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HMRC internal manual

Capital Gains Manual

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HM Revenue & Customs
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Increase in the rate of Capital Gains Tax - TCGA92/S87

TCGA92/S91

TCGA92/S91 increases the rate of Capital Gains Tax on section 87 gains if a capital payment is matched against a section 2(2) amount of an earlier year and the payment is received more than one year after the year in which the section 2(2) amount accrued to the trustees. The amount of the tax payable is increased by 10% a year up to a maximum of six years. The reason for the increase is to encourage trustees not to defer making capital payments after they have made a disposal.

TCGA92/S91 follows the ordinary matching rules in TCGA92/87A so section 2(2) amounts and capital payments are matched on a last-in first-out basis. Also a beneficiary’s Capital Gains Tax annual exempt amount should be set against these gains first thus reducing the gain which is liable to the increased charge. It is possible that the chargeable gains accruing to a beneficiary in a tax year are a result of matching capital payments received in different tax years. This may mean only part of the gain is liable to the increase in tax.

If the taxpayer is liable to Capital Gains Tax at 18% the maximum increase in tax is 10.8% giving a total tax rate of 28.8%. If the taxpayer is liable to Capital Gains Tax at 28% the maximum increase in tax is 16.8% giving a total tax rate of 44.8%.

Years before 2008-09

For years before 2008-09 sections 92 to 95 TCGA gave rules to match the payments against the gains. These worked on a first in first out basis and would maximise the gain subject to the increase in tax. The introduction of the new matching rules in TCGA92/S87A allowed these rules to be repealed and minimised the gain liable to the increase in tax.