CG14325 - Computation: IT: specific situations
Payments on retirement/removal from office/employment
Transactions in land
Sale of income for lump sum
Alternative finance arrangements
Finance leases
VAT
Payments on retirement/removal from office/employment
Where a lump sum payment is chargeable to tax under employment income by virtue of ITEPA2003/S401 (see EIM13000+), the abatement of £30,000 in computing the charge is regarded as `money .... taken into account as a receipt in computing income' within TCGA92/S37 (1) . It is therefore NOT chargeable to Capital Gains Tax as a gain arising from the disposal of a right under a contract of service.
Transactions in land
Where ITA2007/S752–772 or CTA2010/S815-833 applies, see BIM60300 onwards, the gain or part of the gain realised on a transaction in land may be charged as income on the person who realised the gain. The gain or part of the gain so charged as income is not also to be charged to Capital Gains Tax.
For further details of the interaction with capital gains tax see CG72850+.
Under ITA2007/S759(4) or CTA2010/S821(5) the gain may be charged on a person other than the person who realised the gain, see BIM60335. Provided that the tax charged has been paid, you should treat the person who realised the gain as having been charged to that tax and should not charge them to Capital Gains Tax.
Sale of income for lump sum
A capital sum received by an individual in respect of the sale or relinquishment of income to be derived from his or her personal activities may fall to be treated as earned income chargeable under ITA2007/S777 onwards see BIM100370+. Where this applies, the capital sum is not also to be charged to Capital Gains Tax.
The individual relinquishing the income from his or her personal activities remains chargeable in respect of the capital sum even if that sum is receivable by some other person. In such cases, provided the tax charged has been paid, the person receiving the capital sum is to be treated as having been charged to that tax and, therefore, is not to be charged to Capital Gains Tax in respect of the capital sum.
Finance leases
There are special capital gains rules concerning finance leases in Part 21 CTA2010. These rules may operate to reduce the capital gains consideration, in certain circumstances. In addition they can modify the general rule in TCGA92/S37 dealing with the exclusion from capital gains consideration of sums chargeable as income.
The key aim of the provisions in Part 21 CTA2010 is to tax as income the `interest' earnings of finance lessors which are shown as earnings in the commercial accounts.
Detailed guidance on Part 21 CTA2010, can be found in the Business Leasing Manual see BLM70000+.
Alternative Finance arrangements
An alternative finance arrangement can be used in place of a conventional loan or mortgage or to provide a return to a customer depositing money in a bank. Although the arrangements are constructed so as not to involve interest, returns under alternative finance arrangements may be treated for UK tax purposes as if they were interest. More detail can be found at BIM45780+ and at CFM44000+.
Arrangements addressed by Schedule 2 TIOPA 2010: Alternative finance arrangements: purchase and sale and Alternative finance arrangements: diminishing shared ownership each rest on the sale and purchase of an asset.
Except where the consideration for a purchase or sale of an asset is to be taken to be an amount other than the actual consideration, the effective or alternative finance return as defined in Schedule 2 is to be excluded for the purposes of TCGA 1992 from the consideration for the sale and purchase of the asset.
VAT
Acquisitions
Where the asset is acquired as an asset of a trade and the Value Added Tax (VAT) borne on it is part of the trader's deductible 'input tax', see BIM31520, the cost of the asset for capital gains purposes should be the cost exclusive of VAT. Otherwise, the cost of the asset for Capital Gains Tax purposes should be the cost inclusive of any VAT borne on the purchase.
In some circumstances, e.g. the Capital Goods Scheme, the VAT is adjusted during the period of ownership of the asset. Where this applies only the adjusted amount of VAT should be included in the cost of the asset for CG purposes.
Disposals
Where VAT is charged on the disposal of a chargeable asset, the gain is to be computed by reference to the proceeds of disposal exclusive of VAT. If VAT is suffered on the expenses of disposal and this is available for set-off in the vendor's VAT account, the expense exclusive of VAT is to be deducted in computing the gain. If no set-off is available the expense inclusive of VAT is to be allowed.
Disguised interest
TCGA92/S37(2A) and TCGA92/S39(3A)
Finance Act 2013 introduced income tax legislation on disguised interest, see SAIM2710+. The legislation is widely drawn and charges income tax on the return produced from arrangements that give rise to an amount that is economically equivalent to interest without constituting interest in legal form.
It is possible that the arrangements may involve a disposal or disposals on which a chargeable gain may accrue. TCGA92/S37(2A) and TCGA92/S39(3A) make clear that capital gains computations are unaffected by amounts which are, or are taken into account in computing, disguised interest.
Where income tax is charged on a disguised interest return, ITTOIA05/S381D, see SAIM2790, protects against double taxation and permits a just and reasonable adjustment of any other tax, including capital gains tax, charged in relation to that disguised interest.