Section 5
The Valuation Office Agency's (VOA) technical manual used to assess Capital Gains and other taxes.
Introduction
5.1 General
The Taxation of Chargeable Gains Act 1992 (TCGA92) provides for the taxation of chargeable gains accruing on the disposal of assets. This is essentially an asset’s sale value less its original purchase value and any other expenditure allowable under s38 TCGA92; adjusted for any applicable entitlements to specific exemptions or reliefs (as covered later in this section (5)).
Chargeable gains realised by individuals, trustees and personal representatives are charged to Capital Gains Tax (CGT). Chargeable gains realised by companies are not charged to Capital Gains Tax and, instead, a company’s chargeable gains (less allowable losses) are included in its total profits for an accounting period and charged to Corporation Tax.
HMRC publishes its own capital gains manual for tax and accountancy professionals on Gov.uk
5.2 Chargeable Gains
A chargeable gain is broadly speaking the excess of the consideration received on a disposal over the expenditure incurred in acquiring, creating or improving the asset.
For disposals occurring after 5 April 1988 (i.e. this is now all disposals), if the asset was already held by the tax customer on/before 31 March 1982 then the TCGA92 rebasing provisions require the acquisition value to be determined as at 31 March 1982. In practice, this means chargeable gains are only attributable to the period since 31 March 1982 for assets owned prior to this date. Rebasing applies to all customers whether they are individuals, trustees, personal representatives or companies.
Since 1982, the amount of chargeable gains have been reduced by various forms of indexation allowance, aimed at excluding the element of gain attributable to inflation (see paras 5.29-32). However, indexation allowance for CGT is no longer available for disposals on or after 6 April 2008 and the relief for companies, which are charged to Corporation Tax on chargeable gains, was frozen from 1 January 2018.
CGT is chargeable on the total amount of chargeable gains accruing to the taxpayer in the year of assessment after deducting any allowable losses and the annual exemption (see para 5.5 below).
5.3 Legislation
The provisions relating to Chargeable Gains are contained in TCGA92. The administration of Chargeable Gains is dealt with in the Taxes Management Act 1970 and Statutory Instrument 1967, No.149. All references below are to the TCGA92, unless otherwise stated.
5.4 Rate of Tax
Individuals pay CGT on any chargeable gains they realise at variable tax rates which are informed by whether they are a higher rate taxpayer and whether the asset is a residential property, or a different chargeable asset. See https://www.gov.uk/capital-gains-tax/rates for more information.
Companies are liable to corporation tax on any chargeable gain, chargeable at the current rate of corporation tax rate applicable to that company.
5.5 Annual Exempt Amount
There is an annual exemption (also known as “Capital Gains tax-free allowance”) for individuals and certain trusts. The Government regularly reviews this exemption. For example, in the 2025/26 tax year, this allowance exempts the first £6,000 of an individual’s chargeable gains (£3,000 for Trusts). See https://www.gov.uk/guidance/capital-gains-tax-rates-and-allowances for more information.
Occasions of Charge
5.6 Post transaction Valuation checks (PTVC)
Before they submit their returns, all tax customers (whether individuals, trustees or companies) may submit any Chargeable Gain valuations to HMRC for checking. The main features of this service are:
i. Applications must be made to HMRC and not the VOA.
ii Applications may be made only after the relevant transaction has taken place.
iii Tax customers must put forward a valuation together with full information about the asset concerned.
Applications are made by tax customers submitting a CG34 form (“Post-transaction valuation checks for capital gains”), which is available, with its own guidance notes, on GOV.UK.
5.7 Options
It should be noted that the grant of an “option to purchase” is treated as a separate chargeable asset and there will generally be no allowable expenditure (apart from any costs of drawing up the option agreement). If the option is abandoned, no allowable loss can be claimed by the grantee. If the option is subsequently exercised, the consideration for the option is added to the consideration for the transfer of the subject asset (e.g. land) and this is treated as a single transaction occurring at the date of transfer. (S.144-146 TCGA92). Also see HMRC Guidance: Options: market value rule: effect of TCGA92/144ZA: options exercised on or after 10 April 2003 (CG12397)
Allowable Losses
5.8 General
Allowable losses are computed in the same way as chargeable gains. Although they do not normally give rise to a repayment of tax, they can be set off against chargeable gains arising in the same or subsequent years.
