Copyright: Copyright ©Which?-IDP
Citation: ©Which?-IDP 1999


Contents
Inland Revenue Notes

SA103 - Notes on self-employment

SA108 - Notes on capital gains

SA109 - Notes on non-residence

Inland Revenue Notes are reproduced by permission of the Board of Inland Revenue.


SA103 - Notes on self-employment

CONTENTS

Filling in the Self-employment Pages

Providing details of income and expenses

Provisional figures

Other estimates (including valuations)

Business details

Your basis period for 1998-99

Income and expenses - annual turnover below £15,000

Income and expenses - annual turnover of £15,000 or more

Value Added Tax

Sales/business income (turnover)

Business expenses

Other income/profits

Additional information

Table of business expenses

Tax adjustments to net profit or loss

Capital allowances and balancing charges

Adjustments to arrive at taxable profit or loss

Class 4 National Insurance Contributions

Subcontractors in the construction industry

Summary of balance sheet

Tax deducted from trading income

Particular trades etc.

Glossary

HELP SHEETS AND LEAFLETS

Help Sheets and leaflets giving more detailed information about particular tax rules for self-employment are available from the Orderline.

SA/BK3: Self Assessment. A guide to keeping records for the self-employed

IR220: More than one business

IR222: How to calculate your taxable profits

IR223: Rent a Room for traders

IR224: Farmers and market gardeners

IR227: Losses

IR229: Information from your accounts

IR231: Doctors' expenses

IR232: Farm stock valuation

Filling in the Self-employment Pages

You must fill in the Self-employment Pages if, at any time during the 1998-99 tax year, you carried on a trade, profession or vocation as a self-employed person in the UK or abroad. If you were a Name at Lloyd's, fill in the Lloyd's Underwriters Pages instead. If you were a member of a partnership, fill in the Partnership Pages instead.

Get the material you need to complete the Self-employment Pages:

your business accounts covering your basis period for the 1998-99 tax year (basis period is explained on page SEN3)

your books and records, if you do not have accounts.

You should have records of all your business transactions. You must keep these until at least 31 January 2005 in case your Tax Office asks to see them, booklet SA/BK3 has more information.

If you have been in business for some years and your accounting date is the same as last year's your basis period will be the accounting period ending in the year to 5 April 1999. You should use the information from this accounting period to complete the Self-employment Pages.

If you have just started in business, you can choose any convenient date to draw up your accounts but you may find using 5 April makes your calculations easier.

You may need to complete more than one set of Self-employment Pages if either of the following circumstances apply:

you do not have a single set of accounts for the period that is your basis period for 1998-99. This may happen if your business  has recently commenced, ceased or you have changed accounting date. See the notes on pages SEN2 and SEN3 which explain how to work out your basis period and the accounts information you must provide, or

you had more than one business - you must complete separate Self-employment Pages for each. Ask the Orderline for Help Sheet IR220: More than one business. It includes a working sheet to deal with the special rules for Class 4 National Insurance Contributions in this situation.

If you have a single set of accounts which covers more than one business, you should transfer the figures to one set of Self-employment Pages. Then deduct the income and disallow the expenses relating to any business other than your main business, and include it in a separate set of Self-employment Pages for each of your other businesses.

You should only include in the Self-employment Pages details relating to that self-employment. Other income should be entered in the appropriate parts of your Tax Return. For example, enter:

partnership income in the Partnership Pages but see the note on page SEN3 about changing between self-employment and partnership

income earned as an employee or company director in the Employment Pages

dividends from companies in boxes 10.15 to 10.17 on page 3 of your Tax Return.

If you are unsure whether your activities amount to a trade, profession or vocation, ask your Tax Office or tax adviser for advice.

You should contact your Tax Office (or the Helpline when the office is closed) for advice about filling in your Tax Return if, at some time after 6 April 1998, you were a construction worker and the person (or the business) for whom you worked told you that:

you were no longer to be treated as self-employed for that particular contract, and

your pay since then has suffered PAYE tax deductions.

Read the notes on page SEN10 before filling in the Self-employment Pages if you are an author or artist, or a farmer or market gardener, or a foster carer or adult carer.

Page SEN2

If your trade involves provision of furnished accommodation in your only or main home, Rent a Room may apply. Ask the Orderline for Help Sheet IR223: Rent a Room for traders.

If you have trade debts from overseas transactions which cannot be paid or brought to the UK because of exchange control restrictions or a shortage of foreign currency in the overseas country, ask your Tax Office or tax adviser about Extra Statutory Concession B38.

Before you start

You pay tax for 1998-99 on all your business profits (see page SEN8 if you made a loss) for the basis period.

Your business profit for each business is the difference between:

your turnover, other business receipts, balancing charges and the value of goods taken for personal use, and

allowable business expenses (including capital allowances).

The Self-employment Pages will help you work out your taxable business profit and will provide me with the information I need to process your Tax Return.

For each business you must:

provide business details in boxes 3.1 to 3.10

give details of income and expenses in boxes 3.11 to 3.13 if your annual turnover is below £15,000, or in boxes 3.14 to 3.60 if your annual turnover is £15,000 or more. Complete boxes 3.61 to 3.70 if capital allowances and balancing charges are included in boxes 3.12 and 3.11 or 3.57 and 3.55.

work out your taxable profit on Page SE3, using boxes 3.71 to 3.88

fill in boxes 3.89 to 3.92, and box 3.120 as appropriate

if you have a balance sheet, provide information about your business assets or liabilities in boxes 3.93 to 3.109.

Work through the following steps for each business:

Step 1

Work out the basis period for your business using the notes on page SEN3, or Help Sheet IR222: How to calculate your taxable profits.

Step 2

Work out how many 'accounts' fall within that basis period.

Step 3

Check whether you provided details of any of these 'accounts' in boxes 3.11 to 3.70 and boxes 3.93 to 3.109 of last year's Tax Return. If so, you do not need to provide the same information again. You only need to tick box 3.5A if details relating to all these accounts have already been included in last year's Tax Return.

Step 4

If you have only one set of accounts for the basis period, fill in one set of Self-employment Pages for the whole of your basis period unless you have already provided this information in last year's Tax Return. You must always complete boxes 3.71 to 3.88 on Page SE3, as appropriate, to arrive at your taxable profit for 1998-99.

OR

If you have more than one set of accounts for the basis period, complete boxes 3.1 to 3.70 and 3.93 to 3.109, as appropriate, on separate Self-employment Pages for each set of accounts. You do not need to repeat any information for any period of account which you provided in last year's Tax Return. Then fill in boxes 3.71 to 3.92, and box 3.120 as appropriate, on the Self-employment Pages for the most recent set of accounts to arrive at your taxable profit for 1998-99.

The Notes will help you. They use some technical terms such as 'trade', 'basis period' and so on. They explain these terms as fully as possible, but they are not a comprehensive guide for all cases. There is also a glossary of terms on page SEN11.

Providing details of income and expenses

For most businesses, the information on the Self-employment Pages will enable a full and fair picture of your business to be presented. If there are any points needing further explanation, provide details in the 'Additional information' box on Page SE4. You do not need to send me your accounts.

In some larger or more complex businesses additional information given on the Self-employment Pages may not be enough to provide a full and fair picture of your business. You may consider the submission of further information, including perhaps accounts or supporting calculations, necessary. This may be the case where:

a large business has a substantial turnover, or

a business is complex (perhaps because it is a highly specialised trade), or

accounts or computations are required for a proper understanding of the figures.

But you must also complete Page SE2 if your annual turnover is £15,000 or more, and Page SE4 if you have a balance sheet.

If you do not have accounts

Even if you do not have accounts prepared for your business each year, your taxable profit should still be worked out using generally accepted accountancy principles. These Notes will help. For further advice on how your profits are taxable, what to include in your turnover and what expenses are allowable for tax, ask the Orderline for Help Sheet IR222: How to calculate your taxable profits.

You will come across the terms 'accounting period' and 'accounting date' in both these Notes and the Help Sheets. If you do not have accounts prepared for your business you should read:

'accounting period' to mean the period for which you provide details of your business income and expenses, and

'accounting date' to mean the date on which that period ends.

If you do have accounts

Accounts are prepared for a variety of reasons and in a variety of ways and it may not be immediately obvious where in your Self-employment Pages you should enter some of your figures.  Help Sheet IR229: Information from your accounts gives practical help on filling in the Self-employment Pages, including some worked examples.

In some situations you may need to combine or apportion your figures to fit the standard format. There may be more than one acceptable way of doing this. Whichever method you adopt, you should be consistent from one year to the next. If you want to explain any figures in more detail, do so in the 'Additional information' box on Page SE4 of the Self-employment Pages.

Make sure that you transfer all the entries in your accounts, and that you include them only once. Do not bring in any amounts which are not included in your accounts unless they are needed to calculate your taxable profit or were excluded in error from your accounts. Include any such amounts in box 3.87. Explain why the entry is necessary in the 'Additional information' box on Page SE4.

Page SEN3

Changing between self-employment and partnership

Normally you will need to complete the Partnership Pages if you were a partner during the year ended 5 April 1999 and the Self-employment Pages if you were self-employed during that period. Where you carried on the same business during the year, but did so as a sole trader for part of the year and in partnership for part work through the following steps.

Step 1

If your basis period covers a period during which you carried on the business exclusively as a sole trader, you should complete the Self-employment Pages in the normal way. Do not complete the Partnership Pages.

Step 2

If your basis period includes a period during which you carried on the business in partnership, complete boxes 4.1 to 4.25 in the Partnership Pages to arrive at your taxable profit or allowable loss from the business for this year.

Step 3

Complete boxes 3.11 to 3.70 and 3.93 to 3.109 in the Self-employment Pages for any accounting periods which cover part of your basis period and during which you carried on the business exclusively as a sole trader. If you included this information in last year's Tax Return, you do not need to repeat it this year. (Do not treat the date of change from sole trader to partnership, or partnership to sole trader, as requiring an entry in either box 3.9 or box 3.10 in the Self-employment Pages.) But if you have completed boxes 4.1 to 4.25 on the Partnership Pages, leave boxes 3.71 to 3.91 blank and tick box 3.5A.

Provisional figures

I would normally expect you to complete the income and expenses section of your Self-employment Pages with the final and correct figures of income and expenses. If despite your best efforts you are unable to do so, please read the notes on page 27 of your Tax Return Guide which explain the exceptional circumstances in which Returns containing provisional figures may be accepted.

If it is actually impossible to provide final or even provisional accounts information from which your taxable profit is to be calculated before the latest date for sending your Tax Return, you should provide an estimate of your taxable profit in box 3.88 and tick box 3.72A. I would expect there to be very few such circumstances. The one common circumstance would be where, in the case of a newly commenced business, the first accounting period does not end until close to, or after, the statutory filing date. By 'close to' I mean within 3 months of the filing date.

If you have estimated your taxable profit or have included one or more provisional figures tick box 22.3 on page 8 of your Tax Return, and explain in the 'Additional information' box why you cannot provide final figures. Give a date by which you expect to do so.

Other estimates (including valuations)

In some situations you may need to provide an estimated figure or valuation that you do not intend to amend at a later date. If so, read the notes on page 27 of your Tax Return Guide.

Business details

Your basis period for 1998-99

You pay tax for 1998-99 according to the profits, or losses, for your basis period.

After the first two or three years in business your basis period will be the 12 month period up to the date you choose as your annual accounting date. For example, if you have been in business for a number of years and your annual accounting date is 31 December your basis period for 1998-99 is the 12 months from 1 January 1998 to 31 December 1998.

Ask the Orderline for Help Sheet IR222: How to calculate your taxable profits if:

your business started after 5 April 1996

your accounting date is not the same as used in 1997-98

you did not have an accounting date in 1998-99

your business ceased in 1998-99.

boxes 3.1 to 3.3

Make sure you complete these boxes for each set of Self-employment Pages you complete.

boxes 3.4 and 3.5

Enter in boxes 3.4 and 3.5 the details of the period to which the information in boxes 3.11 to 3.13, or 3.14 to 3.60 and, where you have a balance sheet, 3.93 to 3.109, relate. Make sure you have read the section headed 'Your basis period for 1998-99' above before continuing. Work out your basis period to decide the periods of account for which you need to provide details.

box 3.5A

Tick box 3.5A if you are not required to provide details from any of your accounts this year. Leave boxes 3.11 to 3.70 and 3.93 to 3.109 blank but complete boxes 3.71 to 3.92, and box 3.120.

box 3.6

Tick box 3.6 if details in boxes 3.1 or 3.3 have changed since your last Tax Return.

box 3.7

Tick box 3.7 if there is a gap between the end of your previous accounting period and the beginning of this one. Explain why in the 'Additional information' box on Page SE1.

boxes 3.8A and 3.8B

If your accounting date has changed, ask the Orderline for Help Sheet IR222: How to calculate your taxable profits and work through it before completing the rest of these Pages.

box 3.9

If your business started after 5 April 1996, enter the start date. If your accounting date has changed since then, ask the Orderline for Help Sheet IR222: How to calculate your taxable profits.

box 3.10

If you sold or closed down your business between 6 April 1998 and 5 April 1999, enter the date it ceased in box 3.10. If this is not the same as the date in box 3.5 you must complete another set of Self-employment Pages.

Page SEN4

Income and expenses - annual turnover below £15,000

If your annual turnover (excluding any balancing charges) is below £15,000 for a full year, you may fill in the special, shortened income and expenses section on Page SE1 (boxes 3.11 to 3.13) instead of boxes 3.14 to 3.60 on Page SE2.

But you must fill in one section or the other, and complete boxes 3.62 to 3.70 if you have any balancing charges, and boxes 3.61 to 3.69 if you are claiming capital allowances.

box 3.11

Enter your turnover and any other taxable business receipts in box 3.11. You will also need to include the normal selling price of all goods taken out of the business for your personal use, or for your family or friends, minus any sum that you paid into your business for the goods you took. This is because any sum paid into the business should already be included in the turnover figure, like other sales. Include any balancing charges (from box 3.70).

box 3.12

Enter your allowable business expenses in box 3.12. Make sure you do not include in your expenses any items that are not allowable against tax. (The Table on page SEN5 will help you decide.) Include any capital allowances (from box 3.69).

Income and expenses - annual turnover of £15,000 or more

If your annual turnover is £15,000 or more, you must fill in boxes 3.14 to 3.60 on Page SE2.

Value Added Tax

boxes 3.14 and 3.15

If you are not registered for VAT, your sales figure will not include any VAT. Expenses in boxes 3.17 to 3.51 should include VAT. There is no need to tick either box 3.14 or 3.15.

If you are registered for the VAT Agricultural Flat Rate Scheme, include any flat rate additions charged to customers in your sales figures. Expenses should include VAT. There is no need to tick either box 3.14 or box 3.15.

If you are registered for VAT, you may enter details of your business income and allowable expenses either all net of VAT or all inclusive of VAT. Where you adopt the latter approach, then either your net payment to Customs and Excise should be included as an expense in box 3.50, or any net repayment you receive from Customs and Excise should be included as a taxable receipt in the entry in box 3.37. Tick either box 3.14 or box 3.15 to show whether entries in boxes 3.16 to 3.51 include or exclude VAT.

If you registered for VAT during the period, your expenses up to that date should include VAT regardless of whether later sales and expenses are recorded VAT inclusive or exclusive. Tick box 3.14

and include the following details in the 'Additional information' box on Page SE4:

a note that you are registered for VAT during the period

the date of the registration

whether sales and expenses from the registration date are VAT inclusive or exclusive.

Similar action is required if your VAT registration was cancelled during the period, except that the details to appear in the 'Additional information' box should refer to the date of deregistration and whether sales and expenses before that date are VAT inclusive or exclusive. Expenses from the deregistration date should include VAT.

If you are registered for VAT and the goods you supply are zero rated (so that your sales figure does not include any VAT), tick either box 3.14 or box 3.15 to show whether entries in boxes 3.17 to 3.51 include or exclude VAT.

If you are registered for VAT, but treated by Customs and Excise as partly exempt, for the purposes of calculating your taxable profits, business expenditure includes any input tax that is not claimable. Where you complete boxes 3.16 to 3.51 on a VAT inclusive basis, entering your net payment to, or net repayment from, Customs and Excise, in boxes 3.50 and 3.37 respectively, will reflect this. However, if you complete the boxes on a VAT exclusive basis please ensure that your expenses figures include any relevant input tax not claimed for VAT purposes.

The calculation of the net payment to (or repayment from) Customs and Excise may have included VAT on capital items you purchased during the year; for example, on assets or rights that are of lasting use to the business and which you do not buy or sell as part of your ordinary trading operations. These might include business premises, plant, machinery, vehicles and trade rights.

If you enter details of your income and expenses inclusive of VAT on the Self-employment Pages, make a note of the VAT on those capital items in the 'Additional information' box on Page SE4. Add that amount to the net payment to Customs and Excise which you include as an expense in box 3.50, or deduct it from the net repayment you include as a taxable receipt in box 3.37.

If you are in any doubt about the correct treatment of VAT on the Self-employment Pages, ask your Tax Office or tax adviser. Contact your local Customs and Excise Office for more general guidance about VAT issues.

Sales/business income (turnover)

box 3.16

Enter the amount of your turnover in box 3.16. If it includes income from which tax has been deducted (excluding deductions made by contractors on account of tax) enter in box 3.120 the total tax deducted between 6 April 1998 and 5 April 1999.

Business expenses

boxes 3.17 to 3.50

You should include all your business expenses in boxes 3.33 to 3.35 and 3.38 to 3.50.

Some of the amounts you enter in boxes 3.33 to 3.50 may not be allowable for tax purposes. Enter any disallowable amounts in boxes 3.17 to 3.32 and the total of these boxes in box 3.53.

Disallowable amounts may be expenses that are not allowable at all for tax (such as entertainment expenses and depreciation of fixed assets) or the disallowable part of expenses (such as motor expenses, if your vehicle is used for private as well as business mileage).

Example 1

Your total motor expenses included in box 3.42 were £3,000 and one-third of your mileage is private. You can only claim  two-thirds of the cost against tax, that is £2,000. Enter the private use proportion of £1,000 in box 3.24.

Some small businesses can calculate car expenses using a fixed rate per business mile rather than actual costs. Details and conditions are in Help Sheet IR222. If any of the amounts in boxes 3.33 to 3.35 and 3.38 to 3.50 are recoverable under an insurance, include them in the disallowable expenses to be entered in boxes 3.17 to 3.32 unless they are already in box 3.16 or box 3.37.

Use the Table on page SEN5. It provides further information on how to fill in the boxes.

Page SEN5

Table of business expenses

This table will help you decide what business expenses to include in boxes 3.33 to 3.50. It also gives some examples of expenses which cannot be claimed in working out business profits for tax purposes.

Cost of Sales

Disallowable expenses (box 3.17)

Fuel expenses attributable to non-business use of vehicles

Total expenses (box 3.33)

If the business involves the resale or consumption of raw materials, enter here the cost of the goods used; that is, purchases plus opening stock/work-in-progress minus closing stock/work-in-progress.  So, for example, subcontractors in the construction industry should include here the cost of any materials supplied.  And taxi drivers, minicab drivers etc. and those in the road haulage industry should enter fuel expenditure in this box rather than elsewhere.

Businesses providing services commonly adjust their business profits to reflect work-in-progress at the start and end of the period of account.  If an adjustment of this sort is appropriate, make it here; otherwise leave the box blank. If the figure is negative, enter it in brackets.

Construction industry subcontractor costs

Disallowable expenses (box 3.18)

Any payments made relating to non-business work.

Total expenses (box 3.34)

Include all payments to subcontractors in the construction industry. Enter the amount before deduction of tax if any payments have been made to uncertificated subcontractors.

Other direct costs

Disallowable expenses (box 3.19)

Depreciation of fixed plant

Total expenses (box 3.35)

Expenses deducted to arrive at gross profit, for example, discounts allowed, commissions payable, carriage and, in manufacturing businesses, the costs of producing goods sold such as direct labour costs, depreciation of fixed plant, machine hire, small tools and consumables.  If the business provides services, it may incur rechargeable expenses, which are deducted to arrive at a figure of gross profit.

Employee costs

Disallowable expenses (box 3.20)

Your own wages or salary and your drawings from your business.  Your own pension payments and other benefits. Your own National Insurance Contributions.

Total expenses (box 3.38)

For example, salaries, wages, bonuses, pensions, benefits, employer’s NIC etc. for permanent, temporary and casual employees, and other staff-related costs such as canteen expenses and recruitment agency fees etc. Any subcontract labour costs, including locum fees, not included elsewhere should be included here.

