13. TC - Chargeable gains for individuals

Question 1

What is the scope of CGT?

i.e. what is it charged on?

Answer 1

Charged on gains arising on chargeable disposals of chargeable assets by chargeable persons

Question 2

What is a chargeable disposal?

Answer 2

Sale or gift of all/part of an asset
Excludes:
- Gifts to charities 
- Bequests on death
- Assets transferred between spouses

Question 3

Give some examples of things that are exempt from chargeable disposals

Answer 3

Excludes:

• Gifts to charities
• Bequests on death
• Assets transferred between spouses

Question 4

Which assets are chargeable assets?

Answer 4

All assets (both tangible and intangible) uses specifically exempt

Question 5

Who is a chargeable person?

Answer 5

Any individual who is a resident in the UK

Question 6

Give some examples of exempt assets

Answer 6

• Cash
• Cars
• Gilt edged securities and qualified corporate bonds
• National savings CERTIFICATES
• Premium bonds
• Prize winnings and betting winnings
• Assets held in ISAs
• Wasting chattels (life < 50 yrs)
• Non-wasting chattels bought and sold for < £6k
• Medals awarded for valour

Question 7

What is the pro forma used for all disposals by an individual?

Answer 7

Gross proceeds X
Less: incidental costs of disposal (X)

Net disposal consideration = X
Less :
allowable expenditure (X)
Cost of acquisition (X) 
Incidental costs of acquisition (X) 
Enhancement expenditure (X)

Chargeable gain/ (allowable loss) X / (X)

Question 8

What is usually used in the disposal consideration?

Answer 8

Generally the proceeds received for the asset
However, MV should be used when the sale was not made at arms length (e.g. a gift)

Incidental costs of disposal can be deducted E.g. auctioneers/ estate agent’s fees

Question 9

What is used as cost of acquisition and what is included in the acquisition cost of an asset?

Answer 9

Purchase price if bought
MV if gifted (unless Gift relief was claimed)
Probate value if inherited

Incidental costs of acquisition may also be included (legal fees, surveyors fees)
Enhancement expenditure is also allowable (e.g. new extensions, architects fees)

Question 10

What is the capital gains tax pro forma?

Answer 10

Gain on asset 1 (W1) X
Gain on asset 2 (W2) X
Loss on asset 3 (W3) (X) 
Chargeable gains X
Annual exempt amount (X) 
Taxable gain X

Question 11

How is AEA treated in a tax comp?

Answer 11

It is deducted from total chargeable gains to calc the taxable gain for the year

Question 12

Can AEA be rolled forward?

Answer 12

AEA not used in the TY is wasted

Question 13

What is AEA for individuals?

Answer 13

£12,000 for a tax year

Question 14

What is the tax rate for CGT for non residential property?

Answer 14

taxable gains other than on residential property that fall into unused basic rate band = 10% 
Taxable gains (other than on residential property) over BRB is taxed at 20%

Question 15

When is the payment date for CGT?

Answer 15

31 Jan following the end of the tax year

Question 16

When can an election be made to pay CGT in instalments?

What are the instalments

Answer 16

Can elect to pay in 10 equal yearly instalments starting on normal due date

But only if the gain arose from a gift of:

• Land
• Shares in a company out of a controlling holding
• An shares in an unquoted company

Question 17

What is the disadvantage of paying CGT in instalments

Answer 17

Interest will normally be chargeable on the outstanding balance

Question 18

What are the taxable gains rates on residential property?

Answer 18

Unused basic rate band = 18%

Any in excess of basic rate band = 28%

Question 19

When is residential property excluded from taxable gains?

Answer 19

If a residential property has been an indivs principal private resident (PPR) a gain may be fully/partially exempt

Any remaining gain not covered by PPR is then taxable at the residential property rates

Question 20

When do capital losses arise?

Answer 20

If the total allowable costs exceed the net proceeds

Question 21

How are capital losses treated?

Answer 21

Current year capital losses must be deducted from any current year capital gains

As much current year capital loss as possible must be offset, which may lead to annual exempt amount being wasted
Any excess capital losses are carried forward against future chargeable gains

Question 22

How are capital losses from the current year treated?

Answer 22

Current year capital losses must be deducted from any current year capital gains

As much current year capital loss as possible must be offset, which may lead to annual exempt amount being wasted
Any excess capital losses are carried forward against future chargeable gains

Question 23

How are capital losses b/f treated

Answer 23

They are deducted after current year capital losses and AEA
Must be offset against first available net gains

If the gains are already covered by AEA, then no capital losses b/f will be offset and they will continue to be carried forward

Question 24

How can tax planning be used for capital gains?

Answer 24

As the AEA, a tax payer can offset their capital losses against whichever gain he or she chooses

To maximise the loss relief any loss should firstly be offset against residential property gains, as they are taxable at higher rates than other gains

Question 25

How are assets transferred between spouses dealt with?

Answer 25

Husband and wife are taxable as separate indivs When assets are transferred (usually gifted rather than sold) between married couples, no capital gain or loss arises: known as Nil Gain or Nil Loss (NGNL) Transferor is deemed to dispose of the asset at its acquisition cost Any actual proceeds are ignored- deemed proceeds of the transferor are treated as the deemed acquisition cost (base cost) for the transferee Rules only apply whilst spouses live together

Question 26

What does NGNL stand for and when does it occur?

