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HMRC internal manual

Capital Gains Manual

HM Revenue & Customs
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Annual exempt amount: general

TCGA92/S3 provides for exemption from Capital Gains Tax in respect of the first tranche of net chargeable gains for a year of assessment. The provision was introduced by Finance Act 1980 for 1980-81 and subsequent years, in place of the `alternative charge’ and `tapered’ relief on gains of less than £9500. If you need information about these earlier reliefs, please refer to the table in volume 1 of the Taxes Acts.

For 2008-09 and subsequent years, the annual exempt amount is not due to a taxpayer who claims use of the remittance basis in that year. This is so even if he or she has no foreign chargeable gains to which the remittance basis could apply: if the taxpayer has gains on assets situated in the United Kingdom there will be no annual exempt amount to reduce the amount chargeable in respect of those gains. (CG25325, TCGA92/S3(1A)) For general guidance on the remittance basis, see CG25300+ and the Residence, Domicile & Remittances Manual.

In some circumstances, if a chargeable gain is treated as accruing because an earlier foreign chargeable gain is remitted to the United Kingdom, that chargeable gain cannot be franked by the annual exempt amount which may be due for the year in which the gain is treated as accruing. This is so when a taxpayer has made an election under TCGA92/S16ZA for his or her foreign losses to be allowable losses. See CG25325+.

F(No.2)A10/SCH1 introduces a Capital Gains Tax rates regime under which gains that accrue to an individual on or after 23 June 2010 may be taxed at either 18% or 28% (or 10% for gains that qualify for Entrepreneurs’ Relief, see CG63950+). A specific rule (TCGA92/S4B(2)) permits the annual exempt amount to be set off against gains in whatever way is most beneficial to the person concerned. The set off is to be determined by the taxpayer but it would typically be the case that the most beneficial set-off will mean setting the exemption against gains that attract a higher rate of tax in priority to gains that attract a lower rate. There is guidance and examples to illustrate this rule at CG21600+.

For 2016-17 and subsequent years there were further changes to the Capital Gains Tax rates see CG10246. It is likely that the the most beneficial set-off would mean setting the exemption against upper rate gains in priority to other gains.