Determining the Chargeable Gain

Typically, a chargeable gain arises when a person profits from the sale price of an asset, but sometimes it is constructive in effect as they may dispose of it in a manner different to an ordinary sale. Simply put, the overriding premise is that these capital sums are acquired in a different manner to the ordinary income streams that an individual may enjoy.

Normally, the proceeds of a disposal or the constructive proceeds in the case of for example, a gift, where the market value would be used, less the allowable costs, less the indexation allowance, results in the chargeable gain.

If a loss has been made on the transaction, the allowable costs of acquisition cost, incidental cost of acquisition, enhancement costs, costs of establishing or defending title and incidental disposal costs, will show a negative figure prior to the application of indexation.

Should an asset be disposed of to a connected person, for instance such as a family member, the market value is used to determine tax liability as opposed to the actual disposal price that occurred at the time, in order to prevent any untoward advantage being gained.

If finance was used to acquire the asset and is to be satisfied with the proceeds of the disposal, it is deemed to be irrelevant. Capital gains tax applies to the change in value of an asset and with the exception of allowable costs, the presence of a debt, which is not an allowable cost, does not alter tax liability. For any further information on debt solutions or the general health of your personal financial situation, please click here.

For example, should a loss be derived from interest paid, in some circumstances this may allow a claim to be made as an expense for income tax purposes, however, as to capital gains tax allowable costs, any claim in respect of income tax is unable to also be claimed as a capital gains tax allowable cost with regards to that asset’s chargeable gain. Additionally, this is also applicable to VAT paid on the acquisition of the asset. If it is claimed in respect of an input tax then it cannot be claimed as an incidental cost for the purposes of capital gains tax relief. Should VAT constitute a proportion of the sale price of the asset, then the disposal price used to establish the capital gains tax is exclusive of VAT.

In the event of shares in a company or unit trust being disposed of, should they have been purchased at different time though are being disposed of in a single transaction, the individual is not able to determine which shares purchased are matched against which sale price. The disposal will apply firstly to the shares acquired most recently and will the be applied to shares acquired retrospectively from that point. For further queries, this website may help to provide you with clearer information on your financial health.

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