Capital gains tax - Chargeable persons and entities

Learning Outcomes

This article explains capital gains tax chargeable persons and entities, including:

• What is meant by a "chargeable person" for UK CGT and which individuals, trustees, personal representatives, and partners fall within scope
• How CGT applies to individuals, including the impact of residence, domicile, the remittance basis, and temporary non‑residence on the extent of their liability
• The treatment of partnerships and LLPs as transparent entities, with gains allocated to partners or members, and the different position of corporate partners
• The distinction between CGT and corporation tax on chargeable gains, and how companies are taxed on disposals of chargeable assets
• How trustees and personal representatives are assessed on trust and estate gains, and how their allowances and rates differ from those of individuals
• The CGT and corporation tax consequences of disposals by non‑residents, particularly in relation to UK land, property‑rich entities, and anti‑avoidance rules
• Common SQE1-style question patterns, traps, and examiner expectations when identifying the correct taxpayer and applicable tax regime in problem scenarios
• Practical steps for analysing an exam question: identifying the person or entity, determining residence and scope, and applying the correct CGT or corporation tax rules

SQE1 Syllabus

For SQE1, you are required to understand the scope of capital gains tax, including who is liable, the relevant entities, and the practical implications for different business structures, with a focus on the following syllabus points:

• Identifying chargeable persons and entities for CGT purposes
• The CGT treatment of individuals, partnerships, trustees, and companies
• The distinction between CGT and corporation tax on chargeable gains
• The relevance of residence and domicile for CGT liability
• The practical application of CGT rules to exam scenarios
• How LLPs are treated for CGT and the position of corporate partners
• Trustees’ and personal representatives’ roles and allowances
• Non‑resident rules for UK land, property‑rich entities, and anti‑avoidance (e.g. temporary non‑residence)

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which of the following is a chargeable person for UK capital gains tax?
   1. A UK-resident individual
   2. A UK-resident company
   3. A partnership as an entity
   4. A trustee of a UK-resident trust

2. True or false? Companies pay capital gains tax on their chargeable gains.

3. How is capital gains tax liability determined for members of a partnership?

4. What is the effect of residence status on an individual’s liability to UK capital gains tax?

Introduction

Capital gains tax (CGT) is a tax on the profit made when certain assets are disposed of for more than their acquisition cost. For SQE1, it is essential to know who is liable to CGT, how liability is determined for different types of persons and entities, and the distinction between CGT and corporation tax on chargeable gains. This article explains the rules for individuals, partnerships, trustees, and companies, and highlights the key terms and exam points you need to know. It also addresses how residence and domicile affect the scope of liability, and how special regimes apply to non‑resident disposals of UK land (including indirect disposals via property‑rich entities).

Key Term: chargeable person
A person or entity liable to capital gains tax on the disposal of chargeable assets. Includes individuals, partners, trustees, and personal representatives.

Key Term: residence
The status determining whether an individual is taxed on worldwide gains or only on UK assets. UK residents are taxed on worldwide gains; non-residents are taxed on certain UK assets.

Chargeable Persons and Entities

CGT applies only to certain persons and entities. Understanding who is liable is the first step in any CGT question. The charge to CGT sits alongside the rules on chargeable assets, disposals, and reliefs, but the first decision point is always: who is the taxpayer?

Individuals

Individuals are the most common chargeable persons for CGT. A UK‑resident individual is liable to CGT on worldwide gains. Residence is determined under the statutory residence test. Domicile does not affect residence, but domicile can affect the basis of taxation for individuals who claim the remittance basis. A non‑domiciled UK‑resident individual who is eligible and claims the remittance basis is generally taxed on UK gains and on foreign gains only if remitted to the UK. The availability and cost of the remittance basis depends on various factors (including the remittance basis charge for long‑term residents).

Non‑residents may be liable to CGT on UK land and property (residential and non‑residential) and, in certain cases, on indirect disposals—such as disposals of interests in “property‑rich” companies or collective investment vehicles that derive 75% or more of their value from UK land. Additional anti‑avoidance rules apply to individuals who leave and return to the UK (temporary non‑residence), potentially bringing within charge gains realised whilst non‑resident if residence resumes within the prescribed period.

