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Jane has two chargeable gains in the tax year 2020/21:
£10,000 – claim made for investors’ relief
£13,900 – no claim made for business asset disposal relief nor investors’ relief and not residential
She has taxable income of £28,000 in the tax year 2020/21.
What is Jane’s capital gains tax liability for the tax year 2020/21?
Since the 13900 can be taxed at 20% after consuming the basic rate band remaining, we will first deduct AEA from 13900, giving 1600.
Then we use up 1600 basic rate band to give tax rate of 10%
Lastly the 10000 will be charged at 10% regardless of the income.
The answer comes out to be 1160 this way.
The solution shows that 1600 is taxed at 20% because the 10000 investors relief has used up the basic rate band.
Which is the correct one?
The given solution is the correct one as the rules for business asset disposal relief (study notes page 86 – chapter 14 section 1.4 (specifically the first point)) also apply to investors’ relief, so that the gains qualifying for investors’ relief are deemed to firstly use any amount of unused basic rate band. Thus in this example the 10,000 gain qualifying for investors’ relief is deemed to firstly utilise the remaining basic rate band of 9,500 (37,500 – 28,000) irrespective of the fact that it would only be taxed at the 10% rate applicable to investors’ relief.