This part of GOV.UK is being rebuilt – find out what beta means

HMRC internal manual

Capital Gains Manual

Rates of tax: from 23 June 2010 onwards: special cases


TCGA92/S4A supplements the Capital Gains Tax rates legislation (TCGA92/S4) by increasing the amount of the basic rate band available for gains where income tax liability is reduced by reason of certain reliefs in relation to life insurance contracts or certain income of the estates of deceased persons.

Section 4A is modelled on TCGA92/S6, which applied for years up to 2007-08, when Capital Gains Tax liability was also linked to income tax liability.

The relevant reliefs are

  • relief for a deficiency arising in that year from a life insurance policy on a chargeable event (ITTOIA05/S539), see IPTM3860
  • relief where the residuary income of an estate for income tax purposes is reduced where income is taken into account to determine the value of the estate for inheritance tax (ITTOIA05/S669).

When computing the amount of the basic rate band available for gains the amount of income taken into account is reduced by the amount of the deficiency or the reduction in the residuary income as the case may be.

Section 4A also sets out the amount of the basic rate band available to be set against gains where a person’s income is deemed to include gains from life insurance contracts (ITTOIA05/S465), see IPTM3110+. Where an individual has such gains the amount of the basic rate band available is calculated on the basis that only the annual equivalent, see IPTM3840, and not the full amount of the chargeable event gain is included in the calculation. If there is more than one chargeable event gain, then the total of the annual equivalents is included.

The rate of Capital Gains tax chargeable for an individual entitled to top slicing relief (ITTOIA05/S535), see IPTM3820, will depend upon the amount of the annual equivalents included in the calculation of ‘relieved liability’. Where the calculation of ‘relieved liability’ (whether for one or more than one chargeable event gain) does not involve higher rate income tax, then Capital Gains Tax liability is computed on the basis that there is no liability to higher rate income tax or to the dividend upper rate. This means that the gains will be taxed at 18% or at 28% depending upon the unused amount of the basic rate band available.