance proceeds

By election, however, the taxpayer can avoid a part disposal computation.

The compensation monies received can instead be deducted from the cost of the asset if the
sum is:
• Wholly used to restore asset
• Partly used to restore asset and unused part is 'small' (higher of 5% of capital sum and
£3,000)
• 'Small' compared to value of asset (higher of 5% of value of asset and £3,000).
If amount not used in restoring asset is not small, taxpayer can elect for amount used in
restoration to be deducted from the cost; the balance will be treated as a part disposal using
the restored value of the asset for B.
 QUESTIONS TO TRY OUT

Please note that these questions are not for the exam format, but rather it helps
to build the TX+ATX concept knowledge

1. 1.Andy sold a factory on 15 February 2021 for £320,000. The factory was purchased
on 24 January 2002 for £164,000, and was extended at a cost of £37,000 during
March 2012.
During May 2014, the roof of the factory was replaced at a cost of £24,000 following
a fire. Andy incurred legal fees of £3,600 in connection with the purchase of the
factory, and legal fees of £5,400 in connection with the disposal.
Calculate Andy’s Taxable gain.

2. Matthew has trading profit of £20,000 assessed in 2020/21 and sold an antique
vase giving rise to a capital gain of £18,300.
Calculate Matthew’s capital gains tax for 2020/21.

3. Katie has trading profit of £41,000 assessed in 2020/21. In addition she sold a
commercial investment property giving rise to a capital gain of £30,300.
Calculate Katie’s capital gains tax liability for 2020/21.

4. Elliot has trading profit of £45,000 assessed in 2020/21. In addition he sold a

painting giving rise to a capital gain of £26,300. He made a gift aid payment of
£2,400 in 2020/21.
Calculate Elliot’s capital gains tax for 2020/21.

5. Mo has taxable income of £28,130 in 2020/21. He made personal pension

contributions of £242 (net) per month during 2020/21. In December 2019, he makes
a chargeable gain of £30,200 on the disposal of some shares
Calculate the CGT payable by Mo for 2020/21.

6. Gaynor had a trading profit assessment of £21,500 in 2020/21 and no other taxable
income. She sold two assets during the tax year, a residential investment property
giving rise to a chargeable gain of £30,300 and a diamond ring yielding a chargeable
gain of £12,000.
Calculate Gaynor’s CGT liability for 2020/21.

7. Fran has taxable income of £28,500 in 2020/21. In August 2020, she makes a
chargeable gain of £15,800 on the sale of some shares. In March 2021, she makes a
chargeable gain of £20,200 on the disposal of a residential property.
Calculate CGT for 2020/21
 8. In 2020/21 Ted makes a gain of £25,300 on some shares he held as an investment
and a gain of £10,000 on a residential property, and a capitol loss of £12,000 on
another asset. He also has a capital loss brought forward of £31,000.

Required
1) What is Ted's taxable gain for 2020/21 and the capital loss carried forward to
2021/22?
2) What would Ted's taxable gain be if the £31,000 loss had been a current year loss
and the £12,000 loss bad been a brought forward loss?

9. Lucy died on 15 July 2020. On 1 May 2020 she made a chargeable gain of £8,500. On
17 June 2020, she made an allowable loss of £16,000. In the tax year 2019/20, Lucy
had made chargeable gains of £16,700 and had taxable income of £40,000. In
2018/19, she had made chargeable gains of £21,700 and had taxable income of
£10,000.

Assume that the tax rates and allowances for 2020/21 apply throughout and that
none of the gains were residential property gains nor qualified for business asset
disposal relief.

Required Explain, with relevant supporting calculations, the tax relief

available in respect of the allowable loss made in June 2020.

10. Madeleine bought a Ming vase for £9,600. She subsequently transferred the vase to
her husband Ultan. Ultan subsequently sold the vase in the current tax year for
£24,000.
Required: What is Ultan's chargeable gain?

11. Adam, who is married to Kerry, made three chargeable disposals in the tax year
2020/21, as follows:
Asset 1 Chargeable gain £10,900
Asset 2 Chargeable gain £19,600
Asset 3 Chargeable gain £49,000
None of the gains were in respect of residential property.
Adam's only income for the year is a trading profit of £45,000, whilst Kerry has no
taxable income.
(a) Calculate Adam’s CGT payable for the tax year 2020/21
(b) Advise how tax savings could have been made by the couple, and calculate
the revised CGT payable by the couple assuming they had taken your advice.

12. Harry is a higher rate taxpayer who always makes gains of at least £20,000 each
 year on disposals of investments. His wife Margaret has taxable income of £7,630
each year and has no chargeable assets.
Harry bought a plot of land for £ 150,000 in 2015. He gave it to Margaret when it was
worth £ 180,000 on 10 May 2018. Margaret sold it on 27 August 2019 for £ 190,000.
The land does not qualify for entrepreneurs’ relief and is not residential property.

Calculate any chargeable gains arising to Harry & Margaret and show the tax
saving arising from the transfer between Harry and Margaret, followed by
the disposal by Margaret, instead of a disposal in August 2019 by Harry.

13. Jerry bought 10 hectares of land for £10,000. He sold two hectares of land for
£6,000 in the current tax year when the remaining eight hectares were worth
£36,000.
Required What is the chargeable gain from selling the two hectares and what
is the cost that will be used when the remaining eight hectares are sold?