Connected Persons
5.9 General
TCGA92 (s18) provides that transfers between connected persons are not regarded as bargains made at “arm’s length” and the property will be deemed to pass at its market value (apart from certain no gain/loss situations including transfers between spouses). This is to mitigate the risk of transactions that could be conceived for the avoidance of tax.
5.10 Definition
It is important to note that the Act defines “connected persons” (s286) and whilst they may be substantially the same for Income Tax, Corporation Tax and CGT purposes, the rules were extended for IHT. A summary of the position regarding “connected persons” can be found in Appendix 19 and it should be noted that connected persons can be relatives or connected by commercial arrangements (for example, in certain circumstances, two companies may be considered “connected persons”).
5.11 Transfers subject to restrictive covenant (s.18(6) TCGA92)
If assets are transferred to a connected person subject to a restrictive covenant imposed by the transferor, then the disposal is deemed to have taken place for a consideration which is:-
a. The market value of the asset as if it were not subject to the restriction, less
b. the market value of the right or restriction, or, the amount by which its extinction would enhance the value of the asset to its owner, whichever is the less.
5.12 Deemed consideration in a series of transactions (s.19 TCGA92)
Where a person enters into a series of transactions with a connected person, over a period of 6 years or less (ending on the date of the last transaction), on each occasion where the market value of the asset transferred is less than the appropriate portion of the aggregate market value of the asset, the subject disposal is deemed to be for a consideration equal to the appropriate portion of the aggregate market value. For any further information see HMRC guidance CG14653 at: https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg14653
5.13-20 Reserved
Introduction
5.21 General
The general rules governing the computation of chargeable gains and allowable losses are contained in Chapters III and IV (sections 35 to 57) of Part II to the Taxation of Chargeable Gains Act 1992 (“TCGA 1992”).
The 2008 Finance Act simplified chargeable gains by removing some reliefs and, so, such a tax return calculation may simply take the following format:
| Asset sale proceeds (1) realised by the tax customer | £ A | |
|---|---|---|
| Deducting: | ||
| The tax customer’s original cost of purchasing the subject asset (2) | £ B | |
| Allowable expenditure (3) | £ C | |
| Results in: | ||
| Chargeable Gain | [ £ A - £ B -£ C ] |
- See 5.2 (below) for situations where actual sale proceeds may not represent the appropriate disposal value
- See 5.24 (below) for situations where actual cost of acquisition may not represent the appropriate value
- See 5.26 (below) for more information on Allowable Expenditure
In accordance with s62(1) of TCGA 1992, there is no deemed disposal on the death of a tax customer and, therefore, no potential chargeable gain on death. Typically, the deceased’s estate will pass the assets to the beneficiaries named in the deceased’s will and no chargeable disposal will have occurred. However, if the deceased’s estate subsequently disposes of assets to someone other than the beneficiaries (perhaps to pay tax, or more practically distribute the estate’s assets) then a chargeable gain will have occurred if the market value at the date of death is exceeded by the subsequent onward sale price (or market value). See section 7 (Valuation factors) to this manual, for further details on the interactions between chargeable gains and inheritance tax.
5.22 Consideration for disposal: market value rule
The sale consideration for the disposal (or part disposal) is normally the price, premium, compensation, insurance money (etc.) received and this will be ascertained by HMRC.
Where there is no monetary sale consideration, or the disposal is not at arm’s length, the disposal is generally deemed to be for a consideration amount equal to the market value of the subject asset and HMRC may seek the VOA’s advice in determining this value.
Cost of Acquisition
5.23 Rebasing (where asset acquired before 31 March 1982)
The cost of acquisition will normally be the price paid for the asset. However, for disposals occurring on or after 6 April 1988 (i.e. this now includes all new sales of assets), if the asset was acquired before 31 March 1982, then it is deemed to have been sold and immediately re-acquired at its market value on that date. In these circumstances, the subject asset’s value as at 31 March 1982 will then normally be adopted as the acquisition cost.
