Revenue Note for Guidance

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Revenue Note for Guidance

CHAPTER 7

Other reliefs and exemptions

Overview

This Chapter provides for miscellaneous capital gains tax reliefs and exemptions, the more important of which are the annual exemption (section 601), the relief on the disposal of a principal private residence (section 604), the relief on a disposal to an authority possessing compulsory purchase powers (section 605), the exemption of Government and certain other securities (section 607) and the exemption of certain State and other bodies (section 610).

601 Annual exempt amount

Summary

This section gives an exemption to an individual in respect of the first 1,270 of chargeable gains in any one year of assessment. Where the gains accruing to the individual exceed that figure, only the excess over 1,270 is chargeable. In taking into account the amount of the chargeable gains, any losses must first be set off against gains. It is not permissible to obtain exemption on the gross chargeable gains, thus leaving losses which can be set off available for carry forward to a later year. The exemption does not apply to an individual who has obtained relief under section 598 (disposal of business or farm on “retirement”) or section 599 (disposal within family of business or farm).

Details

(1) Chargeable gains accruing to an individual which do not exceed 1,270 in any year of assessment are exempt from capital gains tax. The reference to section 31 is to ensure that in computing chargeable gains for the purposes of the exemption, losses (including losses brought forward) are to be set off against gains so that the exemption is applied to the net gains after losses. The benefit of losses, therefore, is not lost but equally an individual cannot take advantage of the exemption to cover gains so as to leave losses available for carry forward to a subsequent year. Thus, where an individual makes gains of 1,270 and losses of 270 in a particular year, he/she is not entitled to claim that the gains of 1,270 should be exempted and the loss of 270 carried forward. The correct position is that the chargeable gains for the year are 1,000 and as this amount is less than 1,270 there is no charge to capital gains tax and there is no carry forward of losses.

(2) Provision is made to make it clear that only the amount of net chargeable gains over 1,270 is to be chargeable.

(3) Where an individual is chargeable to tax for a year of assessment at 2 rates, the exemption is to be allowed as far as possible against the gains chargeable at the higher of the rates and then from the gains chargeable at the lower rate. Similarly, where a person is chargeable at 3 or more rates, the exemption is to be allowed as far as possible from the gains chargeable at the highest rate and then from the gains chargeable at the next highest rate and so on. (At present, there are only 2 rates of tax – 20 per cent and 40 per cent.)

Example

In 2002 an individual has the following chargeable gains —

500 taxable at 40 per cent

1,800 taxable at 20 per cent

The annual exemption of 1,270 is set off as to 500 against the gain taxable at 40 per cent and 770 against the gain taxable at 20 per cent The net position, therefore, is that the individual must pay tax on a net gain of 1,030 taxable at 20 per cent.

(4) Where the personal representatives of a deceased person are chargeable in respect of the pre-death chargeable gains of the deceased, the annual exemption is allowed to the same extent as if the deceased were living at the time the assessment is made, without apportionment by reference to the date of death.

(5) The annual exemption is not available for any year of assessment for which the individual has been granted relief under section 598 (disposal of business or farm on “retirement”) or section 599 (disposal within family of business or farm).

Relevant Date: Finance Act 2020