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TC > 13. TC - Chargeable gains for individuals > Flashcards

13. TC - Chargeable gains for individuals Flashcards

1
Q

What is the scope of CGT?

i.e. what is it charged on?

A

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

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2
Q

What is a chargeable disposal?

A 
Sale or gift of all/part of an asset
Excludes:
- Gifts to charities 
- Bequests on death
- Assets transferred between spouses
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3
Q

Give some examples of things that are exempt from chargeable disposals

A

Excludes:

  • Gifts to charities
  • Bequests on death
  • Assets transferred between spouses
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4
Q

Which assets are chargeable assets?

A

All assets (both tangible and intangible) uses specifically exempt

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5
Q

Who is a chargeable person?

A

Any individual who is a resident in the UK

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6
Q

Give some examples of exempt assets

A
  • 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
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7
Q

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

A

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)

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8
Q

What is usually used in the disposal consideration?

A

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

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9
Q

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

A

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)

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10
Q

What is the capital gains tax pro forma?

A 
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
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11
Q

How is AEA treated in a tax comp?

A

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

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12
Q

Can AEA be rolled forward?

A

AEA not used in the TY is wasted

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13
Q

What is AEA for individuals?

A

£12,000 for a tax year

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14
Q

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

A 
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%
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15
Q

When is the payment date for CGT?

A

31 Jan following the end of the tax year

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16
Q

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

What are the instalments

A

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
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17
Q

What is the disadvantage of paying CGT in instalments

A

Interest will normally be chargeable on the outstanding balance

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18
Q

What are the taxable gains rates on residential property?

A

Unused basic rate band = 18%

Any in excess of basic rate band = 28%

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19
Q

When is residential property excluded from taxable gains?

A

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

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20
Q

When do capital losses arise?

A

If the total allowable costs exceed the net proceeds

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21
Q

How are capital losses treated?

A

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

22
Q

How are capital losses from the current year treated?

A

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

23
Q

How are capital losses b/f treated

A

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

24
Q

How can tax planning be used for capital gains?

A

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

25
Q

How are assets transferred between spouses dealt with?

A

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

26
Q

What does NGNL stand for and when does it occur?

A

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

27
Q

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

A
  • Utilisation of both annual exempt amounts
  • Utilisation of unrelieved capital losses
  • Utilisation of both basic rate bands
28
Q

Who is a trustee of a settlement connected to?

A

The trust settlor and anyone connected with the settlor

29
Q

Give some examples of individuals that individuals are connected to

A
  • 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
30
Q

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

A

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)

31
Q

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

A

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

32
Q

Define a chattel

A

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

33
Q

Describe wasting chattels
Expected life
Examples
Tax treatment

A

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

34
Q

Describe non wasting chattels
Expected life
Examples
Tax treatment

A

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

35
Q

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

A

Exempt

36
Q

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

A

Deemed gross proceeds = £6k

37
Q

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

A

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

38
Q

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

A

Normal gain

39
Q

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

A

proceeds £10k
less cost £(900)
Gain £9,100

Restricted to 5/3 x (10k - £6k) = £6,667

40
Q

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

A 
Proceeds = £6k 
Cost = £8k
Loss = £(2K)
41
Q

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

A

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

42
Q

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

A

Wasting chattel, so exempt

43
Q

What are matching rules used for?

A

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

44
Q

How are shares matched when they are old?

A

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

45
Q

How are shares matched when they are old?

A

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

46
Q

How are bonus issues treated when matching shares?

A

Add the extra shares to s104 pool at nil cost

47
Q

How are bonus issues treated when matching shares?

A

Add the extra shares to s104 pool at nil cost

48
Q

What is a rights issue?

A

Where existing SH buy shares at a preferential rate

49
Q

How are rights issues treated when matching shares?

A

Added to the s104 pool at their cost

50
Q

How are gifts of quoted shares treated?

A

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)

51
Q

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.

A

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

TC (25 decks)

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