5.24 Deemed Acquisition value
As with the sale value, where there is no consideration, or the asset was not acquired “at arm’s length”, the acquisition value is generally deemed to be for a consideration equal to the market value of the asset. A deemed disposal by a previous owner normally implies a deemed acquisition by the new owner at the same figure.
5.25 Assets Created, Not Acquired
Where an asset has been created and not acquired [e.g. goodwill], the cost of acquisition is replaced by the expenditure [if any] which has been incurred in creating the asset and this is normally dealt with by HMRC.
Allowable Expenditure
5.26 General
In addition to the ‘cost of acquisition’ the following may also be deducted from the disposal proceeds:
- the incidental costs of acquisition and disposal.
- any expenditure on improving or enhancing the value of the property.
- any expenditure on establishing, preserving or defending title to or rights over the asset.
5.27 Incidental Costs
Incidental costs include expenditure on:-
- surveyors, accountants and legal fees.
- costs of transfer or conveyance (including Stamp Duty).
- costs of advertising to find a buyer or seller.
- costs reasonably incurred in making any valuation, or apportionment, required for the purposes of the CG computation.
It should be noted that the cost of making a valuation or apportionment does not extend to the cost of resolving any disagreement over it, whether by negotiation or litigation.
5.28 Expenditure on Improvements etc
Under section 38(1)(b) of TCGA 1992, expenditure incurred on the asset for the purpose of enhancing its value is an allowable expense provided it is reflected in the state or nature of the asset at the time of disposal. VOA may be asked for advice as to whether the expenditure satisfies this test. In general, the expenditure must be of a capital nature and excludes any sums which are allowable as deductions against income (e.g. normal maintenance costs).
Any expenditure which will be reimbursed from public funds (e.g. improvement grants) is excluded by s.50 of TCGA 1992.
Indexation Allowance
5.29 General
The purpose of the indexation allowance is to remove from any chargeable gain the element of gain which is due to inflation. The allowance is basically calculated by multiplying the cost of acquisition and each item of allowable expenditure by the percentage increase in the Retail Price Index (RPI) from the date of acquisition or expenditure to the date of disposal.
5.30 The phasing out of Indexation Allowance
For Capital Gains Tax purposes (i.e. relevant to individuals, trustees and personal representatives) indexation allowance was frozen at 5 April 1998 in respect of disposals on or after 6 April 1998 and ceased to be available altogether for disposals on or after 6 April 2008. Indexation allowance for corporate partners, who are chargeable to Corporation Tax on chargeable gains, was frozen at 31 December 2017 in respect of disposals on or after 1 January 2018.
5.31 Losses (s.53 as amended)
Various Finance Acts have amended the rules concerning the interactions between indexation allowance and any notional losses which might have been suggested. Now, if the indexation allowance equals or exceeds the unindexed Chargeable gain, so as to extinguish it, the disposal is one on which, after taking account of the indexation allowance, neither a gain nor a loss accrues.
Taper Relief
5.32 The relief
Taper relief was introduced from 6 April 1998 for non-corporate taxpayers (e.g. individuals, trustees, partnerships). It replaced the indexation allowance (which was frozen on 6 April 1998) and retirement relief (which was phased out). In simple terms, taper relief reduced the gain which was subject to capital gains tax.
From 6 April 2008, capital gains tax has been ‘simplified’ and, as a result, taper relief and the indexation allowance (see above) have been abolished. (NB Please remember, per 5.30 above, that corporate tax customers can still, potentially, benefit from indexation allowance - although the allowance was frozen at 31 December 2017.)
Part Disposals
5.33 General
A disposal of a part of an asset can give rise to a chargeable gain (or an allowable loss), like a disposal of a whole asset. However, s42 of TCGA1992 provides rules to ensure a consistent approach.