Key Term: partnership (for CGT)
For CGT, a partnership is transparent. Each partner is taxed on their share of the partnership’s gains, not the partnership as an entity.

Partnerships and LLPs

A partnership is not a separate chargeable person for CGT. Instead, each partner is assessed individually on their share of any gains made by the partnership. The allocation is typically determined by agreement (often mirroring the proportions in which capital profits are shared). Partners compute gains as if they had disposed of their share of the relevant asset, and they apply their own annual exemption and reliefs.

Limited liability partnerships (LLPs) are treated as partnerships for CGT purposes if the members are individuals. Each member is taxed on their share of gains. Where a member is a company, that member is charged to corporation tax on chargeable gains, not CGT.

Key Term: limited liability partnership (LLP)
An LLP is treated as a partnership for CGT purposes. Each member is taxed individually on their share of gains (individual members under CGT; corporate members under corporation tax).

Trustees and Personal Representatives

Trustees are chargeable persons for CGT on gains made by the trust, with specific rates and a lower annual exemption. The trust’s residence status determines the scope of its charge (UK‑resident trusts on worldwide gains; non‑resident trusts on UK land and property, and certain other UK assets). Special attribution rules can apply, for example in settlor‑interested trusts.

Personal representatives (PRs) are liable for CGT on disposals made during the administration of a deceased person’s estate. There is no CGT on death; the estate’s assets are treated as acquired by the PRs at the market (probate) value at death. PRs have a limited entitlement to the annual exempt amount for a restricted period following death.

Key Term: trustee
A person or persons holding property on behalf of others. Trustees are liable to CGT on gains made by the trust.

Key Term: personal representative
A person administering a deceased’s estate. Liable to CGT on disposals made during the administration period.

Companies

Companies do not pay CGT. Instead, they pay corporation tax on chargeable gains. The computational steps for chargeable gains are broadly aligned with CGT principles, but company‑specific rules apply (including the corporate intangible fixed assets regime). Indexation allowance for companies was frozen for expenditure incurred up to 31 December 2017 and does not apply thereafter. Companies may also access group relief mechanisms for gains and losses.

Key Term: corporation tax on chargeable gains
Companies are subject to corporation tax, not CGT, on gains made from the disposal of chargeable assets.

Non-Resident Persons

Non‑residents are generally not liable to UK CGT except in relation to UK land and property, and certain other UK assets. Since April 2019, the scope for non‑residents includes disposals of UK land (direct disposals) and indirect disposals of interests in property‑rich entities. Reporting and payment timelines differ from the usual self‑assessment cycle. Anti‑avoidance provisions can bring into charge gains realised during a period of temporary non‑residence if the individual returns to UK residence within the statutory window.

Key Term: non-resident
A person not resident in the UK for tax purposes. May be liable to CGT on UK land and property, but not on worldwide gains.

Practical Application: How Liability Arises

CGT liability arises when a chargeable person disposes of a chargeable asset and makes a gain. The rules differ depending on the type of person or entity. A clear workflow helps: identify the chargeable person; determine residence and scope; confirm the disposal; compute the basic gain; apply allowable expenditure and relevant reliefs; then apply the annual exemption and the appropriate rate(s). Rates, thresholds and reporting deadlines change periodically; always check current HMRC guidance.

Individuals (Practical Application)

A UK‑resident individual is taxed on all gains, wherever the asset is situated, subject to reliefs (for example, principal private residence relief on a main home, business asset disposal relief where applicable). A non‑resident is taxed only on UK land and property, and certain indirect disposals of property‑rich entities, with anti‑avoidance for temporary non‑residence. Non‑domiciled individuals claiming the remittance basis may limit foreign gains to remittances, subject to the remittance basis charge and other conditions.

Partnerships and LLPs (Practical Application)

Each partner or member is taxed on their share of the gain, as if they had disposed of their share of the asset directly. The partnership computes the overall gain and allocates it to partners in the agreed proportions. Individual partners then apply their own reliefs and annual exemption. For corporate partners, CT rules apply to their allocated share. Documented profit‑sharing arrangements are important to allocate capital gains correctly.

