Tx notes fa22 Final

 
Example 1 
Jenny gifted 1,000 shares in M plc when they were quoted at 400p - 408p 
Calculate the value to be used for capital gains disposal proceeds 
The following types of 
allowable expenditure
may be deducted from net proceeds:
๏
The acquisition cost of the asset: 
‣
generally the purchase cost.
‣
if the asset was inherited, the probate value (i.e. the market value at the date of the 
death).
‣
if the asset was received as a gift, the market value at the date of the gift.
๏
Expenditure on enhancing the value of the asset (capital expenditure) e.g. new 
extensions, associated architect’s fees.
Incidental costs of acquisition e.g. legal fees, surveyor’s fees, stamp duty. 
A capital loss will arise if the total allowable costs exceed the net proceeds.
Disposal proceeds
X
Less: Selling Expenses
(X)
Net proceeds
X
Less: Costs
(X)
Capital Gain / (Capital loss)
X / (X)

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It is then necessary to calculate the net chargeable gains arising in the tax year, i.e. chargeable 
gains less allowable losses as follows:
1.5. Annual Exempt Amount (AEA) 
(a)
Every individual (not a company) has an exempt amount of gains for each tax year. For 2022/23 
it is £12,300.
(b)
If the annual exempt amount is not used it is wasted.
1.6.
 
Rates and payment of CGT 
The rate of CGT depends on an individual’s taxable income (i.e. after PA). 
The taxpayer’s Taxable Income from his Income tax Computation is used as the basis for 
applying the relevant CGT rates to his figure of Taxable Gains. After considering a persons 
taxable income from their Income Tax Computation a CGT rate of 10% or18% is applied on 
those taxable gains that fall into any remaining basic rate band (or extended basic rate band if 
the person makes gift aid donations or pays personal pension contributions).
In exam questions, income tax should always be calculated first, and capital gains tax 
calculated separately afterwards. 
Therefore for basic rate taxpayers, CGT is:
•
10% on gains falling within the unused basic rate band
•
20% on the excess.
For higher/additional rate taxpayers, CGT is at 20%.
For UK residential property, the 10% rate of tax is replaced with 18%, and the 20% rate is 
replaced with 28%.