5.34 The Part Disposal Formula (s.42(2))
The proportion of the whole costs of acquisition (or 1982 market value), and any additional expenditure attributable to the part disposed of, is apportioned by applying the formula:-
A / (A + B)
where:
A = consideration for the part disposed of, and
B = market value of the remainder of the asset at the date of sale
The remaining acquisition costs are attributed to the part of the property which was not disposed of.
5.35 Expenditure Wholly Attributable to Part (s.42(4))
Where on the facts of the case the expenditure is wholly attributable either to the part disposed of, or the part retained, it need not be apportioned.
5.36 Unit of Valuation
Where there is a part disposal of an area of land which comprises a number of acquisitions, the rules for part disposals are applied to the smallest separate acquisition or number of acquisitions, which include the part disposed of.
5.37 Previous Part Disposal - Re-basing Rules (Sch 3 para 4)
Where there has been a part disposal of an asset after 31 March 1982 and before 6 April 1988, the allowable expenditure remaining after the part disposal is recomputed by reference to the 31 March 1982 value rather than adopting the actual cost. This enables the benefit of re-basing to be reflected in the computation of the gain for any subsequent disposals occurring after 6 April 1988.
5.38 Sale of a small part to a much larger retained asset
To save work for tax customers and their advisers, via a 1971 Statement of Practice, HMRC gave tax customers the opportunity to have gains arising from part disposals to be computed as if the part disposed of was a completely separate asset. This still applies to current disposals.
The 1971 example given by HMRC was the part disposal of a single field from a far larger rural estate that the tax customer was retaining. Had the rural estate been originally purchased for a single monetary sum, under normal part-disposal rules, the entire estate would need to be revalued upon the sale of the single field, in order to apportion the original acquisition expenditure allowable against the sale proceeds from the field. In the example, the HMRC “separate asset” basis (also referred to as the “alternative basis”) could allow the field sold to be simply revalued as a separate asset on the date of its purchase with the chargeable gain computation then resembling a more usual computation (i.e. sale price / Market Value less allowable expenditure, including the original purchase cost / market value).
The Board’s Statement is set out in Appendix 21 (“The separate asset basis”). The VOA caseworker will normally be asked to provide a valuation of the part disposed of, at the date of acquisition of the whole asset.
The adoption of this basis may result in a material variation in the tax liability and it should be noted that tax customers cannot be obliged to adopt it.
Small Part Disposals
5.39 Deferment of Charge
Where there is a small part disposal of land which is not a wasting asset, and the conditions (see s.242 / s.243 TCGA) set out below are met, the taxpayer may elect to have the tax deferred to a subsequent disposal. On the subsequent disposal the allowable expenditure will be reduced by the amount of the consideration for the part disposal.
5.40 General Relief (s.242)
In order to qualify for this relief, the value of the part disposed of must not exceed 20% of the market value of the entire holding and must not be a transfer between husband and wife or one within a group of companies.
This relief is not available if the consideration (or the aggregate of all considerations for disposals of land during that year) exceeds £20,000.
5.41 Disposal to Authority with Compulsory Powers (s.243)
Relief is available where there is a disposal to an authority possessing compulsory powers providing that the consideration is small compared with the market value of the entirety (small is treated as less than 5%) and the taxpayer has not taken any steps by advertising etc, to dispose of the holding. It should be noted that the £20,000 limit does not apply to relief under this section.
5.42 Acquisition Cost Exhausted
In no case can the above relief operate where the allowable expenditure would become negative and, in such circumstances, a chargeable occasion will arise. The tax customer may however elect to set any remaining allowable expenditure against the proceeds, instead of adopting the normal part disposal formula. There will then be no allowable expenditure to set against any subsequent disposals.
Wasting Assets (s.44-47)
5.43 General
Where there is a disposal of a wasting asset, the expenditure incurred in acquiring, creating or improving the asset is written down due to the effluxion of time. Any indexation allowance is calculated on the written down amount.
5.44 Definition of a “Wasting Asset”
Wasting assets are those having a predictable life of 50 years or less and include plant and machinery and life interests in settled property where the predictable expectation of life is less than 50 years.
Special Provisions apply to short leases (see s.240 and Sch 8).