Trustees and Personal Representatives (Practical Application)

Trustees are taxed on gains made by the trust, with trust‑specific rates and a lower annual exemption than for individuals. Transfers out of a trust can attract specific reliefs (for example, hold‑over relief for certain business assets). Personal representatives compute gains on disposals during administration using the probate value as the acquisition cost; beneficiaries acquiring assets from the estate take them at the PRs’ base cost when the PRs make no disposal.

Companies (Practical Application)

Companies pay corporation tax on chargeable gains. The calculation is similar to CGT but with corporate adjustments (e.g. indexation allowance up to December 2017, intangible fixed assets regime). Companies may benefit from group relief and intra‑group transfers on a no‑gain/no‑loss basis, subject to conditions. The tax rate depends on corporate CT rates in force for the relevant financial year.

Worked Example 1.1

A UK-resident partnership sells an investment property for a gain of £30,000. There are three equal partners. Who is liable for the tax, and how is it calculated?

Answer:
Each partner is taxed individually on £10,000 (one-third of the gain). The partnership itself is not taxed as an entity.

Worked Example 1.2

A UK-resident company sells shares in another company and makes a gain. Is the company liable to CGT or corporation tax?

Answer:
The company is liable to corporation tax on the chargeable gain, not CGT.

Exam Warning

For SQE1, do not confuse the treatment of companies and individuals. Companies pay corporation tax on chargeable gains, not CGT. Partnerships are transparent for CGT—each partner is taxed individually. Watch for LLPs: tax transparency applies, but corporate members pay corporation tax on their share.

Residence and Domicile

Residence status is critical for determining CGT liability. Domicile may also be relevant, especially for non‑domiciled individuals claiming the remittance basis. The statutory residence test determines residence by reference to UK days and relevant ties. A UK‑resident individual is within scope on worldwide gains. A non‑resident individual is within scope on UK land and property, and certain indirect disposals of property‑rich entities. Temporary non‑residence rules can tax gains realised while non‑resident if residence resumes within the required timeframe. Non‑domiciled individuals who are UK‑resident may claim the remittance basis (subject to eligibility) so that foreign gains are taxed only if remitted.

Worked Example 1.3

Sophie is UK-resident and domiciled. She sells a French holiday home for a gain. Is she liable to UK CGT?

Answer:
Yes. As a UK-resident, Sophie is liable to UK CGT on worldwide gains, including the French property.

Worked Example 1.4

Arun is UK‑resident but non‑domiciled and claims the remittance basis. He realises a gain on the sale of shares in an overseas company and does not remit the proceeds to the UK. Does UK CGT apply?

Answer:
Generally no. On the remittance basis, foreign gains are chargeable only if remitted to the UK. UK‑source gains remain within charge. Eligibility, charges and record‑keeping must be checked.

Worked Example 1.5

An LLP sells a warehouse for a gain of £60,000. It has two members: Emma (an individual) and Delta Ltd (a company), each entitled to 50%. Who is liable, and under which tax regime?

Answer:
Emma is liable to CGT on £30,000. Delta Ltd is liable to corporation tax on chargeable gains on its £30,000 share. The LLP itself is transparent for tax.

Worked Example 1.6

A personal representative sells quoted shares from an estate for more than probate value. Is CGT due, and on whom?

Answer:
CGT is due on the estate’s gain realised by the personal representative. The PR uses probate value as the base cost. There is no CGT on death; CGT arises on PR disposals during administration.

Summary Table: Chargeable Persons and Entities

Key Point Checklist

This article has covered the following key knowledge points:

• The definition of chargeable persons and entities for UK capital gains tax
• Individuals are liable to CGT on worldwide gains if UK-resident
• Partnerships and LLPs are transparent for CGT; partners are taxed individually
• Trustees and personal representatives are chargeable persons for CGT on trust or estate gains
• Companies pay corporation tax on chargeable gains, not CGT
• Residence status determines the scope of CGT liability for individuals
• Non-residents are generally only liable to CGT on UK land and property
• Corporate members of LLPs pay corporation tax on their allocated gains
• Remittance basis and temporary non‑residence can affect the scope of charge for individuals
• Rates, thresholds, and reporting deadlines change; check current HMRC guidance

Key Terms and Concepts

• chargeable person
• residence
• partnership (for CGT)
• limited liability partnership (LLP)
• trustee
• personal representative
• corporation tax on chargeable gains
• non-resident