Premises costs

Disallowable expenses (box 3.21)

Non-business part of premises costs used partly for business use.  Costs of acquiring premises.

Total expenses (box 3.39)

For example, rent, business rates, water rates, light, heat, power, property insurance, security and other similar expenses. If accounts contain an amount for ‘use of home’, include that figure here.

Repairs

Disallowable expenses (box 3.22)

Non-business part of repairs, renewals and general maintenance of premises and machinery used partly for business. Cost of alteration, improvements or replacement to premises and machinery.

Total expenses (box 3.40)

For example, repairs and renewals, general maintenance of business premises and machinery.

General administrative expenses

Disallowable expenses (box 3.23)

Non-business part of costs used partly for business, payments to political parties. Most payments to clubs, charities or churches.

Total expenses (box 3.41)

For example, telephone, facsimile, postage, stationery and printing costs, courier services, together with general office expenses, the costs of trade or professional journals and subscriptions etc., costs of insurance not included elsewhere and other similar recurring costs which arise in running the business.

Motor expenses

Disallowable expenses (box 3.24)

Non-business motoring. Travel between home and business. Costs of buying vehicles (but capital allowances can be claimed). Parking and other fines.

Total expenses (box 3.42)

For example, insurance, servicing, repairs, Vehicle Licence, petrol or diesel, hire and leasing charges, parking charges, AA/RAC membership.

Travel and subsistence

Disallowable expenses (box 3.25)

Meals (except the reasonable cost of meals on overnight business trips).

Total expenses (box 3.43)

For example, all travel costs other than those included in motor expenses, such as rail, air and taxi fares, together with hotel accommodation costs and subsistence or similar costs.

Advertising, promotion and entertainment

Disallowable expenses (box 3.26)

All entertaining and hospitality, except the costs of entertaining staff, and gifts (not food or drink) of up to £10 per person per year which advertise your business.

Total expenses (box 3.44)

For example, the ordinary day to day costs of advertising and promoting the business goods or services, such as newspaper advertisements, mailshots and the distribution of free samples of the goods dealt in. Entertainment.

Legal and professional costs

Disallowable expenses (box 3.27)

Costs of settling tax disputes, legal costs of buying fixed assets (these are treated as part of the cost of the fixed asset). Costs and fines or penalties for breaking the law.

Total expenses (box 3.45)

For example, accountant’s, solicitor’s, surveyor’s, architect’s, stocktaker’s and other similar costs, together with professional indemnity insurance premiums and the like.

Bad debts

Disallowable expenses (box 3.28)

General bad debts reserve. Debts that were not taxed when they arose, for example, because they relate to the sale to a fixed asset.

Total expenses (box 3.46)

The amount of money included in turnover but remaining unpaid at the accounting date that you consider will never be recovered and have decided to write off this year.  If, unexpectedly, you do recover the amount in a later year, make sure you include it in box 3.37 in that later year’s Tax Return.

Interest

Disallowable expenses (box 3.29)

Repayment of the loan or overdraft.

Total expenses (box 3.47)

Interest on bank and other loans (including overdrafts).

Other financial charges

Disallowable expenses (box 3.30)

Repayment of the loan or overdraft

Total expenses (box 3.48)

For example, bank charges, credit card charges, hire purchase interest, and leasing payments, together with other similar costs not included elsewhere.

Depreciation and loss/(profit) on sale

Disallowable expenses (box 3.31)

Generally, depreciation and losses on assets are not allowable for tax, and profits on assets are not taxable receipts. Any figure in box 3.49 should be cancelled by putting the same figure in box 3.31. However, to the extent that any of these items are attributable to assets held under finance leases a different treatment may be appropriate. If you are in any doubt about the correct treatment, ask your Tax Office or tax adviser.

Total expenses (box 3.49)

Add together depreciation and losses on sales of assets, and deduct profits on sales of assets that are included in your accounts, and enter the resulting figure in the box. Where the profit on disposal of an asset exceeds the total of any losses on disposal and depreciation added together, show a figure in brackets. A figure in brackets is to be deducted when you add up your total expenses.

If you sold assets at a profit, you should consider whether you need to enter a gain in the Capital Gains Pages.

Other expenses

Disallowable expenses (box 3.32)

The non-business part of expenses in box 3.50. Ordinary, everyday clothing even if bought specially for business use.

Total expenses (box 3.50)

Add up all the expenses not included elsewhere and enter the total figure.

Page SEN6

Other income/profits

box 3.37

Enter in box 3.37 any business income (except Business Start-up Allowance, sometimes known as Enterprise Allowance, which goes in box 3.87) you did not include as turnover in box 3.16. Examples might include rental income, interest from a business bank or building society account and wayleaves. If you are including this income in a different place on your Tax Return, make sure you deduct it at box 3.58. For example, bank interest included on page 3 of your Tax Return should not be included in the net business profit or loss shown in box 3.60.

Additional information

Use the 'Additional information' boxes on Pages SE1 and SE4 if you want to explain any of your figures in more detail. For example:

particulars of any significant or unusual items (either income or expenditure) included in your figures, or

details of receipts or expenditure connected with your business which for any reason are not included in your figures, or

an explanation of any tax adjustment to your net profit where the reason is not apparent from these figures, or

an explanation of any items not included in your accounts information, but which affect your taxable profits, such as spreading of literary profits

details of any articles gifted under the Millennium Gift Aid Scheme, and to which charities. Relief is automatically given in the computation of trading profits by treating such gifts as disposals of stock and plant at nil other than the usual market value.

This may avoid unnecessary enquiries being made. Further help is available in Help Sheet IR229: Information from your accounts.

Tax adjustments to net profit or loss

See the section on authors and artists on page SEN10 if you claim 'backwards' or 'forwards spreading' of profits.

box 3.53

Enter in box 3.53 the total of disallowable expenses in boxes 3.17 to 3.32.

box 3.54

You should also make adjustments for goods taken out of the business for your personal use or for your family or friends. Enter in box 3.54 the normal selling price of all goods taken out for such use, minus any sum you paid into your business for the goods and which you have already included in your turnover in box 3.16.

box 3.58

Use box 3.58 for any adjustments (deduct from a profit or add to a loss) for any amounts you took into account in arriving at your net profit or loss, but which are either not taxable receipts or are not taxable as profits from your trade or profession. Any taxable income in box 3.58 must be included in the appropriate part of your Tax Return.

Foreign tax

If your business income includes amounts that have been taxed abroad, you may be able to claim a credit against your UK tax bill. To do so, you should fill in the Foreign Pages. (Ask the Orderline for a copy if you do not have one). This will usually be the most beneficial way to claim relief for the foreign tax paid.

However, if you do not wish to claim tax credit relief, you may instead deduct the foreign tax in working out your taxable profit or loss. Enter in box 3.58 the amount of foreign tax paid on the foreign income included in the Self-employment Pages. Remember to exclude this tax from the Foreign Pages.

If you are claiming overlap relief this year for an amount on which you claimed tax credit relief in an earlier year, you will need to ask the Orderline for Help Sheet IR260: Overlap if you want to calculate your tax. Otherwise, enter details of the amount claimed in the 'Additional information' box.

Capital allowances and balancing charges

boxes 3.61 to 3.70

In working out your taxable profits you must not deduct:

the cost of buying, altering or improving fixed assets, or

depreciation or any losses that arise when you sell them.

Instead, you can claim tax allowances called capital allowances. These are deducted in working out your taxable profits and should be included in box 3.57 (or box 3.12). An adjustment, known as a balancing charge, may arise when you sell an item, give it away or stop using it in your business. Balancing charges are added to your taxable profits and should be included in box 3.55 (or box 3.11).

You can claim capital allowances for the cost of:

plant and machinery such as vehicles, tools, ladders, computers and business furniture which belongs to you. Do not claim for the things it is your trade to buy and sell - these should be claimed as business expenses

agricultural buildings, industrial buildings and certain other buildings

patents, certain specialist types of 'know-how', scientific research, mineral extraction and dredging. Your tax adviser will claim these for you, if they apply.

If you buy on hire purchase, you can claim capital allowances on the original cost of the item; the interest or other charges count as business expenses and should be deducted at box 3.48.

You cannot claim for anything you have bought solely for private use, or the cost of the land even if it used for your business.

You should complete boxes 3.61 to 3.70 in each set of Self-employment Pages you complete. This is because separate capital allowances calculations are required for each of your accounting periods. If you are not sure what to include, ask the Orderline for Help Sheet IR222: How to calculate your taxable profits.

The  example on page SEN7 may help you (and there is more information in IR222: How to calculate your taxable profits).

Example 1

1. Joe starts up in business as a computer consultant on 1 July 1996. He decides to draw up his accounts to 31 December each year. His first accounts are for the 6 months to 31 December 1996. When he starts up in business he buys computer equipment for £2,000 and a Vauxhall car for £6,000. The computer equipment goes into the general 'pool' of expenditure and the car goes into the 'car pool' (cars have be kept separate). He also transfers his Renault car into the business. When it is transferred its market value is £4,000. He uses the Renault privately and estimates that 50% of the use is private. The capital allowances on the Renault have to be calculated separately (from the Vauxhall) because it will be used privately.

2. The capital allowances which are given each year are writing down allowances (WDAs) unless first year allowance (FYA) is available. The writing down allowances (WDAs) on the Renault are restricted to allow for the private use but it is the full WDA which is deducted in arriving at the written down value (WDV) to carry forward.

3. In the year ended 31 December 1998, Joe buys a new computer and printer for £5,000, on 1 June 1998, and sells his old printer for £100. The new computer and printer qualify for a special kind of capital allowance, a first year allowance (FYA) at the rate of 50%.

4. Joe decides to retire to Spain and closes down the business on 31 July 1999. He sells the computer equipment for £3800. He keeps the Vauxhall, whose market value is £2000, and scraps the Renault. Since the business has ceased there are no WDAs but a balancing charge or balancing allowance has to be calculated for each pool. There is a balancing charge if the disposal value is more than the WDV brought forward. If it is less, there is a balancing allowance.

Example calculation not available - Please contact the Inland Revenue Orderline on 0645 000404 for a hard copy of these Notes.

Adjustments to arrive at taxable profit or loss

You should only calculate your taxable profit or loss for 1998-99 once, even if you are providing details from more than one set of accounts for this year. Use the 'Adjustments to arrive at taxable profit or loss' section in the set of Self-employment Pages for your most recent set of accounts. If you carried on the business in partnership during any part of your basis period, do not complete boxes 3.71 to 3.91 in the Self-employment Pages, but instead complete boxes 4.1 to 4.25 in the Partnership Pages.

boxes 3.71 and 3.72

Enter the dates your basis period for 1998-99 begins and ends in boxes 3.71 and 3.72. Basis period is explained on page SEN3.

box 3.72A

If you are unable to complete the income and expenses section of these Pages because it is impossible to prepare the figures to arrive at your taxable profit before the latest date for sending your Tax Return, tick box 3.72A and provide an estimate of your taxable profit in box 3.88. Read the notes on page 27 of your Tax Return Guide and then tick box 22.3 on page 8 of your Tax Return, explaining in the 'Additional information' box why you cannot provide final figures. Give a date by which you expect to be able to do so.

box 3.72B

If you are a foster carer or adult carer, or you carry on a trade or profession wholly overseas you may only need to fill in a limited number of boxes in the Self-employment Pages. Check the notes on particular trades etc. on page SEN10 to see if this applies to you. If it does, tick box 3.72B to indicate why you have left some sections blank.

boxes 3.73 and 3.74

Copy your profit or loss from box 3.13 or box 3.60, whichever is appropriate, to box 3.73 (enter a loss in brackets). If you ticked box 3.5A, enter '0' in box 3.73 and include the appropriate amount of any profit returned last year in your entry in box 3.74.

If your basis period is not the same as the period covered by your accounts, calculate the profit or loss of the basis period by adding together and/or dividing the profits or losses of the periods for which you have accounts. Enter in box 3.74 any amount that needs to be added to, or deducted from, the figure in box 3.73. Help Sheet IR222: How to calculate your taxable profits explains how to calculate the adjustment.

If the adjustment means you have to deduct a figure at box 3.74, enter the figure in brackets and remember to subtract it in arriving at your total taxable profits.

Overlap relief

boxes 3.75 to 3.77

Overlap profit and relief

If your annual accounting date is a date other than 5 April then overlaps in your basis periods may occur:

in the first three years after your business starts up, or

in a year in which there is a change of accounting date.

You may be able to claim overlap relief for the profit (the overlap profit) which arises in any overlap period.

Overlap relief may be due for 1998-99 if:

you closed down or sold your business in 1998-99, or

you changed your accounting date in 1998-99 and your basis period, as shown in boxes 3.71 and 3.72, exceeds 12 months.

Enter in box 3.75 any unused overlap profit (including any unused transitional overlap profit) brought forward from 1997-98; in

box 3.76 any overlap profit used in 1998-99; and in box 3.77 any unused overlap profit carried forward to 1999-2000.

Ask the Orderline for Help Sheet IR222: How to calculate your taxable profits which explains how to calculate overlap profits and how to claim overlap relief.

box 3.78

If you are a farmer or market gardener, you may be able to claim to average two years' profits. Ask the Orderline for Help Sheet IR224: Farmers and market gardeners, which explains this. The amount of the adjustment to enter here is the amount by which the profit for the higher of the two years is reduced by the claim. This entry does not change the amount of any loss to include in box 3.80.

boxes 3.79 and 3.80

If box 3.73 and the adjustments in boxes 3.74 to 3.78 result in a profit, enter this in box 3.79

and '0' in box 3.80.

If the result is a loss, enter this in box 3.80 and '0' in box 3.79 unless you have claimed farmer's averaging.

If the result is a loss and you have claimed farmer's averaging, enter the profit resulting from the claim in box 3.79 and the loss in box 3.80. If you have made a loss, you may be able to claim tax relief for your loss. If you want information on losses, ask the Orderline for Help Sheet IR227: Losses.

Time limits: Some loss claims must be made by 31 January 2001.

You should ensure that any claims you may wish to make are made within the time limit prescribed. Late claims cannot normally

be accepted.

box 3.81

If you wish to offset your 1998-99 loss against other income of 1998-99, enter the amount you are claiming to offset in box 3.81 (also see Help Sheet IR227: Losses).

box 3.82

If you want to offset the 1998-99 loss against income of an earlier year, enter the amount of the loss in box 3.82. If you have already claimed to offset this loss, you should still include it in box 3.82, and provide details in the 'Additional information' box on Page SE4.

box 3.83

Enter in box 3.83 any losses sustained in 1998-99 that you claim to carry forward against later profits.

boxes 3.84 and 3.85

Enter in box 3.84 any losses sustained in the same business in earlier years, which you claimed to carry forward against later profits, and have not already used.

You can use that loss to offset any profit shown at box 3.79. Enter in box 3.85 the amount you are deducting up to the figure in box 3.79.

box 3.87

Enter any amounts not included elsewhere in the Self-employment Pages but which are needed to calculate your taxable profits, for example, any Business Start-Up Allowance (sometimes called Enterprise Allowance) you received in the year to 5 April 1999.

box 3.88

Enter the total of boxes 3.86 and 3.87.

Class 4 National Insurance Contributions

Self-employed people must pay Class 4 contributions on profits from any trade, profession or vocation unless they are 'excepted'. The contributions are a percentage of taxable profits for the tax year between lower and upper profit limits.

box 3.89

You are excepted from paying Class 4 contributions for 1998-99 if you are:

a man aged 65 or over, or a woman aged 60 or over, at 6 April 1998 (this includes a person whose birthday fell on 6 April 1998), or

aged under 16 on 6 April 1998 if the Inland Revenue National Insurance Contributions Office has granted you 'exception' (to apply for exception ask for form CA2835U, available from the Inland Revenue National Insurance Contributions Office), or

not resident in the UK for tax purposes during 1998-99 (contact your Tax Office or tax adviser if you do not know whether this applies to you).

It is possible for certain other people to be excepted from paying Class 4 contributions. If you require further information, please contact the Inland Revenue National Insurance Contributions Office. If you think you may be excepted because you are:

a trustee, or

a diver or diving supervisor,

you should ask your Tax Office or tax adviser.

Sometimes, where both Class 1 and Class 4 contributions could be due, Class 4 contributions may not be payable. In these circumstances the Inland Revenue National Insurance Contributions Office may agree that your Class 4 contributions may be deferred' until such time as your overall contributions can be determined. Only the Inland Revenue National Insurance Contributions Office can agree to deferment. Leaflet CA72, available from the Inland Revenue National Insurance Contributions Office, gives further details.

If you are excepted or your contributions are deferred:

tick box 3.89, and

enter '0' in boxes 3.90 and 3.91, and

explain in the 'Additional information' box that you are excepted or deferred, and give the reason.

boxes 3.90 to 3.91

If you have one business, use the Working Sheet aside to work out your figures to go in boxes 3.90 and 3.91.

If you have more than one business, do not use the Working Sheet. Instead, ask the Orderline for Help Sheet IR220: More than one business.

Working Sheet for Class 4 NICs (one business only)

* Trading losses of this business from 1997-98 and earlier years that have not yet been set against profits chargeable to Class 4 NIC, may be brought forward and set against the Class 4 profits of the same business for 1998-99. (This is because losses that are allowable for tax are also treated as losses arising for the purposes of Class 4 NIC. They may be allowed for Class 4 in the same ways as losses are allowed for tax.)

* Interest can be deducted in calculating Class 4 profits if it was incurred for the purposes of your business but has not been deducted in arriving at your taxable profits. Include

 - any such interest from 1997-98 and earlier years that has not been set against previous Class 4 profits

 - any such interest paid in 1998-99.

* Losses arising from Furnished Holiday Lettings are not allowable for Class 4 NIC purposes.

Subcontractors in the construction industry

box 3.92

If you are a subcontractor in the building industry, you may have received some payments under the Construction Industry Tax Deduction Scheme. If you have, enter in box 3.92 the total of the deductions made on account of tax from payments made to you during the period 6 April 1998 to 5 April 1999.

The tax deductions should be shown on SC60s, which you should have received from the contractors for whom you worked, and these forms should be sent with your Tax Return. If you have not received SC60s, ask the contractor(s) you worked for to provide them. If you cannot get an SC60, please give details of the dates and the amounts you were paid, the tax deductions and the name and address of the contractor(s) in the 'Additional information' box.

If you have already claimed repayments of SC60 deductions during the year, still enter the total amount of SC60 deductions for the year in box 3.92 and send any outstanding SC60s for the year with your Tax Return. Please enter in box 17.1, on page 7 of your Tax Return, the amount of any refund of SC60 deductions, or any SC60 deductions set against other liabilities.

Summary of balance sheet

boxes 3.93 to 3.109

If you have accounts, and they include a balance sheet, copy the entries to the appropriate boxes. If you do not have a balance sheet, or your turnover was less than £15,000, leave these boxes blank.

Make sure that you have transferred all the figures to the summary, and that each is included once only. Do not include any figures not appearing in your balance sheet.

You should use your judgement to transfer the figures from your accounts to the most appropriate boxes. Depending on the circumstances of your business, certain elements in the balance sheet may appear either as assets or as liabilities. For example, a bank account with business funds in it will be an asset while an overdrawn account will be a liability. For the former, enter the balance in box 3.97. For the latter, enter the balance in box 3.101.

Other elements that might be affected in this way are most commonly the Capital Account balances and the net profit or loss. Where a balance on the Capital Account is overdrawn, or the business made a net loss in the year, you should enter the amount in brackets.

The figure of net profit or loss appearing in your balance sheet should be the same as that entered in box 3.52 for the same period.

The figure for net business assets (box 3.104) should be the same as the figure for the balance of your Capital Account at the end of the period (box 3.109).

Tax deducted from trading income

box 3.120

Enter in box 3.120 any tax deducted from trading income (excluding deductions made by contractors on account of tax) between 6 April 1998 and 5 April 1999.

Particular trades etc.

Authors and artists

There are various reliefs available to authors and artists who may find that the pattern of their profits is irregular. These reliefs even out the profits by spreading receipts over several years. Your Tax Office or tax adviser will be able to provide details.

If you claim 'backwards spreading', enter the reduction in your profits for this year in box 3.58, tick box 22.5 on page 8 of your Tax Return and give details in the 'Additional information' box on that page of the amount spread back to last year and, if appropriate, the year before.

If you claim 'forwards spreading' of sums receivable this year, enter the reduction in your profits in box 3.58. Additions to your profits for this year as a result of forwards spreading claims made in previous years should be made in box 3.54. Give details in the 'Additional information' box on Page SE4.