Answer 26

When assets are transferred (usually gifted rather than sold) between married couples, no capital gain or loss arises: known as Nil Gain or Nil Loss (NGNL) Transferor is deemed to dispose of the asset at its acquisition cost Any actual proceeds are ignored Only apply when couples live together

Question 27

How can NGNL rules be used to minimise capital gains tax?

Answer 27

- Utilisation of both annual exempt amounts - Utilisation of unrelieved capital losses - Utilisation of both basic rate bands

Question 28

Who is a trustee of a settlement connected to?

Answer 28

The trust settlor and anyone connected with the settlor

Question 29

Give some examples of individuals that individuals are connected to

Answer 29

- Spouse/ civil partner - Relatives (bothers, sisters, ancestors and direct descendants) and their spouses/civil partners - Spouses/civil partner's relatives and their spouses/civil partners - Business partners and their spouses/ civil partners and relatives

Question 30

What are the deemed proceeds for a disposal between connected persons not covered by the NGNL rules?

Answer 30

i.e. if they are not to a spouse/civil partner | Deemed proceeds = MV at the date of disposal (regardless of any actual consideration received)

Question 31

What can a loss incurred on a disposal to a connected person be offset against?

Answer 31

Loss can only be offset against gains made on disposals to the same connected person in the same or future tax years

Question 32

Define a chattel

Answer 32

A chattel is an item of tangible moveable property e.g. picture/table Can be classified as wasting or non wasting

Question 33

Describe wasting chattels Expected life Examples Tax treatment

Answer 33

EL: not exceeding 50 years Examples: Greyhound, boat, watch Tax treatment: Exempt from CGT

Question 34

Describe non wasting chattels Expected life Examples Tax treatment

Answer 34

EL : Over 50 years Examples: Antiques, jewellery, paintings Tax treatment: Special rules depending on purch and sale value

Question 35

What is the tax treatment if: Cost = under £6k Proceeds = under £6k

Answer 35

Exempt

Question 36

What is the tax treatment if: Cost = over £6k Proceeds = under £6k

Answer 36

Deemed gross proceeds = £6k

Question 37

What is the tax treatment if: Cost = under £6k Proceeds = over £6k

Answer 37

Lower of: normal gain 5/3 x (gross proceeds- 6k)

Question 38

What is the tax treatment if: Cost = Over £6k Proceeds = over £6k

Answer 38

Normal gain

Question 39

TYU10: What are the chargeable gains on the following Pearl Necklace Proceeds £10k Cost £900

Answer 39

proceeds £10k less cost £(900) Gain £9,100 Restricted to 5/3 x (10k - £6k) = £6,667

Question 40

TYU10: What are the chargeable gains on the following Painting Proceeds (deemed) £4k Cost £8k

Answer 40

``` Proceeds = £6k Cost = £8k Loss = £(2K) ```

Question 41

TYU10: What are the chargeable gains on the following Mling vase Proceeds £30k Cost £12.5k

Answer 41

Proceeds £30k Cost = £(12,500) Gain = £17,500

Question 42

TYU10: What are the chargeable gains on the following Greyhound Proceeds £12k Cost £4k

Answer 42

Wasting chattel, so exempt

Question 43

What are matching rules used for?

Answer 43

When shares are sold from a SH that has built up over time it is necessary to have identification (matching) rules to determine which shares are being sold in order to work out the allowable cost to use in the CGT comp

Question 44

How are shares matched when they are old?

Answer 44

Match shares disposed of against same company shares acquired as follows: 1. Shares acquired on the same day as the disposal 2. Shares acquired within the following 30 days of the disposal on FIFO basis 3. s104 pool: shares bought prior to the disposal date One the matching rules have been applied, we separately calc the gain on each tranche of shares identified as having been sold

Question 45

How are shares matched when they are old?

Answer 45

Match shares disposed of against same company shares acquired as follows: 1. Shares acquired on the same day as the disposal 2. Shares acquired within the following 30 days of the disposal on FIFO basis 3. s104 pool: shares bought prior to the disposal date One the matching rules have been applied, we separately calc the gain on each tranche of shares identified as having been sold

Question 46

How are bonus issues treated when matching shares?

Answer 46

Add the extra shares to s104 pool at nil cost

Question 47

How are bonus issues treated when matching shares?

Answer 47

Add the extra shares to s104 pool at nil cost

Question 48

What is a rights issue?

Answer 48

Where existing SH buy shares at a preferential rate

Question 49

How are rights issues treated when matching shares?

Answer 49

Added to the s104 pool at their cost

Question 50

How are gifts of quoted shares treated?

Answer 50

the MV of the shares at the date of the gift (the deemed proceeds) is calculated as: Lower quoted price + 1/2 (higher quoted price - lower quoted price)

Question 51

TYU18: Mr Baracus gifts 10k shares in Peck plc to his daughter The shares were quoted at 280p- 296p on the date of the gift calc the values of shares transferred for CGT purposes.

Answer 51

Value of each share gifted - average quoted price = (Highest quoted price + lowest quoted price ) x 1/2 = ( £2.96 + £2.80 ) x 1/2 = £2.88 Value of gifted shares = £2.88 x 10,000 = £28,800 Mr B will use £28,800 as the proceeds in his CGT This will also be the deemed cost for his daughter when she disposes of the shares