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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Non-resident beneficiary CGT example: tax years 2004-05 to 2007-08

The trustees’ qualifying trust gains after taper are £25,000. There is no specially taxed income.

Their non-qualifying gains after taper are £5,000.

The annual exempt amount is assumed to be £4,250 for the trustees and £8,500 for the individual, and the basic rate band limit as £30,000.

The beneficiary is resident, ordinarily resident and domiciled in Jersey at all material times.

The beneficiary has

£3,125 interest from a bank account in Jersey.

£2,000 dividends from a company in Jersey.

£900 dividends from a UK company (with an additional tax credit of £100).

He also sold shares in the Jersey company such that if he had been resident and domiciled in the UK the chargeable gains after taper would have been £11,500. Because taper relief and the annual exempt are given automatically they are not subject to the exclusion of those reliefs for which a claim or election must be made.

He also had losses in the previous year on the disposal of shares in the Jersey company of £5,000.

Because of his deemed residence and domicile status the remittance basis (ITTOIA2005/S832 and TCGA1992/S12) does not apply for this calculation. The losses of the previous year, because they are “assumed losses” cannot be taken into account (CG35541).

First, calculate the TLVB (see CG35541(d))

  Non-savings Savings Dividend Capital gains  
           
           
Income (AI)   3,125 3,000    
           
Capital gains (DCTA)       11,500  
           
Specially Taxed          
Income (STI)          
           
Annual Exemption       8,500  
           
Taxable Amount       3,000  
Less personal          
allowance(£4,745)   3,125 1,620    
      1,380    
First £2,020          
chargeable at starting          
rate (10%)     1,380 640  
           
Tax chargeable     £138.00 £64.00 £202.00
           
Chargeable at lower          
rate (20%)       £2,360  
           
Tax chargeable       £472.00 £472.00
           
TLVB         £674.00

Second, calculate the TLVA (see CG35541(e)11)

  Non- Savings Dividend Capital  
           
  savings     gains  
           
Income   3,125 3,000    
           
Capital gains       11,500  
           
Notional s.77 gains       25,000  
           
Less annual exempt          
amount       8,500  
           
Taxable on       28,000  
           
Less personal          
allowance(£4,745)   3,125 1,620    
      1,380    
First £2,020          
chargeable at starting          
rate (10%)     1,380 640  
           
Tax chargeable     £138.00 £64.00 £202.00
           
Chargeable at lower          
rate (20%)       £27,360  
           
Tax chargeable       £5,472.00 £5,472.00
           
TLVA         £5,674.00

Thirdly, calculate VQTG (TLVA-TLVB)

VQTG is therefore £5,000 (the extra CGT that would be payable if the gains were the beneficiary’s).

Fourthly, calculate TQTG

TQTG is £25,000 @ 40% = £10,000 (the trustees’ liability on the qualifying gains).

The trustees’ liability on all gains is (25,000 + 5,000 -4,250) = 25,750 @ 40%

= £10,300

Finally calculate the trustees reduction (TQTG-VQTG)

The trustees’ reduction in liability is £(10,000 - 5,000) = £5,000

Overall liability is £5,300