Farmers and market gardeners

You will need Help Sheet IR224: Farmers and market gardeners from the Orderline which explains:

the special rules for averaging profits over two years in some circumstances

the herd basis for calculating profits which can be used by production livestock farmers

capital allowances on agricultural buildings and works.

Methods of farm stock valuation acceptable to the Inland Revenue are explained in Help Sheet IR232: Farm stock valuation.

Foster carers and adult carers

If you have an arrangement with your Tax Office for calculating your taxable profit, complete the following boxes in the Self-employment Pages (leaving the rest blank):

boxes 3.1 to 3.10

box 3.88 to show your profits

boxes 3.89 to 3.91 for your Class 4 NIC,

unless your Tax Office has told you otherwise.

Professions and vocations on a 'cash' basis

If you are carrying on a profession or vocation you may have used a 'cash' or 'conventional' basis to calculate your profits last year. Examples are:

bringing in receipts only when received, and/or expenses only when paid, so that there are no debtors and/or creditors

bringing in receipts only when bills have been issued, rather than when the work has been completed

not bringing in anything on account of work in progress.

If you calculated your profits this way last year then you can use the same method this year. Most people who have used this method of calculating profits will not be allowed to do so for accounting periods beginning after 6 April 1999 and no one apart from certain barristers or advocates can have started using it after 17 March 1998.

Trades and professions wholly carried on abroad

If you carry on a trade or profession wholly overseas you will still need to complete these Pages. But in certain circumstances you may only be taxed on remittances you make to the UK. Ask the Orderline for the Non-residence etc. Pages if you think the remittance basis might apply to you. If it does, you need only complete the following boxes, where relevant, in the

Self-employment Pages (leaving the rest blank):

boxes 3.1 to 3.10

boxes 3.71 and 3.72 to show your basis period

box 3.72B

box 3.88, and

tick box 3.89.

If you paid foreign tax on the profits of this trade and wish to claim credit against your UK tax liability, ask the Orderline for the Foreign Pages.

Glossary

Balancing charges

Withdrawal of some or all of the capital allowances previously given. They arise when fixed assets stop being used in your business.

Basis period

The period used to identify the profits taxable in any particular tax year.

Capital allowances

Allowances against tax for the cost of certain fixed assets.

Fixed assets

Assets such as buildings, plant and machinery, vehicles, etc. which you use in the business but do not buy and sell as part of your ordinary trading operations. For example, if you are a plumber, your van and your tools are fixed assets but your pipes, boilers, etc. are not (they are stock). The cost of buying fixed assets is called capital expenditure.

Overlap profit and overlap relief

Overlap profits arise when basis periods overlap so that the same profits are taxable in two different tax years. Overlap relief deducts the overlap profits in a later tax year so that over the life of your business you do not pay tax on more profits than you earn.

Stock

Raw materials used in your business and goods bought for resale, which you have on hand.

Trade Any commercial operation supplying goods or services to a customer for profits is likely to be regarded as a trade. If you are in doubt whether you carried on a trade, profession or vocation during 1998-99, you should ask your Tax Office or tax adviser.

Trade creditors

Money you owe other businesses for goods or services you have received, but which remain unpaid at your accounting date.

Trade debtors

Money you are owed for goods you have sold or work you have done that is included in turnover, but remains unpaid at your accounting date.

Turnover

All the money earned by your business before deducting any business expenses. It includes receipts in cash or in kind for goods sold or work done, commission, fees receivable, tips, insurance proceeds for stock and loss of profits, etc. But it does not include Business Start-Up Allowance (or Enterprise Allowance) which should be included separately in

box 3.87. Also, do not include amounts received from the sale of capital items, that is, assets which are of lasting use to the business, such as business premises, plant, machinery and vehicles.

Turnover should be included in your accounts when it is earned, even if you do not receive the money until later. Amounts you have earned but not received by the accounting date - your trade debtors - should therefore be counted as turnover. This will include goods you had delivered or services you had completed by the accounting date, even if you had not issued a bill by then. But make sure you do not count money you received which was included as turnover in an earlier period when it was earned.

Work-in-progress

Partially manufactured stock you have on hand, or partially completed work on contracts under which you provide

your service.

These notes are for guidance only, and reflect the position at the time of writing. They do not affect any rights of appeal.

Issued by the Inland Revenue

April 1999

© Crown copyright

This Help Sheet reproduced by permission of the Board of Inland Revenue


SA108 - Notes on capital gains

CONTENTS (Page CGN1)

Filling in your Capital Gains Pages

Section 1 - Filling in Pages CG1, CG2 and CG3

Filling in Pages CG2 and CG3

Filling in Page CG1

Capital losses

Section 2 - A simple guide to Capital Gains Tax

Section 3 - An introduction to Capital Gains Tax

Chargeable gains

Who pays Capital Gains Tax?

Assets

Exempt assets

Disposals

Small receipts

Building society mergers, conversions and take-overs

Company reconstructions and take-overs

Allowable losses set against income

Other taxable gains

Gains of earlier years

Section 4 - Calculating gains and losses

How to calculate gains and losses

A simple calculation

How is a loss allowed?

Carry back of losses

Do losses have to be claimed?

How to make a claim for a loss

Is there a time limit for claiming losses?

What is the date of disposal (or acquisition)?

What are disposal proceeds?

What expenses can be deducted?

What acquisition costs can be deducted?

What enhancement costs can be deducted

What incidental costs can be deducted?

What is expenditure on establishing, preserving or defending your title to an asset?

What is meant by market value?

Estimates and valuations

Valuations already checked by the Inland Revenue

Who are connected persons?

What is a wasting asset?

Is there any adjustment for capital allowances?

What is rebasing?

What is indexation allowance?

What are part disposals?

Section 5 - Indexation allowance

When does indexation allowance apply?

How is indexation allowance calculated?

What about losses?

Which costs attract indexation allowance?

What about part disposals?

What about transfers to spouses?

What about assets held at 31 March 1982?

What about disposals of shares or securities?

Indexation allowance table for disposals after 31 March 1998

Section 6 - Taper relief

Introduction

What is a business asset?

Section 7 - Reliefs and elections

Your home

Other reliefs

Section 8 - Worked examples of gains and losses

HELP SHEETS AND LEAFLETS

Help Sheets and leaflets giving more detailed information about particular tax rules for capital gains are available from the Orderline.

IR279: Taper relief

IR280: Rebasing - assets held at 31 March 1982

IR281: Husband and wife, divorce and separation

IR282: Death, personal representatives and legatees

IR283: Private residence relief

IR284: Shares and Capital Gains Tax

IR285: Share reorganisations, company take-overs and Capital Gains Tax

IR286: Income Tax losses for shares you have subscribed for in unlisted trading companies

IR287: Employee share schemes and Capital Gains Tax

IR288: Partnerships and Capital Gains Tax

IR289: Retirement relief and Capital Gains Tax

IR290: Business asset roll-over relief

IR291: Reinvestment relief - shares acquired before 6 April 1998

IR292: Land and leases, the valuation of land and Capital Gains Tax

IR293: Chattels and Capital Gains Tax

IR294: Trusts and Capital Gains Tax

IR295: Relief for gifts and similar transactions

IR296: Debts and Capital Gains Tax

IR297: Enterprise Investment Scheme and Capital Gains Tax

IR298: Venture Capital Trusts and Capital Gains Tax

IR299: Non-resident trusts and Capital Gains Tax

IR301: Calculation of the increase in tax charge on capital gains from non-resident, dual resident and immigrating trusts

Page CGN2

Filling in your Capital Gains Pages

Gather together the material you need, such as:

contracts for the purchase or sale of assets

invoices for allowable expenditure.

If you have capital gains, you will have to fill in the Capital Gains Pages unless:

any gains arose from the disposal of your only or main

residence as these are exempt as a result of private residence relief (see the note on 'your home' on page CGN15), and

any other assets you disposed of in the tax year were worth £13,600 or less in total (ignoring exempt assets - see page CGN6 - but including any residence that is not exempt or is only partly exempt; if you are not domiciled in the UK and are chargeable on the remittance basis (see Question 9 of your Tax Return) you should include the proceeds from any overseas asset disposed of in this year or an earlier year, to the extent that these have been remitted to the UK during this year), and

your chargeable gains (before any losses are deducted or taper relief is applied) were £6,800 or less. (When calculating this, you should include, for example, gains attributed to you as settlor or beneficiary of a trust and any amounts remitted to the UK for gains accruing in this year or an earlier tax year, where those gains are chargeable on the remittance basis.)

You must also fill in the Capital Gains Pages if you want to claim an allowable loss (see page CGN7). The notes below will help you decide if you have chargeable gains.

The following notes, and the Help Sheets and leaflets, cannot describe all the possible circumstances in which you may have to pay Capital Gains Tax. In more complex cases you may need to obtain professional advice or you can ask to see the Inland Revenue Capital Gains Manual, which is available at any Tax Enquiry Centre.

The notes are divided into eight sections.

Section 1 (pages CGN2 to CGN4) explains how to fill in the Capital Gains Pages.

Section 2 (page CGN5) provides a simple guide to Capital

Gains Tax.

Sections 3 to 8 (pages CGN5 to CGN18) provide more detailed guidance.

Section 1- Filling in Pages CG1, CG2 and CG3

The details in the Capital Gains Pages provide the information we need about your chargeable gains and allowable losses. You must fill in all three Pages.

Fill in Pages CG2 and CG3 first. If you think that you will need more than one copy of Pages CG2 and CG3 to give details of all your disposals, make photocopies before making any entries. Please put your name and tax reference on each photocopy. Alternatively you may send in a computer generated document to replace Pages CG2 and CG3 provided it follows the layout of the paper copy of those two Pages.

In some situations, if you receive an amount in respect of an asset which is small compared to the value of that asset, the receipt may not be treated as a disposal. You will find more details on where this may apply, and how to fill in Pages CG1, CG2 and CG3 in these cases, under the heading 'Disposals' on page CGN6.

You are not required to submit any calculations or other supporting documents with your Tax Return. If you want to provide more information to show how you have calculated your figures, please give the details on Page CG4 if there is room. If there is not enough room and you want to provide more information or calculations you are welcome to do so. If you provide calculations you must still complete Pages CG1, CG2 and CG3.

Filling in Pages CG2 and CG3

Fill in Pages CG2 and CG3 to give details about your disposals in the year ended 5 April 1999. This information helps determine whether we need to ask you any questions about your Tax Return.

Column A

Enter in this column details of each asset you have disposed of. For example, if you have disposed of land or buildings, give the address and a description of the property. If you have disposed of shares, give the name of the company, the type of shares you have disposed of and how many shares you have disposed of.

We have split the section for recording your gains into two. This is so you can record how much taper relief you are entitled to on each gain you make. Always use the first section 'Gains (on assets without mixed use)' where you have made disposals of assets that were wholly business assets, see page CGN15, or wholly non-business assets. Use the second section 'Gains on mixed business and non-business use assets' where you have made disposals of assets that were partly business assets and partly non-business assets. In column I you need to split these gains into a business asset gain and a non-business asset gain to record how much taper relief is due on each part.

If you are not domiciled in the UK and have disposed of assets outside the UK to which remittance basis applies, you should include details of such assets disposed of in this tax year or an earlier year where there have been remittances to the UK in this tax year.

If you have made any chargeable gains or allowable losses in 1998-99 without making a disposal, you should include details of these gains and losses in the list. This could occur, for example, because a deferred gain is treated as made in 1998-99 (see the section on gains of earlier years on page CGN7) or a loan to a trader has become irrecoverable (see the section on disposals on page CGN6). If you have gains attributed to you as settlor or beneficiary, see pages CGN4 and CGN8.

Column B

This column is only relevant if the asset you listed in column A is shares, including securities, in a company.

Tick the box in this column unless a price quote for the shares was available on the Stock Exchange Daily Official List (SEDOL) throughout the period you held them. You will also need to tick the box if you obtained the shares on a share exchange or other company reorganisation, and the shares you originally held did not appear on SEDOL throughout the period you held them.

Column C

Tick the box in this column on any row where you have used an estimate or valuation in calculating the gain or loss. (You should include any valuations you have used in column O on Page CG3 - see the note on page CGN11.) For example, valuations need to be used where an asset you have disposed of was:

acquired from, or disposed of to, a connected person (see page CGN11), or

held by you at 31 March 1982 (see the notes on rebasing on page CGN11).

Column D

Tick the box in this column on any row in which you are recording the disposal of an asset you owned, or are treated as having owned, at 31 March 1982.

Page CGN3

Column E

Chargeable gains accruing in 1998-99 are subject to taper relief, see page CGN15. However, taper relief is only due in 1998-99 on the disposal of business assets. Business assets are defined on page CGN15.

If you acquired the asset which you have now disposed of on or after 17 March 1998 you should enter in column E the actual date of acquisition of the asset. If you acquired the asset now disposed of before 17 March 1998 and still held it at 6 April 1998 enter 16 March 1998. All dates should be entered in a six number format, for example, 16 March 1998 should be shown as '16/03/98'.

Page CGN9 explains when an acquisition takes place.

If you have disposed of shares or securities which were pooled you should insert the later of 16 March 1998 and the date when you first acquired shares in the pool. For more information on disposals of shares and securities see page CGN13, 'What about disposals of shares or securities?' and Help Sheet IR284: Shares and Capital Gains Tax.

Column F

Enter in column F the date of disposal for each asset that gave rise to a chargeable gain. If, for example, the date of disposal was 5 June 1998 you should show the date in the appropriate row of column F as '05/06/98'.

Pages CGN6 and CGN9 explain when a disposal for Capital Gains Tax purposes occurs and on what date your disposal will be treated as having occurred.

Column G

Enter in this column the total disposal proceeds you have received or will receive from each disposal. Page CGN9 explains what to include in disposal proceeds. If remittance basis applies, enter only the amounts of any remittances to the UK in this tax year from the proceeds of the disposal of assets outside the UK (whether the disposal occurred in this tax year or in an earlier year).

Column H

Tick the box in this column on any row where you have provided details of a disposal that is affected by a relief. For example you may have claimed roll-over relief or you may be entitled to retirement relief. Section 7 describes the common reliefs.

Column I and boxes 8.1 and 8.2

Enter in the Gains part of this column the net gain from each disposal, after all reliefs, but before losses and taper relief have been taken into account. If you have recorded gains in rows 9 and 10 under the section 'Gains on mixed business and non-business use assets' make sure you split those gains into business asset and non-business asset gains so that you can work out how much taper relief is due on the business asset part; see Help Sheet IR279: Taper relief.

A loss arising on a disposal should be entered in the Losses section of Column I. Section 4 explains how to calculate gains and losses. Section 7 describes some common reliefs. If the remittance basis applies, enter only the amounts of any remittances to the UK in respect of gains from the disposal of assets outside the UK (whether the disposal occurred this tax year or in an earlier year).

Now total your gains and losses at boxes 8.1 and 8.2. You must complete the whole of Page CG3:

if you have gains at box 8.1 greater than £6,800 and no losses available to you, or

your gains after deducting losses of the year (and where applicable losses brought forward from earlier years) are greater than £6,800.

You need only complete the totals boxes (boxes 8.3 to 8.6 and the total taxable gains box) on Page CG3 (you can ignore the remainder of Page CG3) provided you have no gains attributed to you, see Page CGN8, or income losses available to set against your gains, and you fall into one of the following;

your gains (8.1) after deducting losses of the year (8.2) are £6,800 or less. (If this is the case you have no liability to Capital Gains Tax this year, even if taper relief is available to you. In these circumstances, you may enter the amount of your net gains (box 8.1 minus 8.2) in both box 8.3 and the total taxable gains box. Enter 0 (zero) in boxes 8.4 to 8.6 and proceed to Page CG1)

your gains after deducting losses of the year are greater than £6,800 but you have sufficient losses brought forward, to reduce those gains to £6,800. (If this is the case you again have no liability to Capital Gains Tax, even if taper relief is available to you. In these circumstances, you may enter the amount of the losses needed to reduce your gains to £6,800 in box 8.6 and enter £6,800 in boxes 8.3 and the total taxable gains box. Enter 0 (zero) in boxes 8.4 and 8.5 and proceed to Page CG1)

your allowable losses at box 8.2 exceed your chargeable gains at box 8.1. (You may enter 0 (zero) in boxes 8.3 to 8.6 and the total taxable gains box and proceed to Page CG1).

If you have any gains of trustees attributed to you as settlor or beneficiary, or income losses available to set against your gains, or you are unsure whether you fall into one of the specific situations described above, you should always complete the whole of

Page CG3.

Column J

If the asset disposed of was a business asset or used partly for business purposes during your period of ownership falling after 5 April 1998, see page CGN15, you should enter 'B' in the appropriate row(s) of this column.

Column K

Enter against each individual gain the taper percentage rate appropriate to the qualifying holding period for the asset disposed of. The percentage rates are shown in the table on page CGN15. If the asset disposed of was a business asset acquired before 17 March 1998 and still held at 6 April 1998 the percentage of the gain chargeable will be 92.5%. All other disposals falling in the tax year 1998-99 will be chargeable in full (that is, the rate to enter will be 100%).

Column L and boxes 8.5 and 8.6

There are special rules for allocating your allowable capital losses against chargeable gains, see page CGN8. These rules ensure you use your losses in the most beneficial way so that gains that qualify for the greatest rates of taper reduction remain chargeable. If you are setting off losses brought forward from earlier years you should use only enough losses to reduce your chargeable gains to the level of the annual exempt amount, see page CGN8. However, if you have attributed gains and also capital losses, see 'How is a loss allowed' on page CGN8.

In column L2 you should enter details of any trading losses, losses from furnished holiday lettings, post-cessation expenditure or post employment deductions that you wish to claim against chargeable gains. You should only enter the lower of:

the total losses you can claim, and

the amount required to reduce the figure of gains, after capital losses of the year have been set off, to zero.

Page CGN4

Now allocate your losses starting with column L1, next consider column L2 and finally column L3. Losses should be firstly allocated against chargeable gains with the highest percentage rate shown in column K. If you still have losses available after setting them against these gains you should set the remaining losses against the remaining gains.

Example

You have two gains in column I:

Gain 1 £20,000; where the percentage rate in column K is 92.5%

Gain 2 £10,000; where the percentage rate in column K is 100%

You have an allowable loss brought forward of £17,000.

First you should allocate in column L3 £10,000 of your loss to Gain 2 as this gain is chargeable at 100%. Next allocate the remaining £7,000 of your loss in column L3 to Gain 1 as only 92.5% of this gain is chargeable.

If you have a number of gains and losses you should consider each gain in turn and allocate losses so that gains shown with the smallest percentages in column K remain chargeable. Do not forget to fill in the capital loss summary boxes on Page CG1.

Total your losses claimed in columns L2 and L3 and enter the amounts in boxes 8.5 and 8.6.

Column M

Subtract all losses claimed in columns L1, L2 and L3 from the chargeable gains entered in column I. Any net gains remaining chargeable should be entered in the appropriate rows of column M.

Column N and box 8.3

Each gain remaining chargeable after losses have been set-off in column M should now be multiplied by the taper rate appropriate to that gain. The taper rate is entered in column K. For example if a gain in column M was £20,000 after losses have been set-off and the taper rate was 92.5% then the tapered gain to enter in Column N will be £18,500 (£20,000 x 92.5%). If you have more than one gain in column M work out each tapered gain in turn entering all the figures in column N as you go.

Add up all of the gains in column N and enter the total in box 8.3.

Column O

Use column O or Page CG4 to provide other information. For example:

if there were transactions with a connected person

why estimates or valuations have been used

what reliefs have been claimed

whether taxable value has been transferred

whether you have made a part disposal

whether you have exchanged shares or securities in a company reconstruction or takeover

whether remittance basis applies.

Attributed gains and box 8.4

Enter in rows 11 and 12 on Page CG3 any gains of trustees which are attributed to you as settlor or beneficiary, see page CGN8. Insert the name of the trust in column O. Add up all of the attributed gains and enter the total in box 8.4.

Total taxable gains

Add together all of your tapered chargeable gains from box 8.3 and any attributed gains from box 8.4 and enter the result in the total taxable gains box.

Filling in Page CG1

Now you have completed Pages CG2 and CG3 you have the information to fill in Page CG1.

box 8.7

Copy the total taxable gains entry from Page CG3 to box 8.7.

box 8.8

You do not have to pay tax on the first £6,800 of chargeable gains that you made in 1998-99. This amount is referred to as your 'annual exempt amount'.

