CG18000 - Introduction and computation: annual exempt amount: introduction
Individuals, personal representatives and trustees receive an annual tax-free allowance, known as the annual exempt amount (“AEA”). Any gains arising in a year of assessment which do not exceed the AEA are not chargeable to Capital Gains Tax (“CGT”). The AEA can be set off against gains in whatever way is most beneficial to the person concerned.
The AEA relates to CGT. There is no similar exemption for chargeable gains arising to companies, on which they pay corporation tax.
The amount of the AEA is set by the Government each year and is announced, along with other tax rates and exemptions, in the budget. The rates of AEA for the current tax year and recent tax years are found at Capital Gains Tax rates and allowances on GOV.UK.
There is no need to make a claim in order tobenefit from the AEA.
The AEA relates to one tax year only. If it is not used it cannot be carried forward or back and added to the AEA for subsequent or preceding tax years.
The AEA is available for set-off against chargeable gains only. Unused amounts cannot be used to reduce the amount of income chargeable to income tax.
See CG15800 for information about how the AEA interacts with losses.
The main AEA is given to the following persons:
individuals (including children};
personal representatives of deceased persons for the year of assessment in which the death occurs (no matter how short this period is) and, for the two following years of assessment;
trustees of certain settlements for the benefit of disabled persons, but the exemption may be reduced if the settlement is made after 9 March 1981 and is one of a number of such settlements having the same person as settlor, see CG18050+.
Trustees other than those mentioned above qualify for an AEA of one-half of theAEA enjoyed by an individual. This relief is referred to in this guidance as the ‘trust exemption’. The exemption may, though, be reduced if the settlement is made after 6 June 1978 and is one of a number of such settlements having the same person as settlor, see CG18090+.
The AEA is not restricted where an individual or trust becomes or ceases to be resident in the United Kingdom during a year of assessment.
In most cases, non-resident individuals or trustees that are within the scope of charge to CGT e.g. on direct or indirect disposals of UK land, see CG73700+ and CG73920+, or disposals of certain assets, see CG13550, if trading in the United Kingdom through a branch or agency are entitled to the AEA in the same way as for UK residents, see CG73600+.
For non-resident trusts forming part of a group, see CG18113.
Remittance basis
A non-UK domiciled individual who makes a claim for remittance basis to apply for a particular tax year is not entitled to an AEA for that year. This applies whether or not any foreign gains are chargeable to CGT in that year. If the taxpayer has gains on assets situated in the United Kingdom there will be no AEA to reduce the amount chargeable in respect of those gains. For general guidance on the remittance basis, see CG25300+ and the Residence, Domicile & Remittances Manual.
Where a claim is made, any foreign gains arising in that tax year are chargeable to CGT in the tax year in which they are remitted to the UK.
An individual who has made a claim for remittance basis to apply can also make an election under s16ZA for foreign losses to be allowable, see CG25330A. The election is irrevocable and has effect for the first tax year to which a claim for remittance basis applies and all subsequent years.Where an election for foreign losses has been made, any AEA which may be available in a later tax year cannot be used to set against foreign gains remitted to the UK in that year, see s16ZB. This is the case even if there is no election to use the remittance basis in that later year.
Attributed gains
In certain situations amounts representing the gains (and losses) of the trustees of a settlement are assessed on the settlor or on the beneficiaries. These gains are commonly referred to as ‘attributed gains’.
The relevant instructions and legislation are as follows.
Exploitation
It is possible for taxpayers to arrange their affairs to obtain the benefit of more than one AEA against the disposal of a particular asset. In some circumstances we can challenge such arrangements, see CG18150+ below.