BIM14055 - Schedule D: Relationship to Capital Gains Tax

Because Income Tax is tax on income, capital incomings and capital outgoings do not in principle affect the Income Tax computation and should be excluded.

Capital gains and losses are dealt with by TCGA92 as part of a separate capital gains tax code. TCGA92/S37 requires that any part of the consideration for the disposal of an asset which has been either-

• charged to tax as income, or
• taken into account in computing income or profits or gains or losses of the disposer,

should be excluded from a capital gains tax computation.

Similarly, TCGA92/S39 requires the exclusion from allowable capital gains deductions of amounts which are-

• allowable in computing profits or gains or losses of a trade etc for the purposes of Income Tax, or
• allowable in computing any other income etc for the purposes of Income Tax, or
• even though not so allowable in computing losses, would be allowable but for an insufficiency of income etc.

The result of these provisions is that an Income Tax charge must always take priority over a capital gains tax charge. You should always consider and discard liability to Income Tax before examining liability to capital gains tax.