Deduct £6,800 from the figure in box 8.7. Enter the net amount in box 8.8.

The figure in box 8.8 is the net amount of chargeable gains on which you must pay Capital Gains Tax for 1998-99.

box 8.9

You may have to pay tax because you have directly or indirectly received, or you are treated as having received, capital or a benefit from any non-resident or dual resident trust. A benefit includes interest free loans and loans at less than a commercial rate of interest, rent free occupation of trust property or use of trust property at less than market rental.

The previous paragraph may also apply to capital payments or benefits provided by the trustees of an 'immigrating trust' that is by trustees of a trust resident in the UK that either had been resident abroad previously, or has had money or other assets transferred to it by a trust that is still abroad or had been abroad previously. If you are not sure whether this applies to you, ask the trustees, your tax adviser or Tax Office. If you have directly or indirectly received capital or a benefit, ask the Orderline for Help Sheet IR301: Calculation of the increase in tax charge on capital gains from non-resident, dual resident and immigrating trusts to work out the amount of tax to go in box 8.9. Enter the name of the trust (and the tax reference if known) in the 'Additional information' box on Page CG4 of the Capital Gains Pages.

You may have to pay Income Tax instead, or as well as, Capital Gains Tax - see the notes on box 6.5 of the Foreign Pages, which you should ask the Orderline for if you have not already got them.

Capital losses

boxes 8.10 to 8.14

These boxes summarise the losses you have made this year and the various ways in whlch they have been used. In box 8.10 enter the total sum of all the losses you have made during the year. This figure can be copied from box 8.2 on Page CG2. If you are claiming to set capital losses against your income, see the notes on page CGN7, please ensure that you complete boxes 8.13A and 8.13B as well as the total box, 8.13. Any remaining losses are carried forward to use against gains of later years.

boxes 8.15 to 8.17

These boxes summarise the allowable losses that you have claimed and the amount of unused losses to be carried forward to use against gains of later years.

boxes 8.18 and 8.19

These boxes summarise the losses you have made in earlier years that have not yet been used against chargeable gains. See the notes on pages CGN8 and CGN9 for details of how they are set against chargeable gains.

boxes 8.20 and 8.21

These boxes summarise your losses to carry forward.

Page CGN5

Section 2 - A simple guide to Capital Gains Tax

At its simplest Capital Gains Tax is a tax you pay if you make a gain from selling something you own. Some things, such as your home, your car or shares held in a PEP, are usually outside the charge to tax, see page CGN6.

You may be one of the many people who hold shares directly in major UK companies. If you sell any of these shares, you will have to consider whether you have to pay Capital Gains Tax. This guide deals only with the case in which you bought shares listed on the Stock Exchange in one lot after 5 April 1982 through a broker, and where you sold the shares in the same way. In any other case, or if you are in any doubt, you should read the notes in Sections 3 to 7.

You need to work out your gain using the rules for Capital Gains Tax. This gain is called your chargeable gain. You must pay Capital Gains Tax if your net chargeable gains for 1998-99 exceed £6,800 after deducting any allowable losses or taper relief. Section 1 beginning on page CGN2 shows how to fill in the Capital Gains Pages.

So how do you start? Here is a simple example. Let us say that on 1 March 1988 you bought 3,000 shares in a company for £2.50 each. Your broker charged a fee of £100. On 5 August 1998 you sold those shares for £4.50 each. Your broker charged a fee of £200.

Your gain is:

Sale price		£13,500
minus Broker's fee		£200
		£13,300
Cost	£7,500
plus Broker's fee	£100	£7,600
Net gain		£5,700

You must then deduct indexation allowance which is an adjustment for the effects of inflation from this gain. Indexation allowance is available to April 1998. You multiply the cost of buying the shares (£7,600 in the example) by a figure known as the indexation factor and deduct the resulting amount from your gain. The notes on page CGN12 explain how to find the indexation factor from the table on page CGN14. In this case the indexation factor is 0.562 and so your indexation allowance is:

£7,600 x 0.562 = £4,271

Deduct this from your gain to give your chargeable gain. This will be:

Gain	£5,700
Minus indexation allowance	£4,271
Chargeable gain	£1,429

There is a new relief known as taper relief that is explained on page CGN15. However, it does not apply to this disposal.

If this is your only chargeable gain in 1998-99, you will have no Capital Gains Tax to pay because you can make chargeable gains of up to £6,800 before you pay Capital Gains Tax

If you have made a loss on your sale, the rules are different. You cannot deduct any indexation allowance to increase the loss. Nor can you deduct all of your indexation allowance if it would turn your gain into a loss. If your indexation allowance is greater than your gain, you can only deduct enough to reduce your gain to zero.

Losses you make from sales in the year must be deducted from your indexed gains to decide whether your total gains are greater than £6,800. You can also deduct losses you have made from sales in earlier years if they have not yet been deducted from gains you made in earlier years. See Section 4 on 'Calculating gains and losses' for more information.

Section 3 - An introduction to Capital Gains Tax

These notes are a simplified summary of the Capital Gains Tax law as it applies in some common cases. If you are in any doubt about whether you have Capital Gains Tax to pay, ask your Tax Office or tax adviser.

Chargeable gains

A chargeable gain is made when something you own (an asset):

is wholly or partly disposed of (or treated as disposed of), and

its value has increased since you acquired it, or since 31 March 1982 if that is later, or

its value at the date of disposal is greater than the reduced value for which you are deemed to have acquired the asset because of an earlier relief.

You may also be treated as making a gain in other circumstances, for example where:

a gain on an earlier disposal of an asset has been deferred, and a particular event, for example, disposal of another asset, or the lapse of time has ended the deferral period, or

the value of an asset you own has had its value decreased by a transfer of rights, or by any other means that would not by itself be regarded as a disposal, or

you dispose of a wasting asset, which has not diminished in value as quickly as was expected (see Help Sheet IR293: Chattels and Capital Gains Tax), or

you derive a capital sum from your ownership of an asset, or

you dispose of an asset that you acquired from your spouse.

You do not pay tax on the price you receive for the asset, but only on the increase in its value while you have owned it. If it has lost value in that time, you deduct that loss from any gains you make on other assets in the same year or later. Section 4 helps you work out your gains and losses. You also may be treated as making a disposal if you recover money for which you have had some relief under the capital gains rules. Ask the Orderline for Help Sheet IR296: Debts and Capital Gains Tax.

Who pays Capital Gains Tax?

You must pay Capital Gains Tax on all your chargeable gains, after deducting allowable losses (and, if you sold a business asset, applying taper relief) if you are resident or ordinarily resident, and domiciled in the UK in 1998-99.

If you are not domiciled in the UK, you pay tax on gains made on the disposal of assets situated outside the UK, only when the gains are remitted to the UK (the 'remittance' basis). Gains on the disposal of assets situated in the UK are taxable as in the paragraph above.

If you are neither resident nor ordinarily resident in the UK, you are taxable on gains made in 1998-99 from assets of any branch or agency in the UK through which you are trading or carrying on a profession or vocation. If you left the UK after 5 April 1998 you may also be taxable on gains made in 1998-99 from disposals after the date of your departure. You may also be taxable on gains made from any other assets which you owned while you were resident or ordinarily resident in the UK and disposed of in 1998-99 if you left the UK after 16 March 1998 and your period of residence outside the UK does not exceed five full tax years. However, any such gains will not be taxable until the year in which you resume residence in the UK.

If you are not sure whether you are resident, ordinarily resident or domiciled in the UK, you should ask the Orderline for the Notes for the Non-residence Pages which explain residence and domicile in more detail and, if appropriate, complete the Non-residence etc. Pages.

Page CGN6

Assets

Any form of property, wherever it is situated, may be an asset that attracts Capital Gains Tax. The most common assets include:

stocks and shares

land and buildings

business assets, such as goodwill.

Some assets are exempt from Capital Gains Tax. Common exempted assets are listed below.

The gains made on some assets may be wholly or partly relieved from tax. See the explanation of the common reliefs starting on

page CGN15.

Exempt assets

The disposal of some types of asset is exempt from Capital Gains Tax.

If you receive a sum of money or an asset that is taxable as part of your income, you will not have to pay Capital Gains Tax on that sum as well.

The following types of asset are exempt from Capital Gains Tax:

private cars

personal effects and goods worth £6,000 or less when you dispose of them

Savings Certificates, Premium Bonds and British Savings Bonds

gains made within a Personal Equity Plan (PEP)

bonuses from tax exempt special savings accounts (TESSAs)

UK Government stocks (gilts)

personal injury compensation

foreign currency for you or your family's personal use

life assurance policies and deferred annuity contracts, unless purchased from a third party

betting, lottery or pools winnings

SAYE terminal bonuses

compensation for mis-sold personal pensions taken out as a result of disadvantageous advice given between 29 April 1988 and 30 June 1994.

If your only disposals are of these types of asset, you should tick the 'No' boxes in Question 8 of your Tax Return.

If a gain on the disposal of an asset would be exempt from Capital Gains Tax, any loss you make on that asset will not be an allowable loss.

Gains from the disposal of personal effects or goods, each of which was worth £6,000 or less, when you disposed of them, are exempt. You may be able to use any loss that you make on such a disposal. This is dealt with in more detail in Help Sheet IR293: Chattels and Capital Gains Tax, available from the Orderline.

In most cases you will not pay tax on any gain you make when you dispose of your home. See the section dealing with the disposal of your home on page CGN15.

Disposals

Capital Gains Tax is payable on gains from the disposal of assets. A disposal will occur when you:

sell, or

give away, or

exchange an asset, or

receive a capital sum from your ownership of an asset, or

the value of an asset you own has been reduced to increase the value of an asset owned by some other person.

A capital sum is a sum that is not part of your taxable income.

You can claim to be treated as making a disposal if an asset you own has become of negligible value. This may give you a loss that you can set against your gains.

If you dispose of only part of an asset, you can only use part of the cost in calculating your gain. Part disposals are explained more fully on page CGN12.

Any disposal which is made by your nominee, or by a person who is a bare trustee in relation to assets to which you are absolutely entitled, will be treated as your disposal.

Some disposals do not result in a charge to Capital Gains Tax. For example:

when somebody dies and their assets pass to their personal representatives, or

where shares are disposed of in exchange for other shares - see the notes on 'company reconstructions and take-overs' on page CGN7.

If you transfer an asset to your husband or wife and you are living together, you will not be taxed. Instead, any gain or loss is deferred until the asset is disposed of by your spouse. Your spouse may then pay tax on any gain made during the whole time that one or other of you has owned the asset.

If you are a member of a partnership, there are special rules dealing with the disposal or acquisition you make when there is a change in your share of partnership assets. If you need advice, ask the Orderline for Help Sheet IR288: Partnerships and Capital Gains Tax.

Small receipts

In some situations, an amount received in respect of an asset, which would otherwise be treated as a part disposal of the asset, need not be treated as a disposal at all if the amount is small compared to the value of the asset. This applies where amounts are received:

as a capital distribution in respect of shares. This includes amounts received where rights to further shares which are allotted to you are sold nil paid, or

as compensation, or under an insurance policy, for damage or injury to the asset, or

for surrendering or agreeing not to exercise rights, or

for use or exploitation of the asset, or

in some cases where there is a compulsory acquisition of land.

Where the receipt is not treated as a disposal, the amount will need to be deducted from the expenditure available to set against any later disposal of the asset. If the amount of the receipt exceeds the available expenditure, a gain may still arise on receipt. Ask your tax adviser or Tax Office for further details.

If you receive cash on an exchange of shares for qualifying corporate bonds, or on a conversion of securities, any gain arising on the cash element may also be deferred if the amount is small compared to the value of the shares. Again, you should ask your tax adviser or Tax Office for further details.

What is small?

If in the situations described above the amount you receive:

does not exceed £3,000, or

does not exceed 5% of the value of the asset in respect of which it is paid, and

the amount you receive is less than the allowable cost of the asset

then you do not need to enter the amount as a disposal on Pages CG1, CG2 and CG3.

If the amount exceeds these limits, but you think that it should be regarded in the circumstances as small, you should:

enter the gain or loss on the list of disposals on Page CG2, and

explain in column O and on Page CG3 if necessary why you think the amount should be treated as small;

but do not include the gain or loss in the totals at boxes 8.1 or 8.2 on Page CG2. Your Tax Office may ask for further details in these cases.

Page CGN7

Building society mergers, conversions and take-overs

If you have:

received cash as a result of a merger of two or more societies, or

received cash, or been issued with shares, or received both cash and shares, as a result of either
 - a conversion of a building society to a company, or
 - a take-over of a building society by a company,

there may be liability to either Income Tax or Capital Gains Tax. The building society may be able to tell you whether there is any tax liability. If not, ask your Tax Office or tax adviser.

If you have received cash which is liable to Capital Gains Tax (which is likely if you received it following a conversion or take-over of a building society), then you should include details in the list on Page CG2.

If you need more detailed guidance on how to calculate the gain, you should ask your Tax Office or tax adviser.

If you have received shares, then you only need to provide details of any gain you make when you dispose of the shares or authorise someone to dispose of them on your behalf.

Company reconstructions and take-overs

If you have exchanged shares or securities of a company for other shares or securities, as part of a company reconstruction or take-over, you may be treated as having acquired the new shares or securities at the same price, and on the same date, as the old. It will not be counted as a disposal for tax purposes.

You may, however, be treated as making a disposal if the company reconstruction or take-over is not carried out for commercial reasons, or is made in order to avoid tax. Companies can apply in advance to the Board of Inland Revenue for clearance from these anti-avoidance rules. The clearance will only be valid if the take-over, reconstruction or amalgamation is carried out in accordance with the clearance application.

If you think you have obtained shares or securities as part of a company reconstruction or take-over, or you need advice about the anti-avoidance rules, ask the Orderline for Help Sheet IR285: Share reorganisations, company take-overs and Capital Gains Tax.

Allowable losses set against income

If you have losses from the disposal of certain unlisted shares, you may be able to make a claim to set those losses against your income, rather than your gains. The rules for making such a claim are explained in Help Sheet IR286: Income Tax losses for shares you have subscribed for in unlisted trading companies, and for Enterprise Investment Scheme companies in Help Sheet IR297: Enterprise Investment Scheme and Capital Gains Tax, available from the Orderline.

If you are making a claim on your Tax Return to set such losses against your income, you should remember to enter the amount of the loss in box 8.13A or box 8.13B and also enter details of your claim on Page CG2.

Other taxable gains

In certain circumstances you may have to pay Capital Gains Tax on gains made by a company or a trust in which you have an interest. This includes gains made by:

certain types of company not resident in the UK and in which you are a participator, or

a trust not resident in the UK at that time, the gains of which are attributed to you because you have received capital payments or benefits (ask the Orderline for Help Sheet 301: Calculation of the increase in tax charge on capital gains from non-resident, dual resident and immigrating trusts), or

a trust not resident in the UK and of which you are a settlor (ask the Orderline for Help Sheet 299: Non-resident trusts and Capital Gains Tax), or

a trust resident in the UK from which you can or do benefit and of which you or your spouse are the settlor.

If you think you may be liable to Capital Gains Tax on gains made by any such company or trust, ask your Tax Office or tax adviser.

Gains of earlier years

Some gains that were made before 1998-99 may be taxable in 1998-99. For example, where:

roll-over relief was claimed on the purchase of a wasting asset, see Help Sheet IR290: Business asset roll-over relief, or

gifts hold-over relief has been claimed on a transfer of an asset to you and you have become non-resident, see Help Sheet IR295: Relief for gifts and similar transactions, or

a gain has been deferred as a result of a share reorganisation in which you have been issued with qualifying corporate bonds, see Help Sheet IR285: Share reorganisations, company take-overs and Capital Gains Tax, or

you have claimed a deferral of a gain on a subscription for Enterprise Investment Scheme or Venture Capital Trust shares, see Help Sheet IR297: Enterprise Investment Scheme and Capital Gains Tax or Help Sheet IR298: Venture Capital Trusts and Capital Gains Tax.

You must include these gains in the Capital Gains Pages.

Section 4 - Calculating gains and losses

Remember, these notes are a simplified summary of the Capital Gains Tax rules, as they apply in some common cases. If you are in any doubt about your liability, ask your tax adviser or Tax Office.

How to calculate gains and losses

To calculate the gain you have made on the disposal of an asset deduct:

the allowable costs, and

the indexation allowance

from the proceeds you receive on the disposal. The amount of the gain can be affected by the date of disposal, see page CGN8 for examples showing how to work out your gain or loss.

If you have disposed of shares or securities there are special rules for identifying the assets involved and working out the gain or loss. See Help Sheet IR284: Shares and Capital Gains Tax, available from the Orderline.

Help Sheet IR287: Employee share schemes and Capital Gains Tax, available from the Orderline, explains more about shares which you acquired in connection with your employment or by exercising an employee share option.

Page CGN8

A simple calculation

At its simplest a calculation of a chargeable gain will use the format:

Disposal proceeds

minus Incidental disposal costs

minus Cost of acquisition (a)

minus Incidental costs of acquisition (b)

minus Enhancement costs (c)

Total costs

minus Indexation allowance on  a, b and c (to April 1998 only)

equals Chargeable gain

If after deducting indexation allowance you still have a chargeable gain, you are probably entitled to taper relief if the asset disposed of qualifies as a business asset, see 'What is a business asset' on page CGN15. The remainder of your calculation will look like this:

Chargeable gain (from above)	£ x
Taper rate (based on the qualifying holding period after 5 April 1998 for the asset now disposed of)	x %
Tapered gain: chargeable gain multiplied by taper % =	£

If the asset disposed of does not qualify for the business asset taper your final gain will be the same as the chargeable gain above.

This simple calculation will not work if:

the disposal is a part disposal, see page CGN12, or

relief is due, see page CGN15, or

you have losses to set against the chargeable gain, see the next column, or

it is a disposal of shares or securities, unless it is a disposal of the whole of a single holding of a particular class of shares or securities.

If you have made a loss on your sale, the rules are different. First you cannot deduct any indexation allowance to increase the loss. Nor can you deduct all of your indexation allowance if it would turn your gain into a loss. If your indexation allowance is greater than your gain, you can only deduct enough to reduce your gain to zero. Second the new taper relief rules do not apply to losses. Instead you should set your losses against any chargeable gains you have made before you consider applying taper relief to those gains.

You can also be treated as having made a loss when:

certain loans you have made to persons who are trading cannot be recovered, or

you have had to make payments as a result of guarantees you have given for loans to persons who are trading.

In each case you must make a claim. Help Sheet IR296: Debts and Capital Gains Tax explains how to make a claim.

How is a loss allowed?

The total allowable losses of 1998-99 are deducted from the total chargeable gains for the year, with the exception of attributed gains. Your personal losses cannot be set against your attributed gains. Attributed gains are chargeable gains which are treated as yours because you are the settlor or beneficiary of a trust. See the second to fourth bullets in the section headed 'Other taxable gains' on page CGN7. The deduction of losses takes place before the application of taper relief, see page CGN15. If the allowable loss is greater than the chargeable gains these losses are carried forward to be set against gains you make in future years.

When you set losses brought forward against chargeable gains of a later year, you use only enough losses to reduce the chargeable gains, before taper, to the level of the annual exempt amount. Losses from 1996-97 and 1997-98 must be used in priority to any other losses you may have from 1995-96 and earlier years. Allowable losses must be set against the gains for the year in which they arose before you carry them forward to later years. These points are illustrated in Example 20, headed 'Allowable losses' in Section 7.

If you have attributed gains, in determining what losses brought forward are required to reduce the chargeable gains to the level of the annual exempt amount, you first reduce the annual exempt amount by the amount of the attributed gains.

Carry back of losses

Personal representatives completing a Tax Return for the period up to the date of death in the year in which a person has died, should be aware that the losses of that period can be carried back to be set against gains of the three preceding years. Further information is available in Help Sheet IR282: Death, personal representatives and legatees.

Allowable losses made on the expiry or termination of a mineral lease can be carried back and set against gains made from mineral royalties.

If you are making a claim on your Tax Return to set such losses against earlier years' gains you should remember to enter the amount of the loss in box 8.12 and also enter details of your claim on Page CG4.

Do losses have to be claimed?

A loss made in 1996-97 or later years has to be claimed. These losses are not allowable losses until you have given notice of the amount of the loss to your Tax Inspector. You do not have any choice about the order in which allowable losses are used. They must be deducted from gains in the order set out in the notes above.

