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HMRC internal manual

Capital Gains Manual

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Rates of tax: transitional rules for 2010-11

FA (No. 2) A10/SCH1, paragraphs 18 to 22

The Capital Gains Tax rate regime that applies to gains accruing on or after 23 June 2010 makes a change to tax rates part of the way through tax year 2010-11. So transitional rules are needed, typically to deal with cases in which chargeable gains are deemed to accrue during 2010-11 without the relevant legislation specifying when in the year the gains accrue.

These cases can be distinguished from circumstances where it may sometimes be factually difficult to determine when exactly a gain accrues, for example when an asset is appropriated to stock in trade (TCGA92/S161, see CG69200). In such cases the factual difficulty is no different whether the rate change takes place during a tax year or at the end of a tax year. So no transitional rule is needed.

The most important transitional rule prevents gains that accrued in 2010-11 before 23 June 2010 from being taken into account in determining whether any part of the basic rate band is available to be used by gains that accrue on or after 23 June 2010. The purpose of this rule is to prevent the rate change having retrospective effect, which it could have if gains that had accrued before 23 June 2010 use up some part of the basic rate band and so result in gains accruing on or after that date being taxed at 28% when they might otherwise have been taxed at 18%. This is illustrated by a simple example at CG21245.

Transitional rules are provided for the following cases

  • gains treated as accruing where an individual returns to the UK following a period of temporary non-residence (TCGA92/S10A)
  • gains treated as accruing to a non-domiciled individual to whom the remittance basis applies (TCGA1992/S12(2))
  • gains treated as accruing to the settlor of a non-resident settlement (TCGA92/S86(4)(a))
  • gains treated as accruing to the beneficiary of a non-resident settlement (TCGA92/S87(2), TCGA92/S89(2) and TCGA92/SCH4C).

Where TCGA92/S10A applies on the return of an individual to the UK after a period of temporary non-residence any gains or losses that accrued during the intervening years are treated as accruing to the individual “in the year of return” (TCGA92/S10A(2), see CG26100+). Thus a transitional rule is needed for 2010-11 to make it clear whether gains accrue in the part of the year up to 22 June 2010 during which gains are taxed at 18%, or in the later part of the year during which gains may be taxed at 28%.

F(No.2)A10/SCH1, Paragraph 19 deems gains charged under Section 10A to accrue before 23 June 2010. There is no transitional rule for losses treated by Section 10A as accruing in 2010-11. Such losses can be relieved in whatever way is most beneficial to minimise the individual’s liability to Capital Gains Tax. The example at CG21250 shows you how this works.

F(No.2)A10/SCH1, Paragraph 20 contains rules to determine when chargeable gains are treated as accruing in cases where the remittance basis applies. (For guidance on the remittance basis, see CG25300+.) Where the remittance basis rules mean that a chargeable gain is treated as accruing in 2010-11 then that gain is further treated as accruing when the relevant foreign chargeable gains are remitted. In practice, this can be taken to refer to the first time at which the conditions necessary for remittance at ITA07/S809L are met. However, where it is necessary to establish an order of remittances under ITA07/S809J to determine whether nominated gains are to be treated as having been remitted in 2010-11 then foreign chargeable gains identified in that ordering are to be treated as accruing before 23 June 2010. (For guidance on the operation of ITA07/S809J see the Residence, Domicile and Remittance Basis Manual, in particular RDRM35110+.)

F(No2)A10/SCH1/Paragraph21 deems all 2010-11 gains that accrue under TCGA92/S86 to accrue before 23 June 2010.

F(No2)A10/SCH1/Paragraph22 applies to gains that accrue under TCGA92/S87, TCGA92/S89(2) and TCGA92/SCH4C. If the 2010-11 gain accrues as a result of matching a capital payment received before 23 June 2010 it is deemed to accrue before that date. If the 2010-11 gain accrues as a result of matching a capital gain received on or after 23 June 2010 it is treated as accruing on or after that date.