Capital gains tax was introduced in 1965.

It relates to chargeable gains in a 'year of assessment' accruing to individuals, personal representatives and trustees.

'Year of assessment' is a year ended on 5 April, for example 2004/2005 indicates the year of assessment ending on 5 April 2005.

A chargeable gain is computed by reference to the excess of the disposal (or deemed disposal) proceeds over the acquisition (or deemed acquisition) cost of an asset.

From 1982 to 1998 an allowance known as indexation allowance is available. This was introduced to take account of the effects of inflation. From March 1998, this is no longer available for individuals and personal representatives and has been replaced by taper relief whereby a chargeable gain is progressively reduced according to the length of time the asset has been held. There are more generous reductions available for business assets.

The current tax rate applicable to capital gains is the income tax rate where the capital gains are taken as the top slice of income after allowance for the annual exemption. The annual exemption for 2004/2005 is £8,200 for individuals and personal representatives.

As this tax has developed there have been a number of changes in the definitions and reliefs available, consequently it is essential to obtain professional advice when disposing of any capital assets.