14. Harvey bought 15 hectares of land for £30,000. He sells three hectares for £3,000 in
the current tax year. This is his only sale of land in the current tax year although he
has made other gains which have utilised his AEA. The market value of the land
immediately prior to the disposal is £40,000.
Required What is Harvey's CGT position? Assume Harvey makes any relevant
claim.

15. Jo is a higher rate taxpayer who had the following chargeable gains and capital
losses during 2020/21:

Required:
How much is the payment on account and when will it be due?

16. In the tax year 2020/21 Bob realised the following chargeable gains
Residential property - £ 40,600
Antique Table - £20,000
Bob has taxable income of £28,500 in the tax year 2020/21
Bob estimated the CGT due & payment of account of £7,860.
Required:
Calculate Bob’s capital gains tax liability for 2020/21 for the tax year 2020/21.
 17. George is a higher rate tax payer, who had the following chargeable gains and
allowable losses in the tax year 2020/21:

Req: Calculate CGT payable , and find the dates of the Payment on account
and of the final CGT liability

18. Harvey bought 15 hectares of land for £30,000. He sells three hectares for £3,000 in
the current tax year. This is his only sale of land in the current tax year although he
has made other gains which have utilised his AEA. The market value of the land
immediately prior to the disposal is £40,000.
Required What is Harvey's CGT position? Assume Harvey makes any relevant
claim.

19. Maria made the following disposals during 2020/21 to unconnected persons:

(1) A residential rental property which she had bought in April 2000 for £100,000 and
had incurred legal fees on acquisition of £1,200. She subsequently extended the property
in 1995 at a cost of £24,000 and then sold it at auction on 15 May 2020 for £340,000.
Auctioneer's fees amounted to 3% of the proceeds.
(2) Six hectares of a ten-hectare plot of land. She had acquired the land in 2007 for
£250,000 and sold the six hectares on 1 September 2020 for £420,000 incurring legal
fees of £3,000. The remaining four hectares were worth £200,000.
(3) A painting worth £15,000 in December 2020. She had been given it by her husband
in 2010 when it was worth £12,000 and her husband had bought it in 2006 for £10,000.
(4) A necklace for £20,000 on 30 September 2020. She had inherited the necklace on the
death of her grandmother in 2013 when it was worth £30,000 and her grandmother had
paid £2,000 for the necklace many years before her death.
In addition, an asset was disposed of in January 2021 by a partnership in which Maria
was entitled to 30% of the capital profits. The asset had been bought for £50,000 in
December 2018 and disposed of for £68,000.
Business asset disposal relief is not available on this disposal. Maria had brought forward
capital losses of £12,000, of which £7,000 had arisen on a disposal to her brother, and
had taxable income of £42,000.
Required: What is Maria’s CGT liability for 2020/21 and when will the tax be
due?
 What is Maria’s CGT liability for 2020/21 and when will the tax be due?

CHATTELS & WASTING ASSETS – For detailed practice Qs on Chattels refer to

TX handouts

20. Hugo acquired a 30-year lease on 30 September 2014 for £35,000. He sold it on 30
September 2020 for £40,000. The lease %for 24 years is 79.622 and the %for 30
years is 87.330.
Required What is Hugo's gain?

ASSETS LOST DESTROYED & DAMAGED

Lost Damaged Destroyed

1. Nadir purchased a capital asset for £15,000 on 1 April 1996, which was destroyed by fire
on 31 July 2019.
The asset was not insured.
Calculate the allowable loss arising in the tax year 2020/21.
2. Padma purchased an antique table for £35,000 on 1 May 1998, which was destroyed by
fire on 30 June
2019. She received insurance proceeds of £50,000 on 1 September 2019. She did not replace
the table.
Calculate the chargeable gain arising in the tax year 2020/21.
3. Bill purchased an asset for £25,000 on 1 October 1996, which was destroyed by fire on 30
September
2019. He received compensation of £35,000 from his insurance company on 1 January
2020.
He purchased a replacement asset for £40,000 on 1 February 2020.
Calculate the base cost of the replacement asset.
4. Belinda purchased an antique necklace for £21,140 on 1 October 2002, which she lost on
30 June 2014.
She received compensation of £45,000 from her insurance company on 1 October 2014 and
purchased a replacement necklace for £50,000 on 1 November 2014.
She sold the replacement necklace for £65,000 on 1 March 2020.
Calculate the chargeable gain arising on the sale of the necklace on 1 March 2020.
5. Esa purchased a holiday cottage for £83,040 on 4 May 2007, which was destroyed in a
hurricane
on 27 October 2018. He received insurance proceeds of £113,000 on 5 June 2019 and
purchased a replacement holiday apartment for £103,440.
Calculate gain, and find the base cost
6. Sasha purchased a painting on 1 April 2006 for £10,000. The painting was damaged on 1
May 2019
when it was worth £50,000. After the damage the painting was worth £25,000. On 1 July
2019
insurance proceeds of £30,000 were received, which were not used to restore the painting.
Calculate the chargeable gain arising in respect of the painting.
7. Sari purchased a commercial investment property on 1 May 2008 for £200,000. In June
2019
it was damaged by fire. On 1 August 2019 insurance proceeds of £100,000 were received.
On 1 September 2019 £110,000 was spent on restoring the property. After the restoration the
property was worth £500,000.
Calculate the revised base cost for CGT purposes of the property after it has been restored