2.2 Taxation - Capital Gains Tax

Question 1

Who may be charged with CGT?

Answer 1

Sole trader

• Offset chargeable gains
• Annual exemption

Partner

• Offset chargeable gains
• Annual exemption

Shareholders

• Asset sale > Profit
• Share sale

Question 2

How are asset disposals charged?

Answer 2

1) Asset
- Sale
- Gift
- Transfer
- Exchange

2) Proceeds
- Cash payable (current/later)
- Turn into cash
- Market value in exchange
- Value of right to receive future payments

3) Date of disposal > Correct tax year
- Unconditional contract > Contract date
- Conditional contract > Condition satisfied date
- Disposal of land and building > Exchange contract date

4) Profit > CGT

Question 3

How are gains from chattel disposals charged?

Answer 3

Tangible, moveable
- Paintings, cars, jewellery

Disposal proceeds < £6k => NO CGT

£15k > Disposal proceeds > £6k
=> CGT > Lower of
- Max chargeable gain ([Disposal proceeds - £6k] x 5/3)
- Actual gain (Disposal proceeds - Disposal expenses)

Question 4

How are gains from wasting assets charged?

Answer 4

Disposal > Business/Trade/Profession/Vocation

NOT tangible, moveable assets =< 50 years

NOT antiques

• Plant/Machinery
• Clocks, watches

Question 5

How are gains from estate charged?

Answer 5

PR sells deceased’s assets during admin

• NOT transfer
• NOT no sale

Question 6

What deductions are allowed for CGT?

Answer 6

PRs’ Disposal exemptions > Every 2 tax years

Main residence exemption
- PRs disposing property (Bens’ main residence) > Can claim deductions from individual taxpayer

Lower sale price used > CGT

• Disposal of shares/quoted securities within 1 year of death
• Disposal of land within 4 years of death

PRs’ losses during admin > Deduct from gains

Question 7

What type of exemptions and relief are available?

Answer 7

Annual exemptions

• PRs, trustees
• Total gains
• First £12,300 => NO CGT
• Any unused allowance => NOT carried forward to next year

Principal private residence relief

• Sale of X’s house (only one) + garden < 5,000 sqm
• Must have lived during ownership period
• NOT part exclusively used for business

Lettings relief

• Residential accommodation
• Ownership period (main residence) + 9 months => PPR
• Remaining period (lower of PPR/£40,000/chargeable gain due to letting) => Additional letting relief

Hold-over relief (donor > gift > donee)

• Until Donee disposes > NO CGT
• Donee diposes > CGT > Donee’s gain + Donor’s gain

Disposal between spouses
- NO CGT

Roll-over relief (replace business assets)
- Sale of asset > Business purpose > NO CGT

Business asset disposal relief
- Entrepreneurs
- Individual level
- First £1m gain
=> CGT (10%)

Investors' relief
- SHs (NOT employee/officer)
- Dispose ordinary shares (unlisted Co)
- Purchased on/after 17 March 2016
- Substituted for cash
- Held for 3 years
- Lifetime limit = £10m
=> CGT (10%)

Non-liable assets => NO CGT

• Private cars
• ISA shares
• Main home

Question 8

How must CGT be paid and collected?

Answer 8

1) Disposal of chargeable asset
- Date
- Sale of land/gift (NOT to charity/spouse)
- NOT death

2) Check > Gain/loss

Chargeable gain

• Consideration received LESS Acquisition costs LESS Subsequent deductible expenditure LESS index allowance (disposal on/before 5 April 2008) => CGT
• Individuals > Basic rate (10%); Higher rate (20%)
• Residential property (NOT PPR) > Basic rate (18%); Higher rate (28%)

Allowable loss
- Value at purchase > Value at sale => NO CGT

3) Deduct by exemptions + reliefs => Taxable gain

4) Collection
- Taxpayer (UK resident)
- Sells residential property
- In UK
=> Must report + pay CGT within 30 days > HMRC

Question 9

How does Tax Anti-Avoidance Regime (TAAR) apply?

Answer 9

1) WU > Distribution on/after 6 April 2016

2) Either
- Receiver had +5% interest in Co immediately before WU
- Co privately owned by less than 5 persons within 2 years ending w/ start of WU
- Receiver carries on same trade as CO within 2 years of distribution
- Reasonable to assume WU main purpose > Avoid/Reduce charge to income tax