Liability to capital gains tax (CGT)

The indexation allowance is calculated by multiplying the allowable expenditure by the indexation factor for the month in which the expenditure was incurred or for March 1982 if later.

Example Allowable expenditure of £1,000 in June 1984. Indexation allowance: £1,000 x 0.823 = £823.

Identification of securities

Shares and securities disposed of are identified with acquisitions in the following order: 

• Same day acquisitions. 
• Acquisitions within the following 30 days (thereby rendering 'bed and breakfasting' ineffective). 
• Previous acquisitions after 5 April 1998, taking the most recent acquisition first. 
• Any share in the 'pool' at 5 April 1998. 
• Any shares held on 5 April 1982. 
• Any shares acquired before 6 April 1965. 

Taper relief

Taper relief reduces a chargeable gain by reference to how long the asset has been held. It is applied to net gains after any indexation allowance. Losses are deducted so as to minimise the total chargeable gain. Different rates of taper relief apply to business assets and non-business assets. Business assets include: 

• Assets used in an unincorporated business. From 6 April 2004, the owner of the asset need not be involved in the business. 
• All shareholdings in unlisted trading companies, including AIM companies. 
• Any shareholding of 5% or more in a quoted trading company and any shareholding in such a company held by any employee or director. 
• Employee holdings of up to 10% in non-trading companies. 
• Assets used in the company's trade where the shares are business assets in relation to the individual. 

Example A non-business asset acquired for £10,000 in May 1985 is sold for £45,000 net of expenses in June 2004. The asset qualifies for 7years' taper relief (6 years to 6 April 2004 plus bonus year).

Main exemptions

Gains on certain assets are exempt (and losses not allowable). 

• An individual's or married couple's only or main residence. 
• Certain works of art, historic buildings and their maintenance funds, decorations for valour, private motor cars. 
• Enterprise investment scheme shares (losses on these are allowable) and venture capital trust shares (see ). 
• Shares issued after 18 March 1986 under the Business Expansion Scheme. 
• Government securities, loan stocks, qualifying corporate bonds and National Savings and Investments certificates. 
• Individual savings account and personal equity plan investments. 
• Life assurance policies disposed of by their original owner. 
• Foreign currency for personal expenditure
• Betting and lottery wins and compensation or damages for personal wrong or injury. 
• Assets transferred to charities or to trustees for the benefit of employees. 
• Shares held by the trustees of share incentive plans up to the point they are transferred to the employee (see ). 

Other main reliefs

• The disposal of tangible moveable property (chattels) with a predictable life of less than 50 years is exempt from CGT provided the asset did not qualify for capital allowances. The disposal of other chattels is exempt from CGT provided that the consideration is not more than £6,000. Otherwise, the chargeable gain is the lesser of the actual gain or 5/3 of the difference between £6,000 and the consideration.
• Reinvestment relief is available on all chargeable gains made by individuals who reinvest the gain in shares eligible for the enterprise investment scheme (even if income tax relief is not given) or in shares in a venture capital trust. All or part of the gain (depending on the amount reinvested) is deferred until the shares are sold, subject to certain qualifying conditions being met. The reinvestment must be within a period starting one year before and ending three years after the disposal (one year after for venture capital trust reinvestments made before 6 April 2004). 
• Rollover relief may be available when disposing of a qualifying business asset and using the proceeds to acquire another qualifying business asset. All or part of the chargeable gain is postponed until the replacement asset is disposed of without replacement. 
• CGT on gifts of certain assets may be held over, ie the gain is postponed until the recipient disposes of the asset. They include: assets used in the transferor's unincorporated business or for a trade carried on by a company in which the transferor holds at least 5% of the voting rights; shares in an unlisted trading company (except when the gift is to another company); certain agricultural property; and transfers that are not potentially exempt for IHT purposes (eg to discretionary trusts). Holdover relief cannot be claimed on any assets transferred to a trust in which a settlor has an interest, or will acquire one 
• Rollover relief on incorporation postpones any gains (e.g. on property or business goodwill) when an unincorporated business is transferred to a company in exchange for the issue of shares.

Residence and domicile status

Individuals who are resident or ordinarily resident in the UK are liable to CGT on gains from disposing of assets wherever situated. Individuals who are neither resident nor ordinarily resident are not normally liable to CGT unless they are temporary non-residents, or trade in the UK and dispose of UK assets used for the trade. 

• UK resident individuals who are resident and ordinarily resident outside the UK for less than five tax years starting after 16 March 1998 are normally liable to CGT on their return to the UK on disposals abroad of assets acquired before their departure (re-entry charge). 
• There is no re-entry charge for individuals who were not resident and not ordinarily resident in the UK for four of the seven tax years before the year of departure, or in respect of periods of non-residence starting before 17 March 1998. 
• Non-UK domiciled individuals who are resident or ordinarily resident in the UK or are temporary non-residents are taxable on non-UK gains only to the extent they are remitted to the UK.