Losses for 1995-96 and earlier years cannot be claimed. The accumulated amount of such losses should be entered in box 8.18. If you are using some of these losses against gains of 1998-99 the amounts being used should be entered in the boxes for allowable losses brought forward on Page CG3, column L3 and box 8.6 of your 1998-99 Tax Return. Such losses will form part of this Tax Return and your Tax Inspector may make enquiries into them. There is no time limit before which these earlier losses must be used.

How to make a claim for a loss

The rules for completing Returns mean that many losses will have to be included in the Tax Return for the year in which they are made. In 1998-99, if the total worth of all the assets you disposed of was more than £13,600 or you have made chargeable gains of more than £6,800, you must include all allowable losses for the year in the losses section on Page CG2. By giving the details requested on Page CG2 your Tax Inspector will treat the entries as your claim to allowable losses.

Page CGN9

If you discover a loss that should have been claimed on your Tax Return but you have already sent the Return to your Tax Inspector you should, if the time for amending your Tax Return:

has still to pass - write to your Tax Inspector giving details of your loss and ask for your Tax Return to be amended

has passed, but you are still in time to make a claim, see the next section - send a separate notice of the amount of the loss to your Tax Inspector.

If your loss is one that you do not need to claim right away see the next section, 'Is there a time limit for claiming losses?' for details of when the loss should be claimed.

Is there a time limit for claiming losses?

Allowable losses for 1996-97 and later years have to be claimed within five years and ten months of the end of the tax year in which they were made. This applies whether the losses are used in that time period or not. The latest date for claiming losses made in

1998-99 is 31 January 2005.

If losses brought forward have been claimed in the Tax Return for the year they were made, or by a separate claim, they will still have to be included in a later year's Tax Return when they are used.

What is the date of disposal (or acquisition)?

If the disposal (or acquisition) is by way of a contract, the date of disposal (or acquisition) is usually the date of the contract.

In a small number of cases the contract may be conditional. This will be so if one or more conditions have to be met before the contract becomes binding. In these cases the date of disposal (or acquisition) is the date on which the last of the conditions is met.

In other cases where there is no contract the date of disposal (or acquisition) will usually be the date when ownership of the asset was effectively transferred.

There are exceptions, for example, in most of the cases where you get a capital sum from your ownership of an asset. There, the date of disposal is the date you receive the capital sum.

Example 1

You sell a piece of land under a contract dated 2.4.99.

The land was conveyed to the purchaser on 2.5.99.

Your disposal, for the purpose of working out your gain or loss, is treated as taking place on 2.4.99.

Your disposal is in the tax year ending on 5.4.99 and you should include any gain or loss in your Tax Return for 1998-99.

What are disposal proceeds?

In most cases your calculation should begin with the total amount of disposal proceeds you will receive. This may include:

cash payable now or in the future, or

the value of any asset received in exchange for the asset you have disposed of, or

the value of a right to receive future payments.

The disposal proceeds should include cash, or anything that can be turned into cash, but not anything that is taxable as part of your income.

If disposal proceeds include any amount taken into account as a balancing charge in calculating your income, ask the Orderline for Help Sheet IR293: Chattels and Capital Gains Tax.

Example 2

You exchange a painting you own, which is worth £30,000, for a painting that you consider to be worth £33,000. Your calculation of the gain or loss on the first painting should begin with £33,000, the value of the painting you have received.

The distinction between future payments and the right to receive future payments is important when you do not receive all of the money to which you are entitled straightaway.

If the total amount to which you are entitled is known or can be calculated, include the full amount you are due to receive. No allowance can be made for the possibility that the whole sum may not be paid to you. However, if it becomes clear later on that you will never receive some part of the total amount originally due, the calculation of the gain can be adjusted.

If you will receive the total amount due in instalments over a period exceeding 18 months, you may not have to pay the tax which is due on the gain in one sum. Ask your Tax Office for details.

Example 3

You sell shares in a company in December 1998 for £50,000, together with a sum equal to 10% of the profits made by the company in the year ended 30 June 1998. You should begin your calculation by bringing in the £50,000 and the sum equal to the percentage of profits to which you are entitled. Accounts can be prepared and the sum can be calculated.

If some part of the amount to which you are entitled cannot yet be calculated when you make the disposal because of an unknown factor, you should include the value of the right to that future sum.

When you receive the amount to which you are entitled, you will make a further gain or loss on the disposal of that right.

Example 4

You sell land for £40,000 and you will also be entitled to receive 50% of any increase in the value of the land, if the purchaser is able to obtain planning permission for a housing development. When you make the disposal you cannot know whether planning permission will be obtained or what effect that will have on the value of the land. So you do not know how much you will finally get. You should begin your calculation by bringing in the £40,000 together with your estimate of the value of your right to further money.

In some circumstances, the amount you are to receive should be replaced in your calculation by the market value of the asset you have disposed of. The phrase 'market value' is explained on page CGN10. Market value will apply where the disposal is, for example:

to a connected person, or

otherwise than by a bargain made at arm's length, for example a gift (unless the no gain/no loss rules apply, see 'What about transfers to spouses?' on page CGN13), or

wholly or partly for a consideration that cannot be valued.

The phrase 'connected person' is explained on page CGN11.

List the total disposal proceeds of each of your disposals on Page CG2 of the Capital Gains Pages.

Example 5

You transfer a piece of land worth £10,000 to your former spouse in a divorce settlement, in exchange for their undertaking to give up all claims against you. The consideration given cannot be valued. You should begin your calculation by bringing in disposal proceeds of £10,000.

A disposal which is otherwise than by way of a bargain made at arm's length is a disposal in which one or other of the parties intends in that transaction to confer a gratuitous benefit on

the other.

Example 6

You sell land worth £40,000 to a friend for £25,000 as a token of your friendship. You should begin your calculation on the disposal of the land by bringing in disposal proceeds of £40,000.

Page CGN10

What expenses can be deducted?

In working out a gain, the expenses you can deduct fall into four categories. These are:

acquisition costs

enhancement costs

incidental costs of acquisition and disposal

expenditure on establishing, preserving or defending your title to an asset.

These phrases are explained in the following notes.

Expenses you deduct must be expenditure on the asset disposed of. These must not be expenses that you can claim against income. Expenditure which has been taken into account in a claim to capital allowances can be deducted. You cannot claim for the cost of normal maintenance and repairs, or payments of interest.

The expenses you can deduct may be reduced if the asset you have sold is a wasting asset. This phrase is explained on page CGN11.

If you have only made a part disposal of an asset, you can only deduct part of the expenditure on that asset. See page CGN12 for more details about part disposals.

What acquisition costs can be deducted?

You can deduct any amount you gave wholly and exclusively for the acquisition of the asset. In certain circumstances the amount you gave may be replaced by the market value of the asset when you acquired it. The phrase market value is explained in more detail in the next column.

Market value will apply where you acquired the asset, for example:

from a connected person, or

otherwise than by a bargain made at arm's length, for example, a gift (unless the no gain/no loss rules apply, see 'What about transfers to spouses?' on page CGN13), or

wholly or partly for a consideration that cannot be valued, or

where rebasing to 31 March 1982 applies (see page CGN11).

If the asset is not one you acquired but one you created yourself (for example, a copyright or the goodwill of a business), deduct any capital expenditure you incurred wholly and exclusively in creating the asset.

If you held the asset at 31 March 1982, rebasing will apply and the calculation should be based on the value at 31 March 1982 unless the comparison calculation described in the section headed 'What is rebasing?' on page CGN11 applies.

If you:

inherit an asset, or

have become absolutely entitled to settled property,

you are treated as acquiring it at its market value at the date of death of the testator (or exceptionally the date on which the personal representative acquired it) or the date on which you became absolutely entitled, as appropriate, and not on the date on which you actually acquired it.

What enhancement costs can be deducted?

You can deduct any amount you spent wholly and exclusively for the purpose of enhancing the value of the asset.

Only expenditure that is still reflected in the state or nature of the asset at the date of sale is allowable.

Example 7

You have built an extension onto a property that you let, but demolished it before sale. The cost of that extension cannot be deducted because it is no longer reflected in the state of the asset at the date of sale. The costs of demolition will be allowable.

What incidental costs can be deducted?

You can deduct expenditure you incurred wholly and exclusively on the acquisition or disposal of the asset, and which is either:

fees, commission or remuneration paid for professional advice, or

the costs of transfer or conveyance.

Advertising costs, to find a buyer or a seller, can be deducted and so can the costs of any valuations or apportionments you obtain to work out the gain or loss on a disposal.

You cannot deduct any subsequent costs you incur if the Inland Revenue disagrees with your valuation.

What is expenditure on establishing, preserving or defending your title to an asset?

You can deduct expenditure you have incurred wholly and exclusively in establishing, preserving or defending your title to an asset, or your rights over an asset.

This may include, for example, the legal costs of a dispute with a neighbouring landowner whose fence encroaches on land of yours.

What is meant by market value?

In some cases the price you paid when you obtained the asset, or the price you received when you disposed of it, is replaced by the market value of the asset in working out your gain or loss.

The market value is the price an asset might reasonably have been expected to fetch on the open market at the date of that acquisition or disposal.

If the asset you have disposed of was held by you at 31 March 1982, rebasing will apply - rebasing is explained on page CGN11. If so, the price you paid for the asset may be replaced in the calculation by the market value of the asset at

31 March 1982.

There is a special rule that applies if you have disposed of assets by a series of linked disposals to connected persons, so that the value of the assets transferred, taken separately, is less than their combined value. The value of each separate asset is replaced in your calculation by a proportion of the total market value of all the assets in the series. You can exclude from the series any disposals that took place more than six years before the last disposal in the series.

Example 8

You own the freehold interest in a piece of land. That interest is worth £100,000. Four years later you grant your brother a lease over that land. The lease is worth £20,000. You then sell your brother the freehold interest for its market value of £60,000. Because the freehold, and the lease, considered separately, are worth less than the unrestricted freehold you have only realised a total of £80,000 in disposing of land worth £100,000. Because this was a series of transactions, you must replace the £20,000 you got from the grant of the lease by £25,000 in working out your gain. You must replace the £60,000 you got for the freehold interest by £75,000 in working out the gain on that disposal.

In the case of shares or securities listed on the Stock Exchange the market value is the lower of:

a figure one-quarter up from the lower of the two prices in the quotation for the relevant day, and

the figure halfway between the highest and the lowest prices of recorded bargains for that day.

Page CGN11

Estimates and valuations

If you have used any estimated figures to work out your gains and losses, tick the appropriate box in column C on Page CG2 of the Capital Gains Pages, and describe which figures you estimated and why you had to estimate.

You should include any valuations you have used to work out your gains or losses, for example, because the asset acquired from or was disposed of to a connected person or because you held the asset at 31 March 1982. You should tick the appropriate box in column C, whether you have prepared your own estimate of the value of the asset, or have taken professional advice.

The values you have used may need to be checked for accuracy. The Inland Revenue uses specialist valuers to value some assets, mainly unquoted shares, land, goodwill and works of art. You will be able to discuss the values you have used with the valuers. If the valuation cannot be agreed after discussion you can appeal to an independent tribunal.

Valuations already checked by the Inland Revenue

If you have already asked the Inland Revenue on form CG34 to check any of the valuations you have used in your calculations, put a note to that effect in column O on Page CG3. The Revenue needs to know which valuations have been agreed already and which have not yet been agreed.

Who are connected persons?

If you dispose of an asset to a connected person, or acquired an asset on a disposal by a connected person, the price you pay or receive is replaced by the market value of the asset in working out your gain or loss on the disposal of that asset.

Connected persons are:

your husband or wife (but if you are living together any gains are deferred), see Help Sheet IR281: Husband and wife, divorce and separation

your brothers or sisters and your spouse's brothers or sisters

your parents, grandparents or other ancestors and your spouse's parents, grandparents or other ancestors

your children and other lineal descendants and your spouse's children and other lineal descendants

the husbands or wives of any of the relatives listed above

your business partners and their relatives, together with the husbands and wives of those partners except for genuine commercial acquisitions or disposals of partnership assets

any company that you control, either by yourself or with any of the persons listed above

the trustees of a settlement of which you, or an individual (still alive) who is connected with you, are the settlor.

If you make a loss on the disposal of an asset to a connected person, you can set that loss only against gains you make on disposals to that same connected person.

What is a wasting asset?

A wasting asset is an asset that had a predictable life of 50 years or less on the date on which you acquired it. All plant and machinery is treated as a wasting asset.

When you dispose of a wasting asset the expenses you can deduct are reduced to account for the remaining predictable life of the asset.

If you have disposed of such an asset, ask the Orderline for Help Sheet IR293: Chattels and Capital Gains Tax, which explains how to make the calculations.

Is there any adjustment for capital allowances?

You may have claimed capital allowances on the assets you disposed of. You do not need to adjust the Capital Gains Tax calculation if the disposal has produced a chargeable gain reduced to zero by indexation allowance. If the disposal produces an allowable loss, the amount of the loss is reduced by restricting the expenses by the net capital allowances. 'Net capital allowances' This restriction can only reduce the loss to zero. It cannot produce

a gain.

Example 9

In March 1993 you bought a printing press for £100,000. You sold it in June 1998 for £27,000. The net capital allowances after deducting the balancing charge are £73,000. The loss of £73,000 is reduced to zero by restricting the allowable expenses by the amount of the capital allowances.

What is rebasing?

A gain or loss is basically restricted to the amount of the gain or loss since 31 March 1982. You can:

elect to have gains and losses on all assets covered by the election calculated by reference to the value of the assets on 31 March 1982, or

compare that calculation with the calculation based on the original cost of the asset, and
 - if there is a gain on both calculations, the smaller gain is taxable,
 - if there is a loss on both calculations, the smaller loss is allowable, or
 - if one calculation produces a loss, while the other produces a gain, you will be treated as having made neither a gain nor a loss.

If you:

have acquired an asset from your spouse at a time when you were living together, and

your spouse owned that asset at 31 March 1982,

you can be treated as if you owned that asset at 31 March 1982, in order to work out your gain or loss. The asset will be covered by the election or non-election of the transferor.

If you have disposed of an asset which you held at 31 March 1982, ask the Orderline for Help Sheet IR280: Rebasing - assets held at 31 March 1982, which explains these rules in more detail.

Your election is called a 'rebasing election' and will apply to all of the assets you held at 31 March 1982. An election may not always be to your advantage, but if you wish to make the election you must do so within two years from the end of the tax year in which you first made a disposal of an asset which you held at 31 March 1982. The Board of Inland Revenue has discretion to allow you a longer period. Once you have made an election, it will not be possible for you to withdraw it at a later date.

Show where you have used a valuation at 31 March 1982 by ticking the appropriate boxes in columns C and D on Page CG2 of the Capital Gains Pages.

If you want to make a rebasing election in your 1998-99 Return:

tick column H on Page CG2 of the Capital Gains Pages against each disposal affected by the election

write 'rebasing election' in column O.

Page CGN12

What is indexation allowance?

This allowance ensures that only gains adjusted up to April 1998 for the effects of inflation since you acquired the asset are taken into account. Indexation allowance is frozen from April 1998. However, taper relief applies to disposals on or after 6 April 1998, see Section 6 on page CGN15 which explains how taper relief works.

It does this by giving you an allowance equal to the amount by which the cost of the asset would have risen if its value had kept pace with inflation between the time you acquired it and

April 1998.

If you held the asset at 31 March 1982 (or you acquired that asset from your spouse and he or she held it on that date) and the market value of the asset on that date was greater than when you acquired it, indexation allowance is calculated on that higher value. There is an exception if you have made an election described under the section headed 'What is rebasing?'. In that case, indexation allowance is calculated on the 31 March 1982 value irrespective of cost, unless you acquired the asset from your spouse and they had not made an election.

Indexation allowance will reduce, or may eliminate, the gains on which you are taxable. But it cannot be used to create or increase an allowable loss. See Section 5 in the next column for help with working out your indexation allowance.

What are part disposals?

If you have made a disposal of part of an asset so that part of the asset is retained by you (or you have retained an interest in the asset), there are rules to allocate expenditure between the part sold and the part retained. These are:

expenditure which relates wholly to the part disposed of is deductible in full

expenditure which relates wholly to the part retained is not deductible

a proportion of expenditure which partly relates to the part sold is deductible (the proportion relating to the part retained is not).

The deductible proportion is the following fraction:

Disposal proceeds / Disposal proceeds + Value of part retained.

Example 10

You sell part of an asset for £25,000. The asset cost you £30,000 and the part of the asset that you have retained is worth £50,000. You have also incurred expenditure of £5,000 wholly on the part of the asset you have sold. To work out your gain or loss you can deduct the £5,000 spent on the part sold together with:

£25,000 / (£25,000 + £50,000) x £30,000 = £10,000

Where the part of the asset sold, particularly in the case of shares and securities, is a recognisable fraction of the asset, the allowable expenditure may be allocated according to that fraction to avoid unnecessary valuation work. The expenditure not allowed this time can be allowed on a later disposal.

Section 5 - Indexation allowance

This section shows you how to work out the indexation allowance on some simple disposals. But it is only an introduction. If you are in any doubt about your entitlement to relief, ask your Tax Office or tax adviser. In particular the basic rules are modified if:

you have made a disposal of an asset that you held at 31 March 1982, or

you have made a disposal of pooled shares or securities.

The changes to the rules are mentioned here, but you may need Help Sheets to understand them fully. You can also ask to see the Inland Revenue Capital Gains Manual at any Tax Enquiry Centre, which explains the rules for indexation allowance in detail.

When does indexation allowance apply?

In the computation of chargeable gains accruing on or after 6 April 1998 indexation allowance has been frozen. This means that indexation allowance will be given for periods up to April 1998, but not after then. So, for an asset held at 6 April 1998 and disposed of after that date, indexation allowance will be computed for the period from the date of acquisition (or the date the expenditure was incurred) to April 1998, but not for the period from April 1998 to the date of disposal. For assets acquired on or after 1 April 1998 no indexation allowance can be deducted in computing the chargeable gain.

How is indexation allowance calculated?

You work out indexation allowance by multiplying the amount you spent by the indexation factor. You can find a table of indexation factors on page CGN14. You need to select the indexation factor for the year and the month in which you acquired the asset or, for subsequent expenditure on the asset, the year and month in which you incurred the expenditure. For example, the indexation factor for expenditure incurred in June 1989 is 0.409.

Example 11

You buy an asset for £10,000 in June 1989 and sell it for £20,000 in November 1998.

Your indexation allowance will be:

£10,000 x 0.409  = £4,090

You deduct an allowance of £4,090 in calculating your indexed gain.

What about losses?

You cannot use indexation allowance to turn a gain into a loss or to increase your loss.

Example 12

You sell an asset in May 1998 for £20,000. It cost you £30,000 in November 1989. You have made a loss of £10,000. You cannot deduct any indexation allowance, because the allowance cannot be used to increase the amount of a loss.

Example 13

You sell an asset in July 1998 for £70,000. It cost you £50,000 in June 1984. Before indexation allowance you make a gain of £20,000.

Your indexation allowance would be:

£50,000 x 0.823 = £41,150

But your gain before indexation allowance is only £20,000 and indexation allowance cannot turn a gain into a loss. Your indexation allowance is restricted to £20,000 so that you are treated as making neither a gain nor a loss.

Page CGN13

Which costs attract indexation allowance?

You can deduct indexation allowance from your gain if you have any of the following types of expenditure:

the cost of an asset, or

the incidental cost of acquiring an asset, or

the cost of creating an asset if it was not acquired.

Any of these types of expenditure is treated as having been made when the asset was acquired or created.

Example 14

You acquire an asset under a contract made in March 1999.

Payment does not have to be made until June 1999. When you calculate your indexation allowance you should treat the expenditure as if it had been made in March 1999.

You can also deduct indexation allowance if you have either of the  following types of expenditure:

expenditure on enhancing the asset, or

expenditure on establishing, preserving or defending your title to an asset.

Either of these types of expenditure is treated as having been made when that expenditure became due and payable.

Example 15

In May 1998 you entered into a contract with a builder to add an extension to a property you own. The cost was due and payable when the work was completed in September 1998. When you calculate the indexation allowance you should treat the expenditure as incurred in September 1998.

You cannot have indexation allowance on the costs of disposing of an asset, regardless of when you met those costs.

What about part disposals?

If you make a disposal of part of an asset you own, you will only be able to deduct part of the costs of that asset in working out your gain or loss. Section 4 explains how the calculation is made.

Your indexation factor is multiplied by the part of the cost that can be deducted - not by the whole of the cost of the asset.