5.45 Chattels
The disposal of a chattel which is a wasting asset is not chargeable unless it was, or could have been, the subject of a capital allowance.
Consideration Due after Time of Disposal (s.48)
5.46 General (Ascertainable consideration)
Where the whole or part of the consideration is payable by instalments, the general rule is that the chargeable gain is based on the full value of all the instalments. No allowance is made for deferment, nor risk, nor the fact that a payment is contingent on some future event (such as obtaining planning permission for development).
The principle does not apply to mortgages granted by the vendor because in this case there is a disposal for full consideration.
5.47 Payment by Instalments (s.280)
Where sale receipts are paid in instalments that are due for a period exceeding 18 months, subject to the provisions of s.280 the taxpayer may opt to pay the tax by instalments. These payments may be spread over a period not exceeding 8 years and ending not later than the date when the last instalment of the consideration is due.
5.48 Consideration Not Ascertainable
In cases where further payments become payable after disposal, which cannot be ascertained at the date of disposal, the chargeable gain on the disposal will be computed by including:-
- the disposal proceeds which are ascertainable; and
- the value, at the time of disposal, of the right to receive the further payments.
The right to receive the payments is then treated as a new and separate asset and any capital receipts will form a disposal (or part disposal) of the new asset. (See Practice Note 3, “Unascertainable deferred consideration”, for detailed advice).
5.49-75 Reserved
Private Residence Relief
5.76 General
Detailed instructions concerning Private Residence Relief are contained in Section 8.
Rollover Relief
5.77 General scope (s.152-162)
To enable traders to modernise, expand and relocate without loss of capital to an immediate tax charge, TCGA92/S152 provides for deferment of chargeable gains on disposals of certain assets. Business asset rollover relief may be claimed where the proceeds of a sale of qualifying assets are applied, within specified time limits, in acquiring new qualifying assets. The relief takes the form of a reduction in consideration for disposal of the old assets and either a reduction in the cost of acquisition of the new assets or a suspension of the chargeable gains until the occurrence of certain specified events.
FA 2002 Schedules 29 and 30 (now Corporation Tax Act 2009 Part 8) introduced some changes to roll-over relief that apply to companies only from 1 April 2002. In general, roll-over relief ceases to be available to companies where intangible fixed assets are acquired or disposed of on or after 1 April 2002. Individuals and trustees are not affected by these changes.
5.78 Relevant Classes of Business Assets (s.155)
S155 lists the relevant classes of assets which may qualify for rollover relief, namely land and buildings occupied (as well as used) only for the purposes of trade, fixed plant and machinery, goodwill and some other assets which VOA are unlikely to value. In the case of a dealer in, or developer of land, Roll-over relief can only be claimed on the land which forms part of the fixed assets of the trade. It should be noted that land and buildings thereon are regarded by virtue of s.155 TCGA 1992 as separate assets for roll-over relief and requests for apportionments may therefore be required by HMRC.
5.79 Depreciating / Wasting assets (s.154)
Where the new asset acquired (and which the Chargeable Gain is “rolled over” into) is a depreciating / wasting asset (see s44 for the meaning “Wasting Asset”) some different provisions apply, which broadly speaking limit the period of deferment to 10 years.
5.80 Partial Reinvestment of sale proceeds
TCGA92/S153 extends the availability of roll-over relief to claimants who have only reinvested part of the proceeds from the sale of a qualifying asset.
Partial relief is due if the amount retained is less than the gain, as it means that part of the gain has been used in the reinvestment. Under TCGA92/S153(1) the part that has been reinvested will qualify for relief. In essence, the amount charged to tax will be the lower of:
- the chargeable gain arising from the disposal of the old asset
or
- the amount of proceeds from the disposal of the old asset not applied in acquiring new assets
5.81 Time Limit
The tax customer must buy the new assets within 3 years of selling or disposing of the old assets (or up to one year before) and must claim relief within 4 years of the end of the tax year when they bought the new asset (or sold the old one, if that happened afterwards) although, exceptionally, the time limit can be extended at HMRC’s discretion.
