What Is a Chargeable Gain in the UK?

There are two parallel tax regimes in the United Kingdom for businesses and individuals. One tax regime applies to income (or sales revenue), and the other applies to gains arising from the sale of capital assets. Any money you or your business obtains from selling a capital asset is not subject to the income tax regime. Instead, if the gain is taxable, it will be a chargeable gain. If you or your business receives money subject to tax, but it is not an income receipt, it will be a chargeable gain. This article explains:

• what are the different kinds of chargeable gains; and 
• the difference between chargeable gains and taxable income.

Income vs Capital 

If you receive money from a sale, the law will ask if the money qualifies as an income receipt or a capital receipt. The answer determines which tax regime will govern the receipt. 

Chargeable Gains 

HM Revenue & Customs (HMRC) will only asses tax under a chargeable gain if:

• you are not exempt from a chargeable gain;
• the capital asset you sold is not exempt from a chargeable gain; and 
• the sale transaction is a disposal for tax purposes. 

If you meet all three conditions, the law will assess different kinds of chargeable gains depending on the circumstances of the transaction. For instance, capital gains tax (CGT) is a particular chargeable gain. Not all chargeable gains will be capital gains tax, though all capital gains taxes are a kind of chargeable gains. 

Tax Liabilities of Individuals and Businesses 

HMRC assess chargeable gains differently depending on whether an individual, non-corporate, or corporate business was involved in the transaction. 

Capital Assets

Some common examples of capital assets include:

• business premises; 
• plant and machinery; and
• shares in a company.

Additionally, intangible items like branding, intellectual property, and goodwill are capital assets. In some cases, HMRC will treat certain capital assets as exempt from chargeable gains. The most common example is your primary residential property. You do not pay capital gains when you sell your home. 

Disposals 

A disposal includes the sale, gift, transfer, or destruction of a capital asset. Suppose you own a capital asset and transfer ownership to another person. In that case, the law will almost certainly consider it a disposal regardless if you received any money or how much you received.

Capital Gains Tax vs Corporation Tax 

HMRC has different rules depending on whether the chargeable gain constitutes capital gains tax (CGT) versus corporation tax. 

In all cases, you must make a gain on the disposal of the capital asset. If you have lost money, then you do not pay tax. Instead, you pay tax on the difference between the purchase and sale price i.e. the gain. 

Depending on whether the disposal is subject to CGT or corporation tax, HMRC grants the seller various reliefs and allowances, such as setting off other capital losses against your chargeable gain. 

Key Takeaways 

If you sell something, the law will first ask if you have sold a capital asset or an income-producing asset. HMRC will assess the transaction under the chargeable gains regime where the transaction involves a capital asset. Individuals and unincorporated businesses pay capital gains tax if they owe any chargeable gains to HMRC. Companies add the taxable chargeable gains to their total taxable profit for the accounting year, which HMRC assess at the corporate tax rate. 

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