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TC > 16. TC - CGT Reliefs > Flashcards

16. TC - CGT Reliefs Flashcards

1
Q

What is rollover relief also known as?

A

Replacement of business asset relief

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2
Q

What does roll over relief do?

A

Allows the gain arising on the disposal of a qualifying business asset to be rolled over (deferred) when the sale proceeds are reinvested in new qualifying business assets within the qualifying time period

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3
Q

When can roll over relief be claimed?

A
  • When the old and replacement assets must be qualifying business assets
    i.e. goodwill (not for companies)
    land and buildings
    fixed P&M i.e. not moveable
  • The replacement asset must be purchased within a period beginning one year before and ending 3 years after the date of sale of the old asset
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4
Q

How is the gain rolled over in rollover relief?

A

Gain is rolled over by deducting the deferred gain arising on the disposal of the old asset from the acquisition cost of the new asset
The result is known as the base cost of the second asset

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5
Q

Who is rollover relief available to?

A

Available for companies and individuals

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6
Q

How does a deferred gain arise?

A

The deferred gain arises on the disposal of new asset by increasing the gain arising on the disposal of the replacement asset, as its base cost has been reduced by the rollover relief claimed

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7
Q

What is the deadline for claiming rollover relief?

A

Must be claimed within the later of

  • 4 years of the end of the tax year (acc period for companies) in which the gain is realised
  • 4 years of the end of the tax year (acc period for companies) in which the new asset is required
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8
Q

When is full rollover relief available?

A

Only available when all of the proceeds from the sale of the old asset are reinvested

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9
Q

When is full rollover relief not available?

And how is the partial gain calculated?

A

If only some of the proceeds have been reinvested part of the gain is chargeable at the time of the disposal

Gain which is chargeable (can’t be rolled over) is the lower of

  • the amount of proceeds not reinvested
  • the full gain
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10
Q

How does a non-business use asset affect rollover relief ?

A

If an asset has been used for business and non-bus purposes, only the gain relating to the bus proportion is eligible for rollover relief

Similarly if the replacement asset is used early for business purposes and partly for non-bus purposes, the relevant replacement cost is only the business proportion

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11
Q

What is a depreciating asset ?

A

An asset with an expected life of no more than 60 years, for example fixed P&M or a lease with no more than 60 years left to run

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12
Q

What happens if a gain is rolled over into a depreciating asset?

A

The gain isn’t deducted from the cost of the asset acquired, it is deferred until the earliest of

  • disposal of dean asset
  • 10 years from acquisition of depn asset
  • the date the dep’n asset ceases to be used in the trade
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13
Q

What can be done with a deferred gain rolled over against the cost of a depn asset?

A

It can be rolled into a non-depreciating asset if the non-depreciating asset is acquired before the gain becomes chargeable

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14
Q

What is gift relief?

A

The gift of an asset gives rise to a CGT liability for the donor, but the donor has not received any funds with which to pay the tax

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15
Q

What does gift of business assets relief allow?

A

Allows the gain to be held over (deferred) until the asset is eventually sold by the donee

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16
Q

What assets is relief available on the gift by an individual?

A
  • Unquoted trading shares/ securities
  • Assets used in the trade of the donor (i.e. where he is a sole trader) or the donor’s personal company
  • Shares/ securities of donor’s personal company, where it is a trading company
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17
Q

What is a donor’s ‘personal company’ for the purposes of gift relief?

A

A company is one in which they have at least 5% of the voting rights

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18
Q

When must a joint claim be made?

A

Must be made within 4 years of the end of the tax year in which the gift takes place

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19
Q

How does the operation of the gift relief work for the donor?

A
  • Gain calculated using market value as proceeds

- The gain is not chargeable but is deducted from the acquisition cost for the donee

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20
Q

How does the operation of the gift relief work for the donee?

A
  • Acquisition cost deemed to be MV

- The gain accruing to the donor is deducted from the acquisition cost to obtain the base cost

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21
Q

How does gift relief applies to sales at undervalue?

A

Applies not just on outright gifts, but also to sales at undervalue where there is an element of gift

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22
Q

How is gift relief dealt with when a sale is made undervalue?