5.82 Apportionments (s.52(4) and s.152(11))
Apportionments will be made on a “just and reasonable” basis where either a building has been used in part only for business purposes or where the old assets were not used solely for business purposes throughout the whole period of ownership.
5.83 Different Trades
A person can roll-over chargeable gains from assets used in one trade to purchase assets used in a completely different trade or location. (It should be noted that in this context “person” includes a company).
Retirement Relief (Ceased from 06 April 2003)
5.84 General
It is now unlikely that VOA will undertake any valuations where this relief is a factor. However, if we do receive such instructions, please contact the DVS Professional Guidance Team.
5.85 Reserved.
Gifts of Business Assets (Hold-Over Relief)
5.86 General (s.165 and s.260 where inheritance tax is chargeable)
Broadly, TCGA92/S165 works by taking the gain that would have arisen for the donor in the absence of any relief (i.e. using market value at the date of disposal) and, instead of bringing it into charge, deducting it from the donee’s acquisition cost of the gifted asset that they will use going forward. The implication is that when the donee comes to dispose of the asset themselves, their gain will consist of both the increase in value during their period of ownership and the donor’s gain that was held-over.
This relief is typically used to aid succession planning for businesses, for example a parent passing shares in their personal trading company to their children. Another common use is as an alternative to incorporation relief under TCGA92/S162, for example where an individual transfers assets they have used in their sole trade to a company, which will carry on that trade going forward.
5.87 Qualifying Assets
To qualify for the hold-over relief offered by TCGA92/S165, the asset gifted must fall within one of the categories listed below: -
‘Business Assets’ (Assets used for the purposes of a trade, profession or vocation, or shares in a Trading Company) – TCGA92/S165(2) & SCH7/PARA2(2)
Woodland – TCGA92/S165(9)
Specific provision is made within the legislation that the expression ‘trade’ is taken to include the occupation of woodlands where these are managed by the occupier on a commercial basis and with a view to the realisation of profits.
Agricultural Property – TCGA92/SCH7/PARA1
Where the gift is of an asset which is, or is an interest in, agricultural property within the meaning of IHTA84/PT2/CH5, relief is available even if the agricultural property is not used for the purposes of a trade.
Gifts of Interests in UK Land to or from non-Residents – TCGA92/S165(7A) to (7D) & S167A
Following the phasing in from 6 April 2015 of a charge to tax for non-UK resident persons disposing of direct or indirect interests in UK land, the scope of hold-over relief was broadened to accommodate gifts of such property to and from non-UK residents.
Under TCGA92/SS165(7A) to (7D), where the gift is of a direct or indirect interest of UK land (see CG73920) by a non-UK resident to a donee that is UK resident and, in the absence of any relief the arising gain would be charged under TCGA92/S1A(3)(b) or (c), then hold-over relief will be available.
Similarly, TCGA92/S167A provides that where a non-resident person is the donee for a gift of a direct or indirect interest in UK land, either from a UK or non-UK resident donor, hold-over relief will again be available.
5.88 Extent of Relief
‘Gift’ covers any transaction other than a bargain at arm’s length and is covered in TCGA92/s165. The donor’s Chargeable Gain and the recipients deemed acquisition cost are reduced by the “held over” gain, which in the case of outright gifts will be the Chargeable Gain which would otherwise have arisen (after deducting indexation allowance and retirement relief if appropriate). Where some consideration is given by the donee in excess of the donor’s allowable expenditure, the “held over” Chargeable Gain will be reduced by that excess.
Other Miscellaneous Exemptions
5.89 General
In addition to the Annual Exempt Amount (AEA) the persons, assets or events shown below are also exempted from Chargeable Gains Taxation. (NB AEA for 2025-26 tax year is £3,000 for an individual and companies do not receive AEA),
5.90 Trees Growing in Woodlands (s.250)
The proceeds from the sale of trees and underwood grown in commercial woodlands are excluded from CGT. Proceeds received under an insurance policy in respect of damage or destruction are similar specifically excluded.
