Capital Gains Tax basics for agents and advisers

As a tax agent and adviser, you will often be working with the tax treatment of capital gains on behalf of your clients who have sold or otherwise disposed of assets. You may also be working with clients who are in business on their own or in partnership who wish to manage any capital gains when they come to sell their business.

This guide gives you an overview of how Capital Gains Tax works and shows you where to get more detailed advice to help manage your clients’ capital gains.

On this page:

Overview of capital gains
Capital gains for individuals
Capital gains for companies
Planning capital gains issues for business owners
Calculating the tax to be paid on capital gains for individuals
Allowances and reliefs
More useful links

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Overview of capital gains

A capital gain may be made when a client disposes of all or part of something they own (an ‘asset’) and its value has increased since it was acquired. It may also be made where your client receives money or money’s worth from an asset, such as receiving compensation for damage to an asset. Capital Gains Tax may be payable in these circumstances.

It’s possible to deduct specific allowable expenses when calculating the amount of the gain.

Various reliefs are available which can reduce or defer gains and so reduce the amount of tax payable or affect the time when tax is payable.

Capital Gains Tax – an introduction

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Capital gains for individuals

Assets which can give rise to a capital gain or loss when your client disposes of them (or an interest in them) include:

shares in a company
units in a unit trust
land and buildings (but not usually your client’s home)
high value jewellery, paintings, antiques or other personal possessions
goodwill
plant and machinery

But some assets are exempt from capital gains tax, including:

private cars
personal possessions worth up to £6,000 each when disposed of
stocks or shares held within an individual savings account (ISA)

Clients who are married or in a civil partnership and living together can transfer assets between themselves without then paying Capital Gains Tax - even though there has been a disposal. Clients planning to sell, give away or otherwise dispose of assets to children or others will have to consider possible Capital Gains Tax implications.

Find out when your client needs to pay Capital Gains Tax

Your clients may also have a Capital Gains Tax liability related to their shareholdings, dependent on their circumstances.

Shares and Capital Gains Tax

Employee share and security schemes and Capital Gains Tax help sheet (PDF 66K)

Share reorganisations, company takeovers and Capital Gains Tax help sheet (PDF 91K)

Negligible value claims and Income Tax losses for shares you have subscribed for in qualifying trading companies help sheet (PDF 75K)

You may also need to deal with Capital Gains Tax issues where clients are beneficiaries in a will or have interests in trusts.

Trusts and Capital Gains Tax

Death, personal representatives and legatees help sheet (PDF 82K)

Trusts with settlor interests and trusts for the vulnerable help sheet (PDF 57K)

Non Resident Trusts and Capital Gains Tax help sheet (PDF 54K)

Calculation of the increase in tax charge on capital gains from non-resident, dual resident and immigrating trusts help sheet (PDF 55K)

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Capital gains for companies

Corporation Tax is the tax paid by companies on their profits. Unincorporated organisations (such as clubs and societies) also pay Corporation Tax.

Companies and unincorporated organisations can be liable to pay Corporation Tax if they make capital gains. Tax liability in respect of capital gains is then accounted for through the Corporation Tax Self Assessment system.

Tax on capital gains for businesses on the Business Link website (Opens new window)

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Planning capital gains for business owners

Many of your clients who are in business may be planning to build up the business and sell it for a profit. Selling, giving away, exchanging or otherwise disposing of a business’s assets may create a liability for your client to pay Capital Gains Tax on the gains. If they are in a partnership, this includes gains on disposals of their interest in partnership assets.

There are some specific reliefs available to those disposing of business assets, including Entrepreneurs’ Relief. The relief allows claims on the first £1 million of net qualifying gains made on a disposal of all or part of a business, or a disposal of a business's assets within three years after a business has ceased. It reduces the amount of net gains liable to Capital Gains Tax by four ninths, resulting in an effective 10 per cent rate on all qualifying gains up to £1 million. Several claims can be made over the claimant’s lifetime - as long as the total qualifying gains do not exceed £1 million.

If your client wishes to incorporate their business, you can consider whether Incorporation Relief is appropriate for them.

There is also specific Capital Gains Tax treatment for investors, including the Enterprise Investment Scheme and Venture Capital Trusts.

Find out more about Capital Gains Tax reliefs for business assets

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Calculating the tax to be paid on capital gains for individuals

You should list the assets your client has disposed of during the tax year, ignoring any exempt assets and work out the capital gain or loss on each asset separately, taking into account any reliefs or elections.

If the total chargeable gains in a tax year - after deducting allowable losses - are less than the Annual Exempt Amount (where due) (£9,600 for the tax year 2008/09) there will be no Capital Gains Tax payable. If more, Capital Gains Tax is charged on the excess.

If you have to value a client’s asset when working out their capital gains, you can use form CG34 to ask HM Revenue & Customs (HMRC) to check the valuation. You should complete and send form CG34 to your client’s tax office before you complete their Self Assessment tax return. Please allow at least two months for HMRC to provide the valuation.

If HMRC agrees the valuation, it will not challenge the use of it in a return, unless you have not given important facts affecting the valuation.

Get form CG34

For individuals, trustees of settlements and the personal representatives of a deceased person Capital Gains Tax is accounted for through the Self Assessment system by filling in a tax return and, where relevant, completing the Capital Gains Supplementary Page. If your client has not been required to make a return but has tax to pay, their tax office must be notified by 5 October following the tax year.

Find your client’s Tax Office

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