CG10260 - Introduction and computation: interaction with other taxes
Income Tax
TCGA92/S37 & TCGA92/S39
In general, when the disposal of an asset at a profit or gain gives rise to a tax liability Income Tax has priority over Capital Gains Tax.
The following are examples of how the interaction works.
- If the asset is stock-in-trade, then any profit or gain is included in trading profits and assessed to Income Tax.
- The disposal of an asset which is not normally regarded as stock-in-trade may mark the end of an adventure in the nature of trade, in which case the profit or gain is assessable to Income Tax.
- A sum received in respect of a capital asset, otherwise than on the occasion of its complete disposal, may also be liable to tax as income; for example, rent or interest.
- The disposal of land, including buildings, or an interest in land, or an asset which derives its value from land (for example, shares) may give rise to Income Tax liability under ITA2007/S752 or CTA2010/S815, (see CG72850 and BIM60300 onwards).
Any such charge to Income Tax precludes a charge to Capital Gains Tax in respect of that receipt (to the extent that it is so covered), but there may be a residual liability to Capital Gains Tax on any part of the receipt not so charged. Similarly, any expenditure which is or in some circumstances might be allowable in the computation of an Income Tax liability or notional liability is not allowable expenditure for Capital Gains Tax purposes.
Detailed guidance on the interaction between Capital Gains Tax and Income Tax can be found at CG14300+.
Inheritance Tax
TCGA92/S274
Up to 30 March 1971, inclusive, Capital Gains Tax imposed a charge on the occasion of death but the Capital Gains Tax was deducted in arriving at the estate duty payable. The Capital Gains Tax value of an asset was (with one exception) conclusive of its value for Estate Duty purposes. On or after 31 March 1971 death is no longer an occasion of charge for Capital Gains Tax purposes. Furthermore, the valuation rules have been reversed so that the Estate Duty, Capital Transfer Tax or Inheritance Tax agreed valuation of an asset is conclusive, in all cases, of the value for Capital Gains Tax purposes as at the date of death.
For guidance on the rule at TCGA92/S274 see CG32210+.
TCGA92/S258
The existence of a possible charge to Inheritance Tax does not affect the computation of the chargeable gain or allowable loss, except where relief is available under TCGA92/S258 in connection with
- works of art
- historic houses and associated assets
- preservation of land for public benefit.
For guidance on TCGA92/S258 and National Heritage matters see CG73300+.
TCGA92/S260
Gifts hold-over relief may be claimed under TCGA92/S260 (2)(a) if Inheritance Tax is charged on the gift. Hold-over relief may also be claimed in certain other circumstances listed in Section 260(2) where there is no Inheritance Tax charged because of some relief or exemption.
Where a claim for hold-over relief has been or could have been made, the Inheritance Tax charged on that occasion (or, if less, the amount of the chargeable gain disregarding the adjustment for the amount held-over or which could have been held over) can be claimed as a deduction in the computation of the chargeable gain on the subsequent disposal. (See CG67050).
For guidance on gifts hold-over relief see CG67030+.
Queries on Inheritance Tax matters
Any enquiries about Inheritance Tax should be referred to Specialist PT Inheritance Tax.
Foreign Taxes
For guidance on the interaction of Capital Gains Tax and foreign taxes and guidance on double taxation relief see CG14380+.