On the disposal of commercial woodlands, so much of the consideration on disposal and the cost of acquisition as is attributable to the trees and underwood is excluded in computing the chargeable gain. DVs may therefore be requested to apportion the sale price and acquisition cost on the disposal of woodland between the value of the timber and the value of the land. Such apportionments should be on a “just and reasonable” basis (s.52(4)).
5.91 Charities (s.256 and s.257)
Charities are exempt insofar as their Chargeable Gains are applied for charitable purposes. In order to prevent avoidance of tax, if property ceases to be subject to charitable trusts there is a deemed disposal and reacquisition by the trustees at market value. Any gain arising from this deemed disposal will not be regarded as having accrued to a charity.
Where assets are transferred to a charity as a gift, or for a consideration less than the allowable expenditure, the disposal is at no gain/no loss.
5.92 Local Authorities (s.271(3))
Local authorities (as defined in s.52 FA 1974) are exempt from Capital Gains Tax or Corporation Tax.
5.93 Trade Unions (CTA2010/S981)
CTA2010/S981, exempts the income (excluding trading income) and the chargeable gains of a registered trade union under certain conditions. Gains not exempt under CTA2010/S981 may qualify for roll-over relief under TCGA92/S152 and TCGA92/S158 (1).
5.94 Diplomatic representatives etc.(s.271(1))
Representatives of foreign governments who are resident in the UK are treated as exempt from Capital Gains Tax; however, this exemption doesn’t apply to “private immovable property”. For example, if a Diplomat owned an investment property and sold it, there would be no grounds for exemption from CGT.
In addition, exemption is granted to those members of visiting forces who would not otherwise be within the charge to Capital Gains Tax by deeming there to be no change in their residence or domicile status for the period of their posting to the UK (TCGA92/S11 (1)).
The exemption that is provided to officials of the European Union from national taxes extends only to taxes on their income and earnings from the community. There is no specific exemption provided in respect of Capital Gains Tax. The liability to Capital Gains Tax of such officials should be determined on the normal basis.
5.95 Compensation to tenant farmers and business tenants
Compensation paid to a tenant displaced under the Agricultural Holdings Act 1986 or the Landlord and Tenant Act 1954 may be exempt if it arises purely from the statutory provisions. Case law has provided guidance in this specialist area.
5.96-5.99 Reserved
5.100 Why VOA might be involved in Business Share valuations
Although HMRC’s Shares and Asset Valuation (SAV) Team specialise in all business share valuations, sometimes the asset or assets which most significantly inform the value of business shares, can be physical property (land, buildings, fixtures and chattels/moveables). For this reason, Valuation Office Agency valuers will occasionally come across cases where business share reliefs and exemptions are a factor.
SAV and VOA also work closely together on the valuation of Trade Related Property as circumstances (e.g. claims for Goodwill) may require careful consideration of property valuation (VOA expertise) and business valuation (SAV expertise) factors.
5.101 Incorporation Relief (“Rollover relief on transfer of business”. s162 TCGA92)
Rollover relief (Part V, Chapter 1, s152-162 TCGA92) is already addressed, in general terms, in Part 3 of this Guidance. However, the s162 provisions relating to the transfer of a business, may often be informally referred to as “Incorporation Relief” (rather than the title given in legislation, which is “Roll-over relief on transfer of business”). The relief is available to individuals, including trustees and partners, who are running a business and then transfer it (along with its assets, except cash) to a limited company in exchange for shares.
Despite its name, it is not a requirement that the recipient company should be newly incorporated or wholly owned by the tax customer (the company may already be carrying on a business and the transferor may be only a minority shareholder after the transfer.) As described in Part 3 of this guidance, all forms of rollover relief (including “incorporation relief”) simply defer (or “roll-over”) chargeable gains into a future disposal.
5.102 Business Asset Disposal Relief (Part V, Chapter 3, TCGA92)
The Finance Act 2020, with effect from 6 April 2020, renamed Entrepreneurs’ Relief as Business Asset Disposal Relief (BADR). BADR is available to individuals, and some trustees of settlements, (but it’s not available to companies) who are a sole trader or partner in a business which they have owned for at least 2 years. BADR effectively allows qualifying chargeable gains (up to the applicable lifetime limit) to be taxed at a lower rate. The lifetime amount of relief available, and the reduced rate of tax has changed over time, and it may be appropriate to check such specific details with HMRC.
