10. TC - Chargeable gains for companies Flashcards
What is the pro forma is used to calc the chargeable gain on each asset?
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
What are the differences for chargeable gains for companies and individuals?
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
What is RPI?
Retail price index
What is the RPI used for?
RPI is used to calc the inflation from purchase to disposal, gives an indexation actor
What is the calculation for RPI?
(RPI for month of disposal - RPI in month of expenditure) / RPI in month of expenditure
How do you round indexation factor?
Round to 3 decimal places
What RPI is used for disposal indexation relief?
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
When must separate calculations be done for an asset being disposed of and calculating indexation allowance?
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
How is indexation allowance treated in the comp?
Indexation allowance is deducted from the gain but can’t create/increase a loss
Unused indexation allowance is lost
How are capital losses treated?
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
Can companies claim AEA?
No
They claim indexation allowance
How are chargeable gains on shares dealt with?
Matching rules are used
How are matching rules different for companies compared to individuals?
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
What is the s104 pool?
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
When are indexation allowances not available on shares?
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
How is indexation calculated for the s104 pool?
(without rounding the indexation factor) at each operative event up to Dec 17
What is an operative event?
Occurs when shares are acquired (other than in a bonus issue) or sold
What are the steps for calculating the indexation allowance on the s103 pool?
- Record the first acquisition of shares
- 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
- Record operative event and total the indexed cost column
- 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)
- Calc the cost and indexation allowance of the shares being sold
What is the pro forma for a company’s share pool and gain calculation
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
Define a rights issue
Where existing SH buy shares at a preferential rate
How are rights issues added to a portfolio for tax purposes?
They are added into the S104 pool
When is a rights issue classed as an operative event?
One before Jan 2018
What is a bonus issue?
Is an issue of free shares to existing SH in proportion to their existing holdings
How are bonus issues added to a portfolio for tax purposes?
The extra shares are added to the S104 pool at nil cost
What is a bonus issue considered to be for tax purposes? and why?
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
When does a chargeable gain or loss not arise when disposing of shares?
When the disposal of a substantial shareholding in a trading company (or the holding company of a trading company) by another company
What is a substantial shareholding?
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
When are non-UK resident companies subject to UK corporation tax?
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)
How are non-resident companies and gains taxed?
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
