Welcome to Further Aspects of Chargeable Gains!

Hello there! If you’ve made it this far in your Advanced Taxation (ATX) journey, you already know the basics of Capital Gains Tax (CGT). However, the real world is rarely simple. People move abroad, they give assets to their family members, and they set up trusts to protect their wealth.

In this chapter, we are going to look at the "tricky bits" that HMRC uses to ensure everyone pays their fair share, regardless of where they live or who they are dealing with. Don't worry if this seems a bit overwhelming at first—we will break it down step-by-step!

Why is this important? In the ATX exam, the examiner loves to test how different rules interact. You might have a client who is moving to Spain (Overseas Aspect) and wants to give their business to their daughter (Connected Persons) using a trust (Trusts). This chapter gives you the tools to solve that puzzle!

1. Overseas Aspects: The "Tax Boomerang" and Beyond

Normally, if you are non-resident in the UK, you don’t pay UK CGT. However, there are two major exceptions you must remember for your exam.

A. Temporary Non-Residence (The 5-Year Rule)

Some people think they can move abroad for one year, sell all their assets tax-free, and move back. HMRC caught onto this long ago! If an individual is a temporary non-resident, gains made on assets they owned before they left are taxed in the year they return to the UK.

The Rules for Temporary Non-Residence:
1. The individual was UK resident for at least 4 out of the 7 tax years before leaving.
2. The period of absence is 5 years or less.

Example: Sarah moves to Dubai in Year 1. She sells shares in Year 3 (which she bought in Year 0). She moves back to the UK in Year 4. Because she was gone for less than 5 years, she must pay CGT on those shares in the year she returns.

B. Non-Resident CGT (NRCGT) on UK Property

Since April 2019, all non-residents (individuals, companies, and trusts) are charged CGT on gains made from the disposal of UK land and buildings. This includes residential and commercial property.

Quick Review:
- Temporary non-resident? You're taxed on everything you owned before leaving if you return within 5 years.
- Non-resident selling UK land? You're taxed regardless of how long you stay away.

When you sell something to your best friend or your sister, you might be tempted to "lowball" the price to reduce the capital gain. HMRC prevents this using the Connected Persons rules.

Who is "Connected"?

In ATX, you need to know who counts as a connected person. Think of it as your immediate "family tree" plus business partners:
- Spouses or Civil Partners
- Ancestors (Parents, Grandparents)
- Lineal descendants (Children, Grandchildren)
- Siblings (Brothers and Sisters)
- Business Partners (and their spouses)

Note: Uncles, aunts, nephews, nieces, and cousins are NOT connected persons for CGT purposes!

The Market Value Rule

If you transfer an asset to a connected person, the "Sale Price" for CGT is always the Market Value (MV), regardless of how much money actually changed hands.

\( Disposal \ Proceeds = Market \ Value \)

The Restricted Loss Rule

This is a common "trap" in exams! If you sell an asset to a connected person at a loss, you can only use that loss to offset gains made against the same person. You cannot use it against your general gains.

Did you know? This prevents people from "manufacturing" losses by selling assets cheaply to family members just to wipe out their other tax bills.

3. Capital Gains and Trusts

Trusts are treated as separate legal "persons" for CGT. When a person (the Settlor) puts an asset into a trust, it is treated as a disposal at Market Value.

CGT Rates for Trusts

Trustees don't get the basic rate band. They generally pay at the higher rates:
- 20% on general assets (shares, etc.)
- 24% on residential property gains

The Annual Exempt Amount (AEA)

Trustees get a smaller tax-free allowance than individuals. Usually, it is half of the individual AEA. However, if a Settlor has set up multiple trusts, that AEA is split between them (up to a maximum of 5 trusts).

Key Takeaway Table: Trusts

Event: Settlor gives asset to Trust
CGT Treatment: Disposal at Market Value. Gift Hold-over relief (s.260) usually available.

Event: Trustees sell an asset
CGT Treatment: Trustees pay CGT at 20%/24%.

Event: Trustees give asset to Beneficiary
CGT Treatment: Disposal at Market Value. Gift Hold-over relief (s.260) often available.

4. Additional Exemptions and Reliefs

This is where we help our clients save money! The two most important reliefs in this section are Section 165 and Section 260 Gift Hold-over Reliefs.

A. Section 165 (Gift of Business Assets)

This applies when an individual gifts business assets (like a trading business or shares in a family trading company) to another person. Instead of the donor paying tax now, the gain is "frozen" and handed over to the person receiving the gift.

The Logic: The gain is subtracted from the recipient's "base cost." They only pay the tax when they eventually sell the asset for cash.

B. Section 260 (Gifts Subject to IHT)

This applies to gifts that are "immediate charges" for Inheritance Tax (IHT). This most commonly happens when someone puts an asset into a Discretionary Trust. Because IHT might be due immediately, HMRC lets you hold over the CGT gain so you aren't hit by two taxes at once.

Important Rule: If both s.165 and s.260 could apply, s.260 takes priority.

Common Mistake to Avoid:

Don't forget that if the recipient pays some money (actual proceeds), and those proceeds are more than the original cost, the donor must pay tax on the "excess" immediately. Only the remaining gain is held over!

\( Immediate \ Gain = Proceeds - Original \ Cost \)

Summary Checklist for Your Revision

- Temporary Non-Residents: Remember the 5-year rule for assets held before departure.
- Connected Persons: Always use Market Value. Remember losses are restricted to the same person.
- Trusts: Use the 20%/24% tax rates and remember the AEA is usually halved.
- Hold-over Relief: Use s.165 for business assets and s.260 for gifts into/out of trusts.

Keep practicing those past exam questions! The more you see how these rules are combined, the easier they become. You've got this!