A

Market value is still used as proceeds

But the relief is modified as follows

  • Any actual proceeds received which exceed the original cost of the asset are chargeable to CGT at the date of the gift
  • the gift relief available is reduced by the chargeable amount
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23
Q

TYU6: Glenn sold a freehold stop to his grandson, Paul, for £180k
The shop had cost £150k 5 years ago, the current MV is £480k
Glenn and Paul make a joint GR claim
Calc the chargeable gain arising for Glenn and the base cost of the shop for Paul

A 
Glen: 
Sale at undervalue - gain for Glenn 
Proceeds = MV   £480k 
Less: cost   £(150k)
Gain: = £330k
Less GR (bal fig) £(300k)
Chargeable gain (W) £30k

Working:
Actual costs £180k
Less: cost £(150k)
Chargeable gain: £30k

Base cost for Paul
MV of asset acquired £480k
Less: GR £(300k)
Base cost = £180k

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24
Q

Where the assets being gifted are shares in the donor’s personal company, what is the gain eligible restricted to?

A

Total gain x CBA/CA

Where

  • CBA = MV of chargeable business assets of company
  • CA = MV of chargeable assets
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25
Q

What are the qualifying disposals for ER?

A
  • All or part of an unincorporated trading businesses

- Assets of a business within 3 years of ceasing trade

26
Q

What is a personal trading company for entrepreneurs relief?

A
  • Owns at least 5% of the ordinary share capital, giving them at least 5% of the voting rights
  • Is entitled to at least 5% of the profits available for distributed and 5% of the distributable assets on a winding up
  • Is entitled to at least 5% of the proceeds in the event of a company sale
27
Q

How long must an asset have been held to apply for entrepreneur’s relief?

A
  • On disposals before 1 April 2019, the above qualifying asset must have been held for at least 12 months
  • Extended to 24 months for disposals on or after 1 April 19
28
Q

What is the deadline for claiming ER?

A

Must’ve been claimed within 12 months from 31 January following the tax year in which the qualifying disposal is made

29
Q

How is entrepreneurs relief calculated?

A
  • Net off gains and losses on the sale of the business (unless the asset in question is shares in a personal trading company)
  • Deduct losses and the annual exempt amount (these should be allocated to gains that don’t attract entrepreneurs’ relief at 10%
  • ER gains use the remaining basic rate band before other gains, so any other gains in the tax year are likely to be taxed at 20%
30
Q

Why is entrepreneur’s relief where the company ceases to be an individual’s personal company?

A

An indiv who holds at least 5% of the ordinary share capital may find their SH diluted after an issue of further shares
So to minimise the loss of ER, HMRC allows the indiv to make an election under certain circumstances

31
Q

What is the treatment for

entrepreneurs relief where the company ceases to be an indiv personal company?

A
  • On issue of new shares a notional gain is worked out based on MV of the shares at the share issue (i.e. the indiv is deemed to have sold their shares and then immediately reacquired them)
  • The notional gain will qualify for ER and a further election can be made to defer until the future disposal of shares
  • The base cost of the shares going forward is the MV at the date the new shares were issued
  • On the later disposal of shares two gains will arise with the notional gain qualifying for ER
32
Q

Can you claim gift relief and entrepreneur’s relief?

A

Yes they can
But gift relief must be claimed first

If the gain left in charge to tax after gift relief is covered by the AEA and BRB then entrepreneurs relief should not be claimed as no tax will be saved, but the gain will count towards the lifetime limit

33
Q

When should entrepreneurs relief NOT be claimed even though it is available (along with gift aid relief)?

A

If the gain left in charge to tax after gift relief is covered by the AEA and BRB then entrepreneurs relief should not be claimed as no tax will be saved, but the gain will count towards the lifetime limit

34
Q

When is entrepreneur’s relief available on shares?

A

Only available on the disposal of shares if the shares are in the indivs personal company (they hold 5% of the shares) and they are also an officer or e’ee of the company

35
Q

What is investors’ relief?

A

From 6 April 2016, it is also available which extends the benefits of entrepreneurs relief to certain investors who wouldn’t meet the conditions for entrepreneurs’ relief

36
Q

What does investors’ relief apply to?

A
  • Unlisted ordinary shares in the trading company (including AIM shares)
  • Subscribed for (i.e. newly issued shares) on/after 17 March 2016
  • Which have been held for a minimum period of 3 years starting on 6 April 2016
  • by an indiv who is not an e’ee or officer of the company
37
Q

What are the earliest disposals available for investors’ relief?