Example 16

You sell part of an asset which cost you £20,000. The part disposal formula allows you to deduct £5,000 of that cost to work out your gain. You should multiply the indexation factor by £5,000 to work out your indexation allowance.

What about transfers to spouses?

If you dispose of an asset to your husband or wife, you do not pay Capital Gains Tax if you are living together.

The asset is treated as having been disposed of for an amount that is enough to ensure that you make neither a gain nor a loss. This amount includes indexation allowance. This sort of disposal is referred to here as a no gain/no loss transfer.

Your husband or wife will pay tax on any gain they make when they dispose of the asset. Ask the Orderline for Help Sheet IR281: Husband and wife, divorce and separation.

Example 17

In August 1998 you give a painting to your husband. It cost you £50,000 in June 1986. You are treated as having disposed of it for £83,150 as shown below. He is treated as having acquired it for the same amount.

Transferred at	 £83,150

Cost	 £50,000

Indexation allowance

    £50,000 x 0.663	 £33,150

    no gain/no loss 	   zero

The calculation is exactly the same if the painting is sold to your husband regardless of any amount he might have paid.

What about assets held at 31 March 1982?

If you:

owned an asset at 31 March 1982, or

you acquired an asset from your spouse in a no gain/no loss transfer after that date, and your spouse held the asset at 31 March 1982,

the rules are modified for that asset.

Your indexation allowance is calculated on the greater of:

the total cost you or your spouse incurred up to 31 March 1982 on that asset (including its initial acquisition price), or

the value of that asset at 31 March 1982, unless

you have made an election for rebasing to 31 March 1982 to apply to all your disposals. If you have made a rebasing election, indexation allowance is calculated on the value of the asset at

31 March 1982.

You can calculate separately indexation allowances on any relevant expenditure incurred after 31 March 1982 that is allowable in working out your gains.

You can find out about rebasing to 31 March 1982 by asking the Orderline for Help Sheet IR280: Rebasing - assets held at 31 March 1982.

Example 18

You bought an asset in 1979 for £20,000. At 31.3.82 it was worth £15,000. You should calculate your indexation allowance by multiplying £20,000 by the indexation factor unless you have made a rebasing election; in which case you should multiply £15,000 by the indexation factor.

What about disposals of shares or securities?

Shares acquired (or treated as acquired) after 5 April 1982 and before 6 April 1998 are treated as a single asset, the share pool, if they are:

of the same class

in the same company

acquired in the same capacity.

Shares acquired (or treated as acquired) between 7 April 1965 and 5 April 1982 form a separate pool.

The same treatment applies to some securities and similar assets.

The rules for indexation allowance are modified to cope with

share pooling.

Shares etc. acquired on or after 6 April 1998 are not pooled. They also do not attract any indexation allowance, (see page CGN12).

If you have disposed of shares or securities, ask the Orderline for Help Sheet IR284: Shares and Capital Gains Tax.

Help Sheet IR287: Employee share schemes and Capital Gains Tax, available from the Orderline, explains more about shares which you acquired in connection with your employment or by exercising an employee share option.

Page CGN14

Indexation allowance for disposals after 31 March 1998

You work out the indexation allowance by multiplying the amount you spent by the indexation factor. All the factors you will need are included in the table below.

For example, if you incurred expenditure in June 1989, look across the Month columns to find June and then look down the column until you find the row for 1989. Your indexation factor for June 1989 will be 0.409.

Year	Month Jan	Feb	Mar	Apr	May	Jun	Jul	Aug	Sep	Oct	Nov	Dec
1982			1.047	1.006	0.992	0.987	0.986	0.985	0.987	0.977	0.967	0.971
1983	0.968	0.960	0.956	0.929	0.921	0.917	0.906	0.898	0.889	0.883	0.876	0.871
1984	0.872	0.865	0.859	0.834	0.828	0.823	0.825	0.808	0.804	0.793	0.788	0.789
1985	0.783	0.769	0.752	0.716	0.708	0.704	0.707	0.703	0.704	0.701	0.695	0.693
1986	0.689	0.683	0.681	0.665	0.662	0.663	0.667	0.662	0.654	0.652	0.638	0.632
1987	0.626	0.620	0.616	0.597	0.596	0.596	0.597	0.593	0.588	0.580	0.573	0.574
1988	0.574	0.568	0.562	0.537	0.531	0.525	0.524	0.507	0.500	0.485	0.478	0.474
1989	0.465	0.454	0.448	0.423	0.414	0.409	0.408	0.404	0.395	0.384	0.372	0.369
1990	0.361	0.353	0.339	0.300	0.288	0.283	0.282	0.269	0.258	0.248	0.251	0.252
1991	0.249	0.242	0.237	0.222	0.218	0.213	0.215	0.213	0.208	0.204	0.199	0.198
1992	0.199	0.193	0.189	0.171	0.167	0.167	0.171	0.171	0.166	0.162	0.164	0.168
1993	0.179	0.171	0.167	0.156	0.152	0.153	0.156	0.151	0.146	0.147	0.148	0.146
1994	0.151	0.144	0.141	0.128	0.124	0.124	0.129	0.124	0.121	0.120	0.119	0.114
1995	0.114	0.107	0.102	0.091	0.087	0.085	0.091	0.085	0.080	0.085	0.085	0.079
1996	0.083	0.078	0.073	0.066	0.063	0.063	0.067	0.062	0.057	0.057	0.057	0.053
1997	0.053	0.049	0.046	0.040	0.036	0.032	0.032	0.026	0.021	0.019	0.019	0.016
1998	0.019	0.014	0.011
Section 6 - Taper relief

Introduction

Taper relief is a new relief that reduces the amount of a gain chargeable to Capital Gains Tax, according to the number of whole years the asset has been held after 5 April 1998. The greater the number of whole years up to a maximum of ten that you have held the asset the smaller the percentage of gain which is chargeable to tax. The amount of the reduction is shown in the table below and depends on whether the asset is a business asset or a non-business asset.

Gains on business assets	Gains on non-business assets
Number of whole years	Percentage of gain chargeable	Number of whole years	Percentage of gain chargeable
1	92.5	1	100
2	85	2	100
3	77.5	3	95
4	70	4	90
5	62.5	5	85
6	55	6	80
7	47.5	7	75
8	40	8	70
9	32.5	9	65
10 or more	25	10 or more	60

The complete taper relief table has been included for information, although for disposals in the tax year 1998-99 that you include in this Return it will only be possible to accumulate one whole year. The percentages rates for two or more years (those that are shaded) will not be available until later tax years.

For most people the new provisions will have no effect on the calculation of gains chargeable to Capital Gains Tax for the tax year 1998-99. If none of the assets you have disposed of in the tax year 1998-99 have been business assets to any extent in the period between 6 April 1998 and the date of disposal, taper relief will not reduce your gain. If you are in any doubt, ask for Help Sheet IR279: Taper relief.

What is a business asset?

A business asset is

an asset (other than shares or securities) which is used for the purpose of a trade, profession or vocation carried on by you (either alone or in partnership) or by your qualifying company

an asset (other than shares or securities) held for the purpose of a qualifying office or employment with a trading employer to which you are required to devote substantially the whole of your time

shares or securities held by you in a qualifying company.

A qualifying company is a trading company (or the holding

company of a trading group) in which you hold shares which entitle you to exercise at least 25% of the voting rights in that company, or 5% of the voting rights if you are a full-time working officer or employee of that company (or group).

Section 7 - Reliefs and elections

Reliefs from Capital Gains Tax are given in different ways to meet different purposes. Some reliefs are given automatically and so you do not need to make a claim. You should take account of the amount of any 'automatic' relief that is due when you work out your gains and losses together with all the other reliefs you are claiming.

Some reliefs are only given if you claim them. In some cases you can make a claim in the Tax Return. In others you must make the claim on a separate form, which you attach to the Tax Return.

You can also use the Capital Gains Pages to make any elections that determine how your gains are to be worked out.

The most common reliefs and elections are introduced briefly below, and are dealt with more fully in Help Sheets available from the Orderline; see the list on page CGN1.

Your home

In most cases you will not pay tax on any gain you make when you dispose of your only home. Similarly, if there is a loss on the disposal the loss will not be allowable. You may have to pay tax if, for example:

the garden or grounds of your home including the site of the house exceed half a hectare (one and a quarter acres) and some or all of that excess does not qualify for relief

part or all of your home has at some time not been used as your home; for example if it has been let or used for business

you have had a second home, and the property you have disposed of has not been your main home during your whole period of ownership.

If you think you may be entitled to private residence relief on a disposal you have made, ask the Orderline for Help Sheet IR283: Private residence relief.

Other reliefs

Roll-over relief allows gains on the disposal of business assets to be deferred if replacement assets are acquired. If you want this relief, ask the Orderline for Help Sheet IR290: Business asset roll-over relief. The definition of business asset for this purpose is not the same as that set out in the column aside.

Complete the claim form attached to Help Sheet IR290. Please attach the claim form to the Tax Return when you send it back to me. If you are claiming in relation to any disposal, tick column H on Page CG2 next to that disposal and write 'roll-over relief' in column O on Page CG3 next to that disposal.

Retirement relief relieves gains made by an individual aged 50 or over, or who retired early on ill-health grounds, on the disposal of their business (or shares in a personal trading company). If you think you may be entitled to this relief, ask the Orderline for Help Sheet IR289: Retirement relief and Capital Gains Tax. For relief on age grounds, tick column H on Page CG2 next to the relevant disposal and write 'retirement relief' in column O on Page CG3. If you want relief on ill-health grounds, tick column H next to the relevant disposal and write 'ill health retirement relief' in column O on Page CG3.

Gifts hold-over relief allows gains to be deferred when certain assets are given away. If you want this relief, ask the Orderline for Help Sheet IR295: Relief for gifts and similar transactions. Claims must be made by completing the claim form attached to Help Sheet IR295 or a copy of the form. Please attach the claim form to your Tax Return. Tick the box in column H on Page CG2 next to the relevant disposal and write 'gifts hold-over relief' in column O on Page CG3. Other reliefs for gifts and similar transactions are described in Help Sheet IR295: Reliefs for gifts and similar transactions, for example, gifts to charities and claims to defer payment of tax.

Please note that in most cases the claim is a joint claim by you and the person to whom you gave the asset.

Page CGN16

Reinvestment relief allows gains to be deferred if they were reinvested in

certain unlisted company shares before 6 April 1998. See Help Sheet IR291: Reinvestment relief - shares acquired before 6 April 1998. Thls relief may be claimed by completing the claim form attached to Help Sheet IR291 and attaching it to your Tax Return. Also tick the box in column H on Page CG2 next to the relevant disposal and write 'reinvestment relief' in column O on Page CG3. This relief has been replaced by the Enterprise Investment Scheme deferral relief, see below.

Dependent relative relief allows relief on the disposal of a home you have provided to a dependent relative and which was occupied by the relative as their sole residence before 6 April 1988. See Help Sheet IR283: Private residence relief. If you want this relief, you must claim it on the Capital Gains Pages by ticking the box in column H on Page CG2 next to the relevant disposal and write 'dependent relative relief' in column O on Page CG3.

Halving relief relieves half of a gain arising from a gain deferred from before April 1988. See Help Sheet IR280: Rebasing - assets held at 31 March 1982. If you want this relief, you must claim it on the Capital Gains Pages by ticking the box in column H on Page CG2 next to the relevant disposal and writing 'halving relief' in column O on Page CG3.

Enterprise Investment Scheme and Venture Capital Trust deferral reliefs allow gains to be deferred when you subscribe for Enterprise Investment Scheme shares or Venture Capital Trust shares. See Help Sheet IR297: Enterprise Investment Scheme and Capital Gains Tax and Help Sheet IR298: Venture Capital Trusts and Capital Gains Tax. To claim Venture Capital Trust deferral relief, complete the claim form attached to the Help Sheet and attach it to your Tax Return. Enterprise Investment Scheme deferral relief can only be claimed on receipt of an EIS3 certificate from the company invested in. A claim form is attached to the certificate for completion and submission with your Tax Return. When claiming, tick the box in column H on Page CG2 next to the relevant disposal and write 'Enterprise Investment Scheme deferral relief' or 'Venture Capital Trust deferral relief' in column O on Page CG3.

Enterprise Investment Scheme and Venture Capital Trust disposal reliefs. See Help Sheets IR297 and IR298, as above. Any gain on the disposal of Enterprise Investrnent Scheme or Venture Capital Trust shares may not be chargeable to Capital Gains Tax. If you have taken advantage of either of these reliefs on the disposal of any shares, tick the box in column H on Page CG2 next to the relevant disposal and write 'Enterprise Investment Scheme disposal relief' or 'Venture Capital Trust disposal relief' in column O on Page CG3.

Business transfer relief defers a gain made when a business is transferred to a company in exchange for shares. This relief is given automatically. If you have taken advantage of this relief on any disposal, tick the box in column H on Page CG2 next to the relevant disposal and write 'business transfer relief' in column O on Page CG3.

Unremittable gains. If you have disposed of an asset situated outside the UK and you are unable to transfer the gains to the UK because of exchange controls or a shortage of foreign currency in the overseas country, then you can claim that the unremittable gain should not be taxable in 1998-99. You can claim relief by ticking the box in column H on Page CG2 next to the relevant disposal and writing 'unremittable gains' in column O on Page CG3.

Gains becoming remittable. Where a gain was not taxed in an earlier year because it was unremittable but it can now be remitted to the UK it is treated as a gain arising in 1998-99. A gain may become remittable if, for example, exchange controls are lifted. Include any gains to which this applies whether or not they are actually remitted to the UK.

Relief for losses against income. This relief is introduced on page CGN7. If you are claiming this relief, tick the box in column H on Page CG2 next to the relevant disposal and write 'relief for losses against income' in column O on Page CG3. Enter the amount claimed in box 8.13.

Rebasing. Follow the instructions on page CGN11.

Relief for foreign tax paid. If gains chargeable to Capital Gains Tax have also been charged to tax in another country, you may be able to claim relief by way of credit for the foreign tax paid ('tax credit relief'). Tax credit relief is deducted from that part of your Capital Gains Tax liability that relates to the gain on which the foreign tax has been paid. If you wish to claim tax credit relief you should ask the Orderline for a copy of the Foreign Pages, if you do not already have one.

If you have gains which are chargeable on the remittance basis and wish to claim relief by way of credit for foreign tax paid in respect of those gains, you will need to add to the amount of net gains brought to the UK (that is, the gains less the foreign tax) the appropriate proportion of the foreign tax attributable to the net gains remitted.

It will usually be to your advantage to claim tax credit relief in respect of foreign tax paid. But this will not be the case where no Capital Gains Tax is chargeable on a particular gain. For example, where the disposal results in a loss, or losses brought forward extinguish any chargeable gains, there may be no UK tax against which the foreign tax can be credited.

If you do not wish to claim tax credit relief, deduct the foreign tax paid in calculating the amount of the chargeable gains or allowable losses to be shown in column I on Page CG2. You cannot, however, deduct part of the foreign tax in calculating the gain on disposal and claim credit for the balance.

If you do wish to claim tax credit relief, you should obtain the Foreign Pages and complete Page F3. If you are calculating your tax, you will also need Help Sheet IR261: Tax Credit Relief: Capital Gains available from the Orderline.

Section 8 - Worked examples of gains and losses

The basic calculation

Example 19

A piece of land, which was bought in June 1988 for £20,000, was sold in May 1998 for £100,000. The incidental costs of the acquisition were £1,000, while the incidental costs of the disposal were £5,000. A barn had been built on the land in August 1988 at a cost of £15,000 and it was still there when the land was sold.

Disposal proceeds		£100,000
minus	Incidental costs		£5,000
	Net disposal proceeds		£95,000
	Cost	£20,000
plus	Incidental costs	£1,000
plus	Enhancement expenditure	£15,000
	Total	£36,000	£36,000
	Unindexed gain		£59,000
minus	Indexation allowance
	Accquisition costs £21,000
	Indexation allowance 0.525 x £21,000 =		£11,025
	Enhancement expenditure £15,000
	Indexation allowance 0.507 x £15,000 =		£7,605
	Chargeable gain subject to taper relief	£40,370

Page CGN17

Allowable losses

Example 20

An individual has the following chargeable gains and allowable losses:

	1996-97	1997-98	1998-99
Gain	£10,000	£15,000	£25,000
Losses	£25,000	£5,000	zero

The chargeable gain or allowable losses position for each year would be:

1996-97	Gain	£10,000
	Minus losses	£10,000
	Losses to carry forward	£15,000

Losses of the same year are set-off to reduce gains to zero.

1997-98	Gain	£15,000
	Minus current year losses	£5,000
	Minus losses brought forward	£3,500
	Net gain	£6,500
	Minus annual exempt amount	£6,500
		Zero
	Losses to carry forward (£15,000 minus £3,500)	£11,500

Losses of the same year are set-off in priority to losses brought forward.

Losses brought forward are set-off to reduce gains to the annual exempt amount

1998-99	Gain	£25,000
	Minus losses brought forward	£11,500
Net chargeable gain subject to taper relief	£13,500
Rebasing to 31 March 1982 - No election made

Example 21

An asset cost £250,000 on 1 May 1979 inclusive of incidental costs. It is worth £200,000 at 31 March 1982 and was sold on 15 April 1998 for £1,000,000 net of incidental costs. No election has been made for rebasing to 31 March 1982.

		Original cost		Rebased gain
	Disposal proceeds	£1,000,000	Disposal proceeds	£1,000,000
minus	Cost	£250,000	minus value at 31.3.82	£200,000
	Unindexed gain	£750,000	Unindexed gain	£800,000
minus	Indexation £250,000 x 1.047 =	£261,750	minus Indexation £250,000 x 1.047 =	£261,750
	Indexed gain	£488,250	Indexed gain	£538,250

The indexed gain to which taper relief should be applied is the lower of the two figures: £488,250. See notes on page CGN12 and Help Sheet IR280.

A part disposal

Example 22

A house was bought for letting in December 1987 for £50,000 including incidental costs. In March 1988 it was subdivided into two flats at a cost of £5,000. One flat was sold in April 1998 for £120,000. Immediately before sale a central heating system was installed at a cost of £2,000 in the flat that was sold. The incidental expenses of the disposal were £6,000 and the value of the retained flat was £80,000.

	Disposal proceeds		£200,000
minus	Incidental costs		£6,000
			£114,000
minus	Part cost of house
	£50,000 x       £120,000                            £120,000 + £80,000	= £30,000
minus	Subdividing house
	£5,000 x         £120,000                          £120,000 + £80,000	= £3,000
minus	Central heating	£2,000
	Total costs	£35,000
	Unindexed gain		£79,000
minus	Indexation allowance cost of house 0.574 x £30,000 subdivision 0.562 x £3,000	= £17,220 = £1,686
	Total indexation	£18,906	£18,906
Chargeable gain, subject to taper relief		£60.094
A disposal of pooled shares

Example 23

2,000 shares were bought in May 1988 at a cost of £9,000 including incidental costs. In January 1990 there was a rights issue of two shares for each one held as a result of which a further 4,000 shares were bought for £20,000. In June 1998 600 shares were sold for £6,000 net of incidental costs.

	Number of shares	Pool of qualifying expenditure	Indexed pool of expenditure
A new holding is created in May 1988:	2,000	£9,000	£9,000
The rights issue is an 'operative event'  (This phrase is explained in Help Sheet IR284)
Indexation	£9,000 x 2,000	0.125 £9,000	= £1,125   £10,125
Add the cost of the rights issue shares to the two pools
	4,000 6,000	£20,000 £29,000	£20,000 £30,125
The part disposal in June 1998 is an 'operative event'
Indexation	£30,125 x	0.361	= £10,875
	6,000	£29,000	£41,000
Reduce the two pools by the apportioned amounts of cost and indexation
	(600) 5,400	(£2,900) £26,100	(£4,100) £36,900
Calculation of chargeable gain
	Disposal proceeds	£6,000
minus	Cost		£2,900
	Unindexed gain	£3,100
minus	Indexation (£4,410 minus £2,900)	£1,200
Chargeable gain, subject to taper relief = £1,900

Page CGN18

Relief for foreign tax paid

Example 24

You sold a property abroad realising a gain of £30,000 which is chargeable to UK Capital Gains Tax on the remittance basis. Foreign tax of £9,000 is paid on the gain. Of the net after-tax gain of £21,000 you bring £5,250 into the UK. You wish to claim relief by way of credit for the foreign tax paid.

