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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Exemptions: annuities, certain rights under a deed of covenant, certain debts

Although all forms of property, including debts and incorporeal property generally, are assets on which gains may accrue (TCGA92/S21), there are some sections of the TCGA which state that gains which accrue on the disposal of certain limited classes of asset are not ‘chargeable gains’ and so those gains are not within the scope of the main charging provisions of the Act (TCGA92/S1 and TCGA92/S2). The corollary of this exemption is that where losses instead of gains arise on such assets, those losses are not allowable losses, TCGA92/S16(2). These special assets include the types of debt and rights described below.

No chargeable gain shall accrue to any person on the disposal of a right to, or to any part of, an annuity or lump sum payable out of a superannuation fund, TCGA92/S237(a).

For disposals after 4 December 2005 no chargeable gain accrues on a disposal of, or of an interest in, an annuity (except a deferred annuity) which is granted in the ordinary course of a business of granting annuities on the life of any person, TCGA92/S204(5). (For the treatment of deferred annuities on the life of any person see CG69040+.)

For disposals before 5 December 2005 TCGA92/S237(b) provided that no chargeable gain should accrue to any person on the disposal of a right to, or to any part of, an annuity (except a deferred annuity) granted by a company as part of its business of granting life annuities.

No chargeable gain accrues on a disposal of, or of an interest in, an annuity granted or deemed to be granted under the Government Annuities Act 1929, TCGA92/S204(5)(b).

No chargeable gain shall accrue on the disposal of a right to, or to any part of, annual payments under a deed of covenant (which are not secured on property), TCGA92/S237(c). The exemption is restricted to unilateral binding obligations, entered into without consideration, under which the annual payments are not secured on any property; see Rank Xerox Ltd v Lane 53TC185.

No chargeable gain accrues on the satisfaction or the disposal of a debt by the original creditor or his or her personal representative or legatee, unless it is

  • the ‘debt on a security’, TCAG92/S251(1) or
  • a debt owed by a bank which is not in sterling (that is, a credit balance on a foreign currency bank account for periods up to 5 April 2012), TCGA92/S252.

See CG53400+ and CG78334+.