5.103 Investors’ Relief (Part V, Chapter 5, TCGA92)
Like BADR, Investors’ Relief is available to individuals and some trustees of settlements, but it is not available to companies. Like BADR, Investors’ Relief reduces the rate at which Capital Gains Tax (CGT) is paid on a disposal of shares in a trading company that is not listed on a stock exchange. Unlike BADR, Investors’ Relief is not usually available if the tax customer, or someone connected with them, is an employee of the company. Qualifying capital gains for each individual are subject to a lifetime limit (the amount of which has changed over time), these limits have historically differed from BADR.
5.104 Substantial Shareholdings Exemption (Schedule 7AC TCGA92)
The Substantial Shareholdings Exemption (SSE) can exempt a disposal of shares (or an interest in shares, or certain assets related to shares), by a company, from a chargeable gain. SSE requires the tax customer’s disposal to meet certain conditions (two conditions now but, prior to 01 April 2017, there was a third condition). Broadly speaking, those conditions require the tax customer’s shareholding to be “substantial” and (for the company whose shares are being disposed of) to meet certain ‘trading’ conditions.
5.105 – 5.109 Reserved
5.101 Differences in tax treatment
Over time, there have been differing taxation rules for UK residents, non-UK residents (“non-residents”) and non-domiciled UK Residents (“non-doms”). This can be a complex and evolving area of taxation, as illustrated by the changes to the taxation of non-UK domiciled individuals with effect from 6 April 2025. From this date, the concept of domicile as a relevant connecting factor in the UK tax system was replaced by a system based on tax residence.
Non-UK residents do not pay UK tax on income arising outside the UK and do not pay UK tax on chargeable gains from the sale of assets outside of the UK. Conversely, UK residents may have to pay UK tax on foreign income and chargeable gains.
5.102 Changes in non-resident taxation
From 06 April 2015 a new Non-Resident Capital Gains Tax (NRCGT) was introduced and applied to non-residents who generated chargeable gains when disposing of UK residential property. Capital Gains Tax is not normally paid by companies (their chargeable gains instead usually attract Corporation Tax per Part 1, Chapter 2, TCGA92) but up until the 2019 NRCGT changes (see below) Non-resident companies disposing of UK residential property instead paid NRCGT.
From 06 April 2019, disposals of all UK land and property (residential and non-residential property) by non-residents were brought within scope of chargeable gains and from then on non-resident companies have paid Corporation Tax on their UK chargeable gains, whilst non-resident private individuals, self-employed sole traders and business partners pay Non-Resident Capital Gains Tax (NRCGT).
5.103 Re-basing allowances
Normally, if the asset was acquired before 31 March 1982, the acquisition cost included in the capital gains computation is taken to be the asset’s market value on 31 March 1982. However, for non-resident taxes, a rebasing date of 05 April 2015 was allowed for residential property and when non-residential property was also brought within scope, the rebasing date was changed to 05 April 2019 for all direct or indirect disposals of UK land (See Part 2, Chapter 3 and Schedule 4AA TCGA92).
5.104 Non-resident allowances, reliefs and exemptions
Non-resident chargeable gains potentially have access to similar allowances, reliefs and exemptions as UK residents. For example, the costs that non-resident tax customers can deduct are the acquisition cost of the UK property or land, the costs of enhancing the property or land and the incidental costs of making the disposal.
5.105 What constitutes UK residential and non-residential property?
UK residential property includes a building used (or suitable for use) as a dwelling, properties in the process of being constructed (or adapted) for use as a dwelling, the garden or grounds of such a building/dwelling (including structures on the garden or grounds) and the right to acquire a UK dwelling ‘off plan’.
UK non-residential property or land includes commercial property (for example shops or offices), agricultural land, forests and any other land or property which is not suitable for use as a residential property.