The amount of gains chargeable to UK tax is:

Amount remitted = £5,250

add foreign tax

£5,250 / £21,000 x £ 9,000 = £2,250

Tax credit relief is available for foreign tax (£2,250) attributable to the gain remitted.

If the UK Capital Gains Tax on the figure of taxable gains is less than the amount of the foreign tax available for credit, the excess foreign tax is not repayable nor can it be deducted in calculating the taxable gains. For example, if the gains of £7,500 are taxable at 23%, the tax due of £1,725 will be wholly covered by tax credit relief. No relief of any kind is available for the excess foreign tax of £525 (that is, £2,250 minus £1,725).

These notes are for guidance only, and reflect the position at the time of writing. They do not affect any rights of appeal.

Issued by the Inland Revenue

April 1999

© Crown copyright

This Help Sheet reproduced by permission of the Board of Inland Revenue


SA109 - Notes on non-residence

CONTENTS

Filling in your Non-residence etc. Pages

Deciding your residence status

Deciding your ordinary residence status

Split-year treatment

Split-year treatment - capital gains

Domicile

Tax implications

Double taxation agreements

Non-residents and UK property income

Non-UK residents

Dual residents

Claims for allowances by non-residents

Further advice or information

Table 1

Scope of liability to Income Tax on employment income

Table 2

Scope of liability to Income Tax on pension income

Table 3

Scope of liability to Income Tax on investment income

Table 4

Scope of liability to Income Tax on self-employment income

Table 5

Scope of liability to Capital Gains Tax on disposals of assets

Help Sheets and leaflets

Help Sheets and leaflets giving more detailed information about particular tax rules on non-residence etc. are available from the Orderline. If you live or work abroad, you can contact the Orderline on International Access code followed by 44541 555664 (fax 44541 555778).

IR20: Residents and Non-Residents etc.

IR58: Going to Work Abroad?

IR205S: Foreign Earnings Deduction for Seafarers

IR211: Employment - residence and domicile issues

IR212: Tax equalisation

IR300: Non-residents and investment income

IR302: Dual residents

IR303: Non-resident entertainers and sports persons

IR304: Non-residents - relief under Double Taxation Agreements

Filling in your Non-residence etc. Pages

Broadly, you are resident in the UK if you spend at least half of a tax year here, or regularly spend at least a quarter of each tax year here. Normally days of arrival in and departure from the UK are ignored in counting the number of days spent in the UK. These Notes will help you to determine whether you are:

not resident in the UK

not ordinarily resident in the UK

entitled to split-year treatment

not domiciled in the UK.

They also explain how residence and domicile affect Income Tax and Capital Gains Tax.

If any of the four categories above applies to you, you should fill in the Non-residence etc. Pages before you fill in the rest of your Tax Return to give details of:

income from working wholly or partly outside the UK

pensions from abroad

overseas investment income

a trade or profession carried on wholly or partly outside the UK

chargeable capital gains

claims for allowances

claims for relief from UK tax as a resident of another country or under the terms of the double taxation agreement between the UK and that country.

The Notes explain:

what double taxation agreements are, and how they can reduce the UK tax you pay

what to do if you are a resident in the UK and, for tax purposes, also resident in a country with which the UK has a double taxation agreement

how, in general terms, the rest of your Tax Return is to be completed, as a result of your tax status

what other information is available.

Deciding your residence status

You can find out your residence status by working through questions 1 to 5.

Note: The hard copy of the Notes has a series of tick boxes for you to complete. If you need these, please call the Inland Revenue Orderline on 0645 000404.

Question 1

Were you present in the UK at any time during the year ended 5 April 1999?

If 'NO', you are not resident in the UK. Tick box 9.2 on Page NR1 of the Non-residence etc. Pages. Please also complete boxes 9.9 to 9.16 as appropriate. Go to the section headed 'Deciding your ordinary residence status'.

If 'YES', go to question 2.

Question 2

Were you in the UK for a total of 183 days or more in the year ended 5 April 1999?

If 'YES', you are resident in the UK.  Tick box 9.1. Go to the section headed 'Deciding your ordinary residence status'.

If 'NO'

go to question 3, if you have previously been resident in the UK but left before 6 April 1998, or

go to question 4, if you left during the year ended 5 April 1999, or

go to question 5, if you came to the UK before 6 April 1999 having previously been not resident in the UK.

Question 3

If you left the UK before 6 April 1998

(a) since your departure have you lived, or do you intend to live, outside the UK for three years or more?

(b) have you, or your spouse, worked full-time outside the UK or have you been abroad for a settled purpose throughout the year ended 5 April 1999?

If 'NO' to (a) and (b), you are resident in the UK. Tick box 9.1. Go to the section headed 'Deciding your ordinary residence status'.

If 'YES' to (a) or (b), go to question 3 (c) below.

(c) have your visits to the UK in the period to  April 1999 averaged fewer than 91 days in a tax year (excluding days spent in the UK owing to exceptional circumstances beyond your control, for example illness) over the period of absence or from 5 April 1995 (whichever is the shorter)?

If 'YES' to (c), you are not resident in the UK. Tick box 9.2. Please also complete boxes 9.9 to 9.16 as appropriate. Go to the section headed 'Deciding your ordinary residence status'.

If 'NO' to (c), you are resident in the UK. Tick box 9.1. Go to the section headed 'Deciding your ordinary residence status'.

Question 4

If you left the UK during the year ended 5 April 1999:

were you resident and ordinarily resident in the UK for the year ended 5 April 1998?

If 'YES', you are resident in the UK. Tick box 9.1. Go to the section headed 'Deciding your ordinary residence status'.

If 'NO', go to question 5.

Question 5

If you came to the UK before 6 April 1999:

(a) when you came to the UK did you intend to remain here for two years or more?

(b) if you came to the UK before 6 April 1998, did you at any time between the date you came and 6 April 1998 anticipate remaining in the UK for two years or more from the date you came?

(c) during the year ended 5 April 1999 did you anticipate remaining in the UK for two years or more from the date you came?

(d) at any time during the year ended 5 April 1999 had you been in the UK for two years or more from the date of your arrival?

(e) if you are remaining in the UK, have you owned or had a lease of three years or more on accommodation in the UK at any time between your arrival and 6 April 1999?

(f) if you came to the UK before 6 April 1994, have your visits to the UK exceeded 363 days (excluding days spent in the UK owing to external circumstances beyond your control) in the four years ended 5 April 1998?

(g) at any time during the year ended 5 April 1999, did you anticipate making visits to the UK that would average 91 days or more a tax year, over a four year period including 1998-99?

If 'YES' to any of questions 5(a) to 5(g), you are resident in the UK.  Tick box 9.1. Go to question 6.

If 'NO' to all of questions 5(a) to 5(g), you are not resident in the UK. Tick box 9.2. Please also complete boxes 9.9 to 9.16 as appropriate. Go to question 6.

Deciding your ordinary residence status

If you are resident in the UK year after year, you are 'ordinarily resident' here.  You can find out your ordinary residence status by answering questions 6 to 9 (or question 10, if you are a student).

Question 6

Were you resident in the UK in the year ended 5 April 1999?

If 'YES', go to question 7.

If 'NO', you are not ordinarily resident in the UK. Tick box 9.4. Please also complete boxes 9.17 to 9.24 as appropriate.

Question 7

Were you ordinarily resident in the UK in the tax year ended 5 April 1998?

If 'YES', you are ordinarily resident in the UK. Tick box 9.3.

If 'NO', go to question 8.

Question 8

Were you resident in the UK in each of the four years up to the year ended

5 April 1998?

If 'YES', you are ordinarily resident in the UK. Tick box 9.3.

If 'NO', go to question 9.

Question 9

(a) When you came to the UK did you intend to remain here for three years or more?

(b) If you came to the UK before 6 April 1998, did you at any time between the date you came and 6 April 1998 anticipate remaining in the UK for three years or more from the date you came?

(c) During the year ended 5 April 1999 did you anticipate remaining in the UK for three years or more from the date you came?

(d) If you are remaining in the UK, have you owned or had a lease of three years or more on accommodation in the UK at any time between your arrival and 6 April 1999?

(e) On 6 April 1998 had you been in the UK for at least three years?

(f) If you came to the UK before 6 April 1994, have your visits to the UK exceeded 363 days (excluding days spent in the UK owing to external circumstances beyond your control) in the four years ended

6 April 1998?

(g) At any time during the year ended 5 April 1999 did you anticipate making visits to the UK that would average 91 days or more in a tax year over a four year period including 1998-99?

If 'YES' to any of questions 9(a) to 9(g), you are ordinarily resident in the UK. Tick box 9.3.

If 'NO' to all of questions 9(a) to 9(g), you are not ordinarily resident in the UK. Tick box 9.4. Please also complete boxes 9.17 to 9.24 as appropriate.

Students

Question 10

If you are a student in the UK for a period of study or education:

(a) was it your intention during the year ended 5 April 1999 to be here for four years or more from the date of your arrival in the UK?

(b) if you came to the UK before 6 April 1998, did you at any time between the date you came and 6 April 1998 anticipate remaining in the UK for four years or more from the date you came?

(c) during 1998-99 were you still in the UK on or after the fourth anniversary of your arrival here?

(d) have you at any time between your arrival here and 6 April 1999 owned or had a lease of three years or more on accommodation in the UK?

(e)on leaving the UK will you be returning regularly for visits that average 91 days or more a tax year?

If 'YES' to any of these questions, you are ordinarily resident in the UK. Tick box 9.3.

If 'NO' to all these questions, you are not ordinarily resident in the UK. Tick box 9.4. Please also complete boxes 9.17 to 9.24 as appropriate.

Split-year treatment

You are either resident or not resident in the UK for the whole of a tax year.  However, by concession, the tax year is split in certain circumstances when you come to, or leave, the UK part way through a tax year.  By answering the following questions you will be able to find out whether or not you qualify for split-year treatment for Income Tax purposes. For Capital Gains Tax purposes, as well as answering questions 11 to 18, you will need to consider the section headed 'Split-year treatment - capital gains' on page NRN4.

If you are resident in the UK for 1998-99 but only came to the UK during the year ended 5 April 1999

Question 11

(a) Did you come to the UK during the year ended 5 April 1999 intending to remain here for at least three years, having been not ordinarily resident in the UK throughout the year ending 5 April 1998?

(b) Between the date of your arrival in the UK and 5 April 1999, have you owned or had a lease of three years or more on accommodation in the UK?

If 'YES' to either (a) or (b), you are treated as resident from the date of your arrival and entitled to split-year treatment. Tick box 9.6 (make sure you have ticked box 9.1). Please complete box 9.25.

If 'NO', answer question 12.

Question 12.

Did you return to the UK during the year ended 5 April 1999 on completion of a period that included at least a whole tax year in full-time employment outside the UK by you or your spouse, and

during this period your visits to the UK totalled fewer than 183 days in any tax year, and

those visits averaged fewer than 91 days a tax year?

If 'YES', you are treated as resident from the date of your arrival and entitled to split-year treatment. Tick box 9.6 (and make sure you have ticked box 9.1). Please complete box 9.25.

If 'NO', go to question 13.

Question 13

Did you at any time before 6 April 1999 intend to remain here for at least two years, having been not ordinarily resident in the UK throughout the year ended

5 April 1998?

If 'YES', you are treated as resident from the date of your arrival and entitled to split-year treatment. Tick box 9.6 (make sure you have ticked box 9.1). Please complete box 9.25.

If 'NO', go to question 14.

If you are resident in the UK for 1998-99 but left the UK during the year ended 5 April 1999

Question 14

Were you not ordinarily resident throughout the year ended 5 April 1999?

If 'YES', go to question 15.

If 'NO', go to question 16.

Question 15

(a) Did you at any time from the date you came to the UK, to the date you left the UK, anticipate remaining here for two years or more from the date you came?

(b) On the date you left the UK had you been here for two years or more?

If 'YES', to (a) or (b), go to question 15(c) below.

If 'NO', you do not qualify for split-year treatment.

(c) Did you leave the UK during the year ended 5 April 1999 to live abroad permanently, and your visits between the date of your departure and 6 April 1999 averaged fewer than 91 days a tax year?

If 'YES', you are treated as resident up to and including the date of your departure and entitled to split-year treatment. Tick box 9.6 (and make sure you have ticked box 9.1). Please complete box 9.26.

If 'NO', you do not qualify for split-year treatment.

Question 16

Did you leave the UK during the year ended 5 April 1999 to live abroad permanently, and

your absence will continue to at least 6 April 2000, and

your visits to the UK between the date of your departure and 6 April 2000 will average fewer than 91 days a tax year?

If 'YES', you are treated as resident up to and including the date of your departure and entitled to split-year treatment. Tick box 9.6 (and make sure you have ticked box 9.1). Please complete box 9.26.

If 'NO', go to question 17.

Question 17

Did you leave the UK during the year ended 5 April 1999 to take up full-time employment abroad, and

your absence and employment will continue until at least 6 April 2000, and

your visits to the UK between the date of your departure and 6 April 2000 will average fewer than 91 days a tax year?

If 'YES', you are treated as resident up to and including the date of your departure and entitled to split-year treatment. Tick box 9.6 (and make sure you have ticked box 9.1). Please complete box 9.26.

If 'NO', go to question 18.

Question 18

Did you leave the UK during the year ended 5 April 1999, having been ordinarily resident, to accompany or join your spouse who had taken up full time employment abroad, and

your spouse's absence and employment and your absence abroad will continue until at least 6 April 2000, and

your visits to the UK between the date of your departure and 6 April 2000 will average fewer than 91 days a tax year, and

if your spouse left the UK during the year ended 5 April 1999, your spouse's visits to the UK between the date of departure and 6 April 2000 will average fewer than 91 days a tax year, or

if your spouse left the UK before 6 April 1998, your spouse's visits to the UK totalled fewer than 183 days in the year ended 5 April 1999 and averaged fewer than 91 days a tax year between the date of departure and 6 April 1999 or between 6 April 1995 and 6 April 1999, whichever is the shorter?

If 'YES', you are treated as resident up to and including the date of your departure and entitled to split-year treatment. Tick box 9.6 (and make sure you have ticked box 9.1). Please complete box 9.26.

If 'NO' to both questions 17 and 18 you do not qualify for split-year treatment.

Split-year treatment - capital gains

You do not qualify for split-year treatment for Capital Gains Tax purposes if:

by answering questions 11 to 18 on pages NRN3 and NRN4 you find you do not qualify for Income Tax purposes, or

you left the UK on or after 17 March 1998 and you were resident or ordinarily resident for tax purposes for any part of at least four out of seven tax years ended 5 April immediately preceding the tax year 1998-99 (that is, 1991-92 to 1997-98 inclusive), or

you returned to the UK on or after 6 April 1998 and you have been resident or ordinarily resident in the UK at any time during the five tax years 1993-94 to 1997-98 inclusive.

If you do not qualify for split-year treatment for Capital Gains Tax purposes and you have made any disposals of assets during the tax year ended 5 April 1999, the chargeable gains and allowable losses should be reported on the Capital Gains Pages. The Capital Gains Pages are available from the Orderline.

Domicile

Domicile is a general law concept. There are many factors that affect your domicile. Some of the main points you should consider if you are claiming not to be domiciled in the UK are:

you are normally domiciled in the country where you have your permanent home

you cannot be without a domicile

you can only have one domicile at any given time

your existing domicile is presumed to continue until it is proven that a new domicile has been acquired

domicile is distinct from nationality or residence.

There are three types of domicile for Income Tax and Capital Gains Tax purposes:

domicile of origin

domicile of choice

domicile of dependency.

Domicile of origin

You normally acquire a domicile of origin from your father when you are born.  It need not be the country in which you were born.

A domicile of origin may change as a result of adoption but not otherwise. A domicile of origin is not easy to displace.  For example, if you leave the country of your domicile of origin, you will continue to be domiciled there until you acquire a domicile of choice elsewhere.

Domicile of choice

You have a legal capacity to acquire a new domicile at the age of 16. Broadly, to acquire a domicile of choice you must leave your current country of domicile and settle in another country.  You need to provide strong evidence that you intend to live there permanently or indefinitely. The following factors will be relevant, though the list is not exhaustive:

your intentions

your permanent residence

your business interests

your social and family interests

your ownership of property

the form of any Will you have made.

If you need help, ask your Tax Office or tax adviser.

Domicile of dependency

Until you have the legal capacity to change it, your domicile will follow that of the person on whom you are legally dependent. If the domicile of that person changes, you automatically acquire the same domicile, in place of your domicile of origin.

Before 1974, married women automatically acquired their husband's domicile.  As a married woman, who married before 1974, you retain your husband's domicile until you legally acquire a new domicile.

An exception to this rule is the double taxation agreement between the UK and the USA, which provides that a marriage before 1974 between a woman who is a US national and a man domiciled within the UK, is deemed to have taken place on 1 January 1974.

Relevance of your domicile to your tax liability

Having read the above guidelines, if you think you are not domiciled in the UK you must now decide whether domicile has any immediate relevance to your UK tax liability. If you are not resident and not ordinarily resident in the UK, it will not usually be necessary to consider domicile and boxes 9.5 and 9.27 to 9.31 need not be completed. Work through the following questions.

Question 19

Did you have any income arising abroad or gains on assets situated outside the UK for the year ending 5 April 1999 that will not be wholly remitted to the UK?

Question 20

Have you made (or will you be making) a claim for the year ending 5 April 1999 for UK tax relief on contributions to a non-UK pension scheme or retirement benefit plan, which were incurred out of remuneration you received from an employer who is not resident in the UK?

Question 21

Have your costs for the year ending 5 April 1999, or those of your family, in travelling between the country in which you normally live and the UK, been borne or reimbursed by your employer?

Question 22

In the year ending 5 April 1999 did you have income from an employment:

where the employer was not resident in the UK, and

all the duties of the employment were carried out abroad, and

you have not remitted the whole of the income to the UK?

If 'YES' to any of questions 19 to 22, domicile is relevant for the year ended 5 April 1999. Tick box 9.5. Please also complete boxes 9.27 to 9.31 as appropriate.

If 'NO', to all of questions 19 to 22, domicile is not relevant for the year ended 5 April 1999. Do not fill in boxes 9.5 and 9.27 to 9.31.

Tax implications

Broadly the UK charges tax on:

income arising in the UK, whether the individual to whom it belongs is resident in the UK or not

income arising outside the UK that belongs to individuals resident in the UK

gains accruing on the disposal of assets anywhere in the world, that belong to individuals resident or ordinarily resident in the UK.

Special rules apply in some circumstances, but generally the amount of Income Tax and Capital Gains Tax you have to pay depends on whether you are resident and ordinarily resident in the UK, and in some cases on your domicile.

Application to specific sources of income/gains

The Tables on pages NRN8 to NRN12 summarise the tax consequences of the tax status you claim. If a Table shows that you are liable to tax, fill in relevant boxes in your Tax Return. If a Table shows that you are not liable, you do not need to put the income or gains concerned in your Tax Return.

If a Table shows that you are liable on a remittance basis, you are liable to UK tax on the amount of your overseas income or gains paid here, or transmitted, or brought to the UK in any way.  If this applies, enter the amount of the remittance in the relevant boxes in your Tax Return.

The 'arising' basis

Unless a Table shows that you are liable to Income Tax or Capital Gains Tax on the remittance basis, enter the full amount of income or gain arising from the particular source in the tax year, even if the income or gain is not brought to the UK. In the case of business profits or rental income, the 'full amount of income arising' means the gross income minus allowable expenses. For other sources the 'full amount' is the gross income arising.

The 'remittance' basis

Where a Table shows that you are liable to Income Tax or Capital Gains Tax on the remittance basis, enter in the relevant part of your Tax Return the full amount of the actual sums received in the UK in the tax year, irrespective of the tax year in which the income arose. The amount received in the UK might be less or more than the amount of income or gains arising in the tax year.

Example 1

Ian opened an overseas interest-bearing bank account in 1996-97 and interest arose as follows:

1996-97  £200

1997-98  £400

1998-99  £500

If none of the interest was received in the UK in 1996-97 or 1997-98, but £800 was brought to the UK in 1998-99, he will be liable to UK Income Tax for 1998-99 on £800, even though only £500 arose in that year. He will put £800 in the Foreign Pages.

If, however, the above account had been closed on 31.12.97, the whole of the £600 interest that arose in 1996-97 and

1997-98 could be brought to the UK at any time in the 1998-99 tax year without incurring a UK tax charge.

