3 - Capital Gains Tax (C)

Question 1

What is the most obvious factor when deciding if an asset is subject to income tax or CGT?

Answer 1

Income tax if the sales is a trade

Question 2

The sale of an asset soon after acquisition is an indicator of trade for income tax purposes, or sale for CGT purposes?

Answer 2

Trade

Question 3

The sale of repeated transactions is an indicator of trade for income tax purposes, or sale for CGT purposes?

Answer 3

Trade

Question 4

What does the case of Rutledge v. The Commissioners of Inland Revenue summarise?

Answer 4

That the sale of 1,000,000 toilet rolls was proven to be trade because there was no long term investment opportunity and Rutledge simply had “an adventure in the nature of trade”

Question 5

A forced sale to raise cash for an emergency is an indicator of trade for income tax purposes, or sale for CGT purposes?

Answer 5

Sale for CGT

Question 6

If a transaction is undertaken with the motive of realising a profit, this is a strong indication of trading for income tax purposes or sale for CGT purposes?

Answer 6

Trading most of the time, but can be for sale and therefore CGT, as people often buy capital assets with a view to making a profit.

Question 7

If assets are sold in the way trading goods are sold, for
example, if they are advertised or sales staff are employed, or a company is formed to acquire and sell them, is this an indication of trading for income tax purposes or sale for CGT purposes?

Answer 7

Trading

Question 8

If money is borrowed to buy the assets, which have to be
sold to repay the loan, then the transaction is more likely to be trading for income tax purposes of sale for CGT purposes?

Answer 8

Trading

Question 9

An asset acquired by inheritance or as a gift is likely to be trading for income tax purposes or sale for CGT purposes?

Answer 9

Sale for CGT

Question 10

Are all capital gains chargeable?

Answer 10

No, there are several exemptions

Question 11

What is the CGT annual exempt amount?

Answer 11

£6,000, reducing to £3,000 in 2024/35 tax year

Question 12

Can the CGT annual exempt amount be carried forward to other tax years if not used?

Answer 12

No

Question 13

What is a chattel?

Answer 13

A tangible/movable property

Question 14

What is the CGT treatment surrounding chattels?

Answer 14

If the value of disposal does not exceed £6,000, it’s CGT exempt.

Question 15

What is the CGT treatment surrounding chattels that are also a wasting asset, such as a yacht?

Answer 15

They have an expected lifespan of less than 50 years and are completely exempt of CGT

Question 16

If chattel disposal proceeds exceed £6,000, the chargeable gain cannot exceed how much?

Answer 16

Five-thirds of the excess over £6,000.

For example, if a ring costing £1,000 is sold for £7,800, the chargeable gain cannot exceed £3,000 ((£7,800 – £6,000) × 5 ÷ 3). Therefore, the chargeable gain is £3,000, rather than the ‘actual’ gain of £6,800.

Question 17

In which 2 circumstances are some assets completely free of CGT?

Answer 17

1. They are exempt assets
2. The gain is relieved wholly from tax

Question 18

Can allowable losses be claimed on CGT exempt assets?

Answer 18

No

Question 19

Name some disposals that are CGT exempt? (18)

Answer 19

1. Individuals private residence
2. Private motor car
3. NS&I savings certs and premium bonds
4. Bonds (gov and most corporate)
5. Gambling winnings
6. Compensation
7. Army medals (decorations for valour)
8. Foreign currency for personal use outside of UK
9. Debts repaid to creditor
10. ISA, JISA, CTF
11. VCT
12. EIS, SEIS (losses available however)
13. Woodlands
14. Cashback for inducement/enticement
15. Shares up to £50k (pre Dec 20216) and £100k (post Mar 2016) for e’ee shareholder agreements
16. Disposals to charity, museums, housing associations and some national institutions
17. Some assets of national interest (art, histroic houses)
18. Shares in share incentive plan

Question 20

Whats is the exemption called when an individuals private residence is CGT exempt? And under which conditions does it apply?

Answer 20

Private residence relief

1. You have one home
2. You’ve lived in it as your main home for all the time you’ve owned it.
3. You have not let part of it out - this does not include having a lodger.

Question 21

When is a house subject to CGT upon disposal?

Answer 21

When it’s not the individuals main residence (second home, holiday home etc.)

Question 22

What is the CGT treatment if an individual has not occupied their main residence for a period of time?

Answer 22

The part of time they didn’t occupy it, may be taxable:

Total gain x (period of occupation / total period of ownership)

Question 23

For identifying periods of occupation in someones main residence, for CGT purposes, which period of time in the past can be completely ignored? (4)

Answer 23

1. Any period before 1 April 1982
2. Last 9 months of occupation (36 months disabled persons or if moving into LTC)
3. Periods totalling up to three years’ absence if a period was both preceded and followed by a period of residence
4. Any period up to four years in total when employed away from home (within the UK) and any period without limit if working abroad - both must normally be preceded and followed by a period of occupancy.

Question 24

Anyone with more than one home can make an election to determine which home should be treated as the main residence. How soon should this be done?

Answer 24

Within 2 years of the acquisition of the additional property

Question 25

If you elect an additional property to become your main residence, how far can you backdate this?

Answer 25

Cannot be backdated more than 2 years

Question 26

How much do you get for letting relief:

a) Individual
b) Married couple, living in the same house as their tenant?

Answer 26

a) the lesser of, £40,000, or the same amount as the chargeable gain you made whilst letting out that part of your home

b) £80,000 (£40,000 each)

Question 27

Who could still be entitled to the letting relief is the homeowner died before the house was sold, and in what 2 circumstances?

Answer 27

Deceased person’s personal representatives.
- Property must have been occupied by the beneficiary before and after the death
- Beneficiary must be entitled to all of the proceeds of the sale

Question 28

Is letting relief available when parts of the house are used for both full time and part time business purposes?

Answer 28

Not for full time, but it can be used part time for business and part time for personal (i.e a writer who writes in the spare bedroom)

Question 29

Can letting relief be used when a gain arises on a property that was purchased wholly or partly for the purpose of making a gain?

Answer 29

No

Question 30

What is the CGT treatment on a life assurance product such as an investment bond?

Answer 30

Gains on life assurance investments – commonly known as investment bonds – are liable for income tax under the chargeable event rules rather than CGT.

Question 31

What is the CGT treatment on a private car?

Answer 31

Exempt

Question 32

What is the CGT rate for non-exempt residential property?

Answer 32

18% for basic rate taxpayers
28% for higher and additional rate taxpayers