A

19/20 is the earliest as

  • Unlisted ordinary shares in the trading company (including AIM shares)
  • Subscribed for (i.e. newly issued shares) on/after 17 March 2016
  • Which have been held for a minimum period of 3 years starting on 6 April 2016
  • by an indiv who is not an e’ee or officer of the company
38
Q

What is the limit subject to investors’ relief?

A

Investors relief is subject to a separate lifetime limit of £10m of qualifying gains

39
Q

Does a gain arise on the disposal of an individuals’ principal private residence?

A

NO gain

40
Q

What does PPR stand for?

A

Principal private residence

41
Q

What is an individual’s principal private residence?

A
  • Dwelling house (normally up to half a hectare of adjoining land)
  • Which has at some time during the period of ownership been his or her only or main private residence
42
Q

How many PPR’s can an indivs have?

A

Can only have 1

Partners can only have 1 PPR between them

43
Q

What can be done where an indiv or couple own more than one property?

A

They can elect for which one is the PPR
Must be done
- Within 2 years of the acquisition of the second property
- within 2 years of marriage (if both spouses owned a property prior to marriage)

44
Q

When does PPR relief apply?

A

Where the principal private residence has been occupied for either the whole or part of the period of ownership

Where throughout: Gain is exempt

For part of ownership: calc gain, PPR relief may reduce the gain

45
Q

What must be done with PPR relief where there has been a period of absence?

A
  • Calc the gain (before capital losses) on the property
  • Compute the total period of ownership
  • Calc the periods of deemed and actual occupation
  • Calc the PPR exemption as follows: gain x periods of occupation/ total period of ownership
46
Q

What is the calculation for PPR exemptions?

A

Gain x periods of occupation/ total period of ownership

47
Q

What is the period of deemed occupation?

A

As long as the property was at some time the individual’s only or main residence, the final period of ownership is always treated as a period of deemed occupation

48
Q

What is the final period of ownership?

A

The last 18 months of ownership (36 months for people who are disabled or in a care home)

49
Q

When does PPR exemption apply for the final period of ownership?

A

Exempt for that period even if another PPR is owned during the final period

50
Q

When does PPR exemption apply for the final period of ownership?

A

Exempt for that period even if another PPR is owned during the final period

51
Q

Give some examples of periods of non-occupation that may be classed as deemed occupation

A

Up to 3 years absence for any reason
Any period spent working abroad
Up to 4 years of absence whilst working in the UK

52
Q

Whats are the conditions for when periods of non-occupation may also be classed as deemed occupation for up to 3 years of absence for any reason

A
  • Must be preceded and followed by a period of actual occupation
  • Must not have a mother PPR during this time
  • Property can be let during absence
53
Q

Whats are the conditions for when periods of non-occupation may also be classed as deemed occupation for any period spent working abroad?

A
  • Must be preceded and followed by a period of actual occupation
  • Unless prevented from reoccupying by employer
  • Must not have another PPR during this time
  • Property can be let during absence
54
Q

Whats are the conditions for when periods of non-occupation may also be classed as deemed occupation for up to 4 years of absence whilst working in UK

A
  • Must be preceded and followed by a period of actual occupation
  • Unless prevented from reoccupying by employer
  • Must not have another PPR during this time
  • Property can be let during absence
55
Q

How is PPR relief affected when they have some private use?

A

PPR relief is only available for a part of a property which has been used exclusively for business purposes

56
Q

When is final period exemption not available?

But when is it available?

A

No final period (last 18 months) exemption is available if the business part of the property has always been used for business purposes

But if the bus part has in the past been used for non-bus use, the final period exemption does apply even if that part of the property was used for business purposes during the last 18 months of ownership

57
Q

TYU12: Noel owns a house for 80 months. 1/3 of the house is used exclusively for business purposes throughout the period of ownership

Noel sells the house and makes a gain of £45,000

State the amount of PPR relief available

A

PPR: 2/3 x £45,000 = £30k

There is no PPR relief for the business part (including the last 18 months of ownership)

58
Q

When does letting relief apply?

A

When the owner is absent from the property and lets the house out

The owner lets part of the property whilst still occupying the remainder

59
Q

What does letting relief NOT apply to?

A

Let property which is not the owner’s PPR e.g. buy to let properties

60
Q

What amount of letting relief is available?

A

Lower of

TC (25 decks)

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