Example 2

John is resident but not domiciled in the UK. He has an overseas bank account containing £50,000, from the proceeds of selling property overseas of £45,000 (the original cost of which was £30,000) and interest credited for the year of £5,000. If he transfers £35,000 to the UK during the year, he will be liable to tax as follows:

(a) £5,000 will be liable to Income Tax. He will put it in the Foreign Pages. Note that remittances from 'mixed' funds of income and capital are treated primarily as coming from income

(b) £10,000 will be liable to Capital Gains Tax - this is

one-third of the amount transferred to the UK (£35,000 minus £5,000). He will put this in the Capital Gains Pages. The fraction is used because immediately before the transfer to the UK the fund contained £50,000, of which £45,000 was proceeds from the disposal of property overseas and one third of that (£15,000) was a gain (£45,000 minus the original £30,000 cost).

Meaning of 'received in the UK'

Income or gains are 'received in the UK' if funds provided in the UK are derived from income or gains arising overseas. The precise way this result is achieved makes no difference. Any commercially recognised form of money, such as cash, notes, cheques, promissory notes, bills of exchange or financial credit, can constitute a remittance.

The money does not have to be physically imported from overseas. It may, for example, be received in the UK from another UK resident, in return for money, or assets representing income or gains, being transferred to them abroad. Nor does the money have to be received by you personally - if it is received by someone else on your authority, for example, in settlement of a debt between you and that person, then a remittance will have occurred.

If you use overseas income or gains to acquire assets that you subsequently bring to the UK, the import of the asset may in some circumstances constitute a 'sum received'. Even where it does not, if at a later date, you sell the asset in the UK, the proceeds will be treated as a taxable remittance of income or gains, to the extent that the funds originally used to acquire the asset were derived from overseas income or gains.

Similarly, if you use overseas income or gains to acquire an asset or investment abroad, and at a later date the asset or investment is sold or encashed and the proceeds transferred to the UK, the proceeds will constitute a sum 'received' and be taxable up to the amount of the overseas income or gains used to acquire the asset in the first place.

If you are in doubt about whether income or gains from abroad have been received in the UK, or the precise amount of that income or gains, ask your Tax Office or tax adviser for assistance.

Double taxation agreements

A double taxation agreement is an arrangement between the governments of two countries to resolve taxation issues affecting them both. Agreements contain detailed provisions designed to eliminate or relieve the double taxation that can occur when income arises in one country to a resident of another. They do this by either exempting the income from tax in one country, or by reducing the rate at which tax is charged in one country and allowing credit for that reduced rate of tax in the other.

The UK has double taxation agreements with the following countries:

Antigua and Barbuda Argentina Australia Austria Azerbaijan Bangladesh Barbados Belarus [1] Belgium Belize Bolivia Botswana Brunei Bulgaria Canada China Côte d'Ivoire (Ivory Coast) Croatia [2] Cyprus Czech Republic Denmark Egypt Estonia Falkland Islands Fiji Finland France Gambia Germany Ghana Greece Guernsey Guyana Hungary Iceland India Indonesia Ireland (Republic of) Isle of Man Israel Italy Jamaica Japan Jersey	Kazakhstan Kenya Kiribati Korea (Republic of) Latvia Lesotho Luxembourg Macedonia [2] Malawi Malaysia Malta Mauritius Mexico Mongolia Montserrat Morocco Myanmar (Burma) Namibia Netherlands New Zealand Nigeria Norway Pakistan Papua New Guinea Philippines Poland Portugal Romania Russian Federation St Kitts and Nevis Sierra Leone Singapore Slovak Republic (Slovakia) Slovenia [2] Solomon Islands South Africa Spain Sri Lanka Sudan Swaziland Sweden Switzerland

Notes

[1] The UK's agreement with the Soviet Union is to be regarded as in force between the UK and Belarus. The position with regard to former Soviet Republics not listed is less clear, but the UK will in all cases apply the provisions of the agreement on the basis that it is still in force (until such time as new agreements take effect with particular countries).

[2] The UK's agreement with Yugoslavia is to be regarded as in force between the UK and Croatia, Macedonia and Slovenia and the Federal Republic of Yugoslavia. The position with regard to the remainder of what was Yugoslavia remains unclear.

Non-residents and UK property income

Even though you may be not resident in the UK you could be liable to UK tax on income arising in the UK, including income from property. This is so whether or not tax is deducted by your letting agent, or tenants if there is no letting agent. You should complete the Land and Property Pages, available from the Orderline.

You are not liable to UK tax if your total UK taxable income (including net property income) is less than any UK tax allowance to which you may be entitled.

A non-resident individual who is entitled to UK property income may, in certain circumstances, apply to receive that income with no tax deducted. Contact your Tax Office for help. You should complete the Land and Property Pages.

Non-UK residents

If you are not resident in the UK but resident in a country with which the UK has a double taxation agreement, you may be able to get relief from UK tax under the terms of that agreement in respect of income arising in the UK from:

pensions (other than UK government pensions) and some annuities

royalties

dividends

interest.

Some agreements require you to be subject to tax in the other country on the income in question, before you get relief from UK tax. The precise conditions for exemption or relief can be found in the relevant agreement. It is not possible to give full details here, as they vary from agreement to agreement. To claim double taxation relief, ask the Orderline for Help Sheet IR304: Non-residents - relief under Double Taxation Agreements and fill in box 9.35 to claim relief. If you require further assistance, ask your Tax Office or tax adviser.

Dual residents

It may be that you are resident in the UK under UK domestic tax law and also resident for the same period in another country under that country's rules (that is, you are 'dual resident'). If the other country is one with which the UK has a double taxation agreement, the agreement will usually provide special rules for determining (but only for the purpose of applying its detailed provisions) in which of the two countries you are regarded as a resident.

If you are 'dual resident', you may be entitled to claim the exemptions and reliefs from UK tax granted to residents of that other country.

The rules for determining residence for the purposes of a double taxation agreement can be complex. Broadly, the standard provisions look at criteria such as the availability of a 'permanent home', your personal and economic relations with both countries, where you have an 'habitual abode', and your nationality.

Some of these terms have special meanings and interpretation of them is not always straightforward. Not all agreements have identical rules, or similar effect on tax liability.

The precise conditions for exemption or relief can be found in the relevant agreement. If you require further assistance, ask your Tax Office or tax adviser.

If you intend to make a claim, tick box 9.8. Please also complete boxes 9.32 to 9.35 to claim any relief. Ask the Orderline for Help Sheet IR302: Dual residents which gives more information and includes a claim form for completion. You will also need to obtain a certificate from the overseas tax authority showing that they regard you as a resident under the domestic tax law of that country for the period of claim.

Claims for allowances by non-residents

If you are not resident in the UK and you satisfy one of the conditions listed below, you are entitled to the allowances that would be available to you if you were resident in the UK.  The conditions are that you:

are a Commonwealth citizen

are a citizen of a state within the European Economic Area (EEA) that is Austria, Belgium, Denmark, Finland, France, Germany, Greece, Iceland, Italy, Liechtenstein, Luxembourg, Netherlands, Norway, Portugal, Republic of Ireland, Spain, Sweden and the United Kingdom

are or have been employed in the service of the British Crown

are employed in the service of any UK missionary society

are employed in the service of any State under the protection of Her Majesty

are resident in the Isle of Man or the Channel Islands

have previously resided within the UK, and are resident abroad for the sake of your health or the health of a member of your family living with you

are a widow whose late husband, or a widower whose late wife, was employed in the service of the British Crown.

If you satisfy one of the following conditions, you will need to get a certificate from the overseas tax authority stating that you are resident there for tax purposes for the period of the claim, and have documents (for example, a passport) to show that you are a national of that country. Keep the certificate and documents in case they are needed later to support your claim.

The conditions are:

you are a national of Bulgaria, Israel, or

you are a national and also a resident of Argentina, Azerbaijan, Belarus, Bolivia, China, Côte D'Ivoire, Croatia, Czech Republic, Egypt, Estonia,  Hungary, Indonesia, Japan, Kazakhstan, Korea, Latvia, Macedonia, Mexico, Mongolia, Morocco, Philippines, Poland, Romania, Russian Federation, Slovak Republic, Slovenia, Sudan, Thailand, Tunisia, Turkey, Ukraine, Uzbekistan, Venezuela, Vietnam, Federal Republic of Yugoslavia, or

you are a resident of Austria, Barbados, Belgium, Falkland Island, Fiji, Finland, France, Germany, Greece, Irish Republic, Kenya, Luxembourg, Mauritius, Myanmar (Burma), Namibia, Netherlands, Norway, Portugal, Singapore, South Africa, Swaziland, Sweden, Switzerland and Zambia.

Unless you were a resident of Fiji, Greece, Irish Republic, Myanmar (Burma), Namibia, Singapore or Swaziland you will not be entitled to personal allowances under the final category if your income consisted solely of dividends, interest and royalties or any combination thereof.

Tick box 9.7 if you are claiming personal allowances.

The double taxation conventions between the United Kingdom and the former Soviet Union, and what was Yugoslavia, allowed claims to be made by nationals who were also residents of these countries. However, the present position in relation to former Soviet and Yugoslav states not listed above is unclear.

Life assurance premium relief

If you ticked boxes 9.2 and 9.7 and have paid premiums on a life assurance policy taken out before 14 March 1984, you may be entitled to claim relief on gross premiums paid. If you consider you are entitled to claim such relief, contact Financial Intermediaries and Claims Office (International) at the address given below.

Further advice or information

More detailed information can be found in booklet IR20: Residents and Non-Residents, and leaflet IR58: Going to Work Abroad? You can get these from the Orderline.

Special rules apply to some people working abroad and also to members of visiting forces who are posted to the UK. Further guidance may be obtained as follows:

Crown employees (for example, civil servants, diplomats, members of the armed forces)	HMIT Cardiff 4 (Technical Unit) Foreign Section Ty-Glas Llanishen Cardiff Wales, CF4 5GN (Tel: 01222 753271)
European Community (EC) employees and also members of visiting forces who are posted to the UK	Financial Intermediaries and Claims Office (International) St John's House Merton Road Bootle Merseyside England, L69 9BB (Tel: 0151 472 6000)
Employees working in oil and gas exploration and extraction industries (where the employer is not resident in the UK)	Foreign Group, HMIT Centre 1 Queensway House East Kilbride Glasgow Scotland, G79 1AA (Tel: 013552 75000)
Merchant Navy seafarers	Marine Section, HMIT Cardiff 1 Ty-Glas Llanishen Cardiff Wales, CF4 5FN (Tel: 01222 753271)
Non-resident entertainers and sports persons	Foreign Entertainers Unit 2nd Floor Royal House Prince's Gate 2-6 Homer Road Solihull West Midlands England, B91 3WG (Tel: 0121 606 2861/2/3)
Table 1 - Scope of liability to Income Tax on employment income*

	Residence status [3] and whether domiciled in the UK	Employment performed wholly or partly in the UK:	Employment performed wholly outside the UK [5]
		- in the UK	- outside the UK
Foreign emoluments [1] [4]	Resident and ordinarily resident, not domiciled	Liable - less possible deduction [2]	Liable - less possible deduction [2]	Liable on the remittance basis
	Resident but not ordinarily resident, not domiciled	Liable	Liable on the remittance basis	Liable on the remittance basis
	Not resident, not domiciled	Liable	Not liable	Not liable
Other earnings [4]	Resident and ordinarily resident, domiciled	Liable - less possible deduction [2]	Liable - less possible deduction [2]	Liable - less possible deduction [2]
	Resident and ordinarily resident, not domiciled	Liable - less possible deduction [2]	Liable - less possible deduction [2]	Liable - less possible deduction [2]
	Resident but not ordinarily resident, domiciled	Liable	Liable on the remittance basis	Liable on the remittance basis
	Resident but not ordinarily resident, not domiciled	Liable	Liable on the remittance basis	Liable on the remittance basis
	Not resident	Liable	Not liable	Not liable

Notes

* Subject to any different treatment provided for under the terms of the relevant article in a double taxation agreement.

[1] 'Foreign emoluments' is the term used in the Taxes Act to mean the earnings of someone who is not domiciled in the UK and whose employer is not resident in the UK (nor in the Republic of Ireland)

[2] If you think you may qualify for a Foreign Earnings Deduction for Seafarers, ask the Orderline for Help Sheet IR205S: Foreign Earnings Deduction for Seafarers.

[3] If your residence and domicile status is anything other than resident and ordinarily resident and domiciled in the UK and you worked overseas during the year, you should refer to Help Sheet IR211: Employment - residence and domicile issues before completing the Employment Pages.

[4] If you are tax equalised by your employer, you should refer to Help Sheet IR212: Tax Equalisation before completing the Employment Pages.

[5] If you hold an office or employment but no liability to UK Income Tax arises on the earnings, you do not need to complete the Employment Pages for that office or employment. Tick 'Yes' at Question 1 on page 2 of your Tax Return and make a note in the 'Additional information' box on page 8 explaining your circumstances.

If you held two or more offices or employments with the same employer or associated employers and emoluments from, say, one are chargeable to UK Income Tax but from the other are not, you should complete the Employment Pages for both or all of the associated employments. If you are unsure, contact your Tax Office for advice.

Table 2 - Scope of liability to Income Tax on pension income*

If Table 2 shows that you are liable to Income Tax on pension income complete:

boxes 11.1 to 11.13 as appropriate on page 4 of your Tax Return

the Foreign Pages for any overseas pension.

If Table 2 shows that you are not liable to Income Tax on overseas pension income, you need not complete the Pages for that income.

Residence status and whether domiciled in UK	Paid by, or on behalf of a person:
	- in the UK	- outside the UK (overseas pension)
Resident and ordinarily resident, domiciled	Liable	Liable [1]
Resident and ordinarily resident, not domiciled	Liable	Liable on the remittance basis [2]
Resident but not ordinarily resident, domiciled	Liable	Liable [1] [3]
Resident but not ordinarily resident, not domiciled	Liable	Liable on the remittance basis [2]
Not resident	Liable [4] [5]	Not liable

Notes

* Subject to any different treatment provided for under the terms of the relevant article in a double taxation agreement.

[1] Less one-tenth deduction

[2] Pensions arising in the Republic of Ireland are liable on the arising basis minus one-tenth deduction. In the case of Irish Government pensions this applies only if the pensioner is solely a UK national.

[3] Commonwealth or Irish citizens are liable on the remittance basis and the one-tenth deduction is not due other than on pensions arising in the Irish Republic when Note 2 applies.

[4] Where the pension is paid by an employer or their successor in the UK for an employment carried out abroad, that pension will not be liable to UK Income Tax. An employment is regarded as having been carried on abroad if:

the last ten years' service for which the pension is paid was abroad, or

the service amounted to
- half the total service for which the pension is paid was abroad, and

 -at least ten of the last 20 years.

This note does not apply to a UK or Northern Ireland Crown employment pension.

[5] The tax charge on National Insurance retirement pensions is limited to the amount, if any, deducted at source. If you have any such income and you intend to calculate your tax, ask the Orderline for Help Sheet IR300: Non-residents and investment income.

Table 3 - Scope of liability to Income Tax on investment income *

If Table 3 shows that you are liable to Income Tax, complete the following parts of your Tax Return, relevant to each source of income:

for income from UK savings and investments - see boxes 10.1 to 10.32 on page 3 of your Tax Return

for rent or income from UK land or property - see the Land and Property Pages

for other income from UK investments - see page 4 of your Tax Return and the Trusts etc. Pages

for income from investments outside the UK - see the Foreign Pages.

If Table 3 shows that you are not liable to Income Tax, you need not complete the Tax Return for that particular source of income. You can therefore answer 'No' to the second part of Question 6 on page 2 of your Tax Return, where there is no liability in respect of income or benefit resulting from a transfer of assets.

	Investment income:	UK government securities
Residence status and whether domiciled in UK	-  arising in the UK	- arising outside the UK
Resident and ordinarily resident, domiciled	Liable	Liable	Liable
Resident and ordinarily resident, not domiciled	Liable	Liable on the remittance basis [1] [5]	Liable
Resident but not ordinarily resident, domiciled	Liable	Liable [2]	Not liable
Resident but not ordinarily resident, not domiciled	Liable	Liable on the remittance basis [1]	Not liable
Not resident but ordinarily resident, domiciled	Liable [3]	Not liable [4]	Liable
Not resident but ordinarily resident, not domiciled	Liable [3]	Not liable [4] unless footnote [5] below applies	Liable
Not resident and not ordinarily resident, domiciled	Liable [3]	Not liable [4]	Not liable
Not resident and not ordinarily resident, not domiciled	Liable [3]	Not liable [4]	Not liable

Notes

* Subject to any different treatment provided for under the terms of the relevant article in a double taxation agreement.

[1] Income arising in the Republic of Ireland is liable on the arising basis.

[2] Commonwealth or Irish citizens are liable on the remittance basis, except for income arising in the Republic of Ireland.

[3] Income from property in the UK, and investment income connected to a trade carried on in the UK through a branch or agency are liable to Income Tax in the normal way. The tax charge on other income covered by Table 3 is limited to the amount of tax, if any, deducted at source. If you have any income within this latter category and you intend to calculate your tax, ask the Orderline for Help Sheet IR300: Non-residents and investment income.

[4] In the case of any gain under a life insurance policy, contract for life annuity, or capital redemption policy, only applies if the policy or contract was made outside the UK with an insurance company not resident in the UK or with an overseas branch of an insurance company resident in the UK, and the policy proceeds are not payable in the UK. If you need help ask your Tax Office or tax adviser.

[5] If you have received a benefit in the UK from an overseas trust, company or other entity (see Notes on Foreign pages FN9 and FN10), it should be entered in the appropriate boxes on the Foreign Pages to the extent that it could have been paid out of any income that has not already been paid away by that overseas trust, company or other entity. If you need help, contact Special Compliance Office, (Section 739 Group), The Triad, Stanley Road, Bootle, Merseyside, L69 9EJ. Telephone 0151 300 4037.

Table 4 - Scope of liability to Income Tax on self-employment income*

If Table 4 shows that you are liable to income tax on self-employment income complete a set of Self-employment Pages for each self-employment and for each set of accounts relevant to the basis period for each self-employment.

If Table 4 shows that you are not liable to Income Tax on self-employment income do not complete those Pages for that income.

Residence status and whether domiciled in the UK	Trade, profession or vocation carried on wholly or partly in the UK	Trade, profession or vocation carried on wholly outside the UK
Resident and ordinarily resident, domiciled	Liable	Liable
Resident and ordinarily resident, not domiciled	Liable	Liable on the remittance basis [1]
Resident but not ordinarily resident, domiciled	Liable	Liable [2]
Resident but not ordinarily resident, not domiciled	Liable	Liable on the remittance basis [1]
Not resident	Liable [3]	Not liable

Notes

* Subject to any different treatment provided for under the terms of the relevant article in a double taxation agreement.

[1] Income from a trade, profession or vocation carried out wholly in the Republic of Ireland is liable on the arising basis

[2] Commonwealth (this includes British) or Irish citizens are liable on the remittance basis unless the trade or profession is carried out wholly in the Irish Republic when Note 1 applies.

[3] Complete the Self-employment Pages to show profits attributable to the UK. Special rules apply to financial trades carried on through certain UK brokers and investment managers which generally limit the liability to tax deducted at source. Ask your Tax Office or tax adviser.

Table 5 - Scope of liability to Capital Gains Tax on disposals of assets*

Residence status and whether domiciled in UK	Gains on disposal of:
	- UK assets	- overseas assets
Resident and ordinarily resident, domiciled	Liable	Liable
Resident and ordinarily resident, not domiciled	Liable	Liable on the remittance basis
Resident but not ordinarily resident, domiciled	Liable [1]	Liable
Resident but not ordinarily resident, not domiciled	Liable [1]	Liable on the remittance basis
Not resident but ordinarily resident, domiciled	Liable	Liable
Not resident but ordinarily resident, not domiciled	Liable	Liable on the remittance basis
Not resident and not ordinarily resident, domiciled	Not liable [2]	Not liable
Not resident and not ordinarily resident, not domiciled	Not liable [2]	Not liable

Notes

* Subject to any different treatment provided for under the terms of the relevant article in a double taxation agreement.

[1] There is no liability if the disposal is of certain UK government securities

[2] Liability will arise if the assets were used or held for the purposes of a trade, profession or vocation carried on in the UK through a branch or agency or by the branch or agency.

These notes are for guidance only, and reflect the position at the time of writing. They do not affect any rights of appeal.

Issued by the Inland Revenue

April 1999

© Crown copyright

This Help Sheet reproduced by permission of the Board of Inland Revenue


not available

Not available. Please contact the Inland Revenue Orderline on 0645 000404 for a hard copy of these Notes.