10. TC - Chargeable gains for companies

Question 1

What is the pro forma is used to calc the chargeable gain on each asset?

Answer 1

Disposal proceeds X
Less: incidental disposal costs (X)

Net proceeds X
Less: allowable expenditure (X)

Unindexed gain X
Less: indexation allowance (X)

Chargeable gain X

Question 2

What are the differences for chargeable gains for companies and individuals?

Answer 2

Calc of chargeable gains is the same as for indivs except

• Companies receive an indexation allowance which gives relief for inflation between the month of acquisition and the month of disposal
• Companies are not entitled to an annual exempt amount
• The treatments of capital losses and shares and securities
• The only relief available to companies is rollover relief

Question 3

What is RPI?

Answer 3

Retail price index

Question 4

What is the RPI used for?

Answer 4

RPI is used to calc the inflation from purchase to disposal, gives an indexation actor

Question 5

What is the calculation for RPI?

Answer 5

(RPI for month of disposal - RPI in month of expenditure) / RPI in month of expenditure

Question 6

How do you round indexation factor?

Answer 6

Round to 3 decimal places

Question 7

What RPI is used for disposal indexation relief?

Answer 7

If sold after Dec 17, RPI for Dec 17 must be used in place of the month of disposal as it isn’t available after then

Question 8

When must separate calculations be done for an asset being disposed of and calculating indexation allowance?

Answer 8

If enhancement expenditure has been incurred a separate indexation actor needs to be calculated

Relevant indexation factor is then applied to each element of costs (incl incidental costs of purch) to give indexation allowance

Question 9

How is indexation allowance treated in the comp?

Answer 9

Indexation allowance is deducted from the gain but can’t create/increase a loss
Unused indexation allowance is lost

Question 10

How are capital losses treated?

Answer 10

They must be offset against current year chargeable gains (as for individuals)

Any remaining loss is carried forward and offset against future gains

No AEA for companies

As for individuals, losses can’t be carried back

Question 11

Can companies claim AEA?

Answer 11

No

They claim indexation allowance

Question 12

How are chargeable gains on shares dealt with?

Answer 12

Matching rules are used

Question 13

How are matching rules different for companies compared to individuals?

Answer 13

Where shares are sold by companies, they are matched against acquisitions in the following order

• Shares acquired on the same day as the disposal
• Shares acquired during the nine days before the disposal on a FIFO basis
• Shares in the s104 pool

Question 14

What is the s104 pool?

Answer 14

The s104 pool contains all of the shares bought more than 9 days before the sale
In a bonus or rights issue the new shares attach to the s104 pool

Question 15

When are indexation allowances not available on shares?

Answer 15

No indexation allowance is available on the shares acquired during the 9 days before the sale, even if the purchase was in the prev month

Question 16

How is indexation calculated for the s104 pool?

Answer 16

(without rounding the indexation factor) at each operative event up to Dec 17

Question 17

What is an operative event?

Answer 17

Occurs when shares are acquired (other than in a bonus issue) or sold

Question 18

What are the steps for calculating the indexation allowance on the s103 pool?

Answer 18

1. Record the first acquisition of shares
2. Index the pool up to the date of the next operative event (purchase or sale) but for those after Dec 17, only index up to Dec 17
3. Record operative event and total the indexed cost column
4. Repeat steps (2) and (3) until you have recorded the disposal of shares: applying the indexation factor to the indexed cost calculated in step (3)
5. Calc the cost and indexation allowance of the shares being sold

Question 19

What is the pro forma for a company’s share pool and gain calculation

Answer 19

Along the top
Number of shares
Cost
Indexed cost

Down the side
Purchase
Index to next operative event
Purchase

Index to next operative event

Sale
Pool balance carried foward

(W1) - Calculates average pool cost of shares disposed of
(W2) Calculates average indexed cost of shares disposed of

Chargeable gain: 
Sale proceeds X
Less: cost (w1) (X)
= Unindexed gain X  
Less: indexation allowance (w2 - W1) (X)
= Chargeable gain X

Question 20

Define a rights issue

Answer 20

Where existing SH buy shares at a preferential rate

Question 21

How are rights issues added to a portfolio for tax purposes?

Answer 21

They are added into the S104 pool

Question 22

When is a rights issue classed as an operative event?

Answer 22

One before Jan 2018

Question 23

What is a bonus issue?

Answer 23

Is an issue of free shares to existing SH in proportion to their existing holdings

Question 24

How are bonus issues added to a portfolio for tax purposes?

Answer 24

The extra shares are added to the S104 pool at nil cost

Question 25

What is a bonus issue considered to be for tax purposes? and why?

Answer 25

Considered to be reorganisation of capital, not an acquisition of shares
As there is no cost implication, this is not classified as an operative event

Question 26

When does a chargeable gain or loss not arise when disposing of shares?

Answer 26

When the disposal of a substantial shareholding in a trading company (or the holding company of a trading company) by another company

Question 27

What is a substantial shareholding?

Answer 27

A holding of at least 10% shares of the other company, which has been held for a continuous period of 12 months out of the 6 years immediately prior to disposal

Question 28

When are non-UK resident companies subject to UK corporation tax?

Answer 28

On gains that involve the disposal of

• UK residential property (after 5 April 15)
• UK non-residential property (after 6 April 19)
• Asset such s shares that derive at least 75% of their vale from UK land and buildings (after 6 April 2019)

Question 29

How are non-resident companies and gains taxed?

Answer 29

The base cost for the above disposals is the market value of the assets at 5 April 15/19
15 = residential property
19 = non-residential property
Alternatively an election can be made to calc the actual gain using the original cost

For residential property tis is then time apportioned for the period after 5 April 2015