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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Capital Gains Tax: interaction with 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 CG72852+ 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+.