3 - Capital Gains Tax (D)

Question 1

What are the 6 steps to calculating a capital gain?

Answer 1

1. SALE - Note down the sale price (disposal proceeds)
2. ACQUISITION - Minus the acquisition price
3. EXPENSES - Deduct costs of arranging the sale or purchase
4. LOSSES - Minus allowable losses, against gains taxable at highest rate first
5. AEA - Minus annual exempt amount
6. TAX - Calculate tax at appropriate rate

Question 2

How are the disposal proceeds arrived at on the following (either sale price or market price):
1. Commercial sale
2. Asset given away
3. Disposal to connected person (i.e family)
4. Not at arms length (i.e deliberately set below market value)

Answer 2

1. Sale price
2. Market value
3. Market value
4. Market value

Question 3

How is the acquisition cost arrived at on the following (either purchase price or market price):
1. Commercial sale
2. Acquired as a gift

Answer 3

1. Purchase price
2. Market value (unless holdover relief used, then donor’s acquisition cost)

Question 4

Incidental costs of sale and purchase of assets can be deducted such as what? (6)

Answer 4

L E S S S S
legal costs
estate agents’ fees
stockbrokers’ fees
stamp duty
stamp duty reserve tax
stamp duty land tax

Question 5

Are deductions allowed when calculating a capital gain, for the following expenditure on an asset for:
1. Enhancement (new extension)
2. Repairs (new roof)

Answer 5

Yes to enhancements, no to new roof

Question 6

Who is entitled to deduct indexation allowance?

Answer 6

Companies only

Question 7

Losses, once claimed, can be carried forward for how long?

Answer 7

Indefinitely, as long as the loss if registered within 4 years

Question 8

How soon do capital losses need to be claimed, even if you don’t want to use them yet?

Answer 8

Within 4 years of the end of the tax year in which they were made

Question 9

Can capital losses be allowable where the intention was to obtain a tax advantage?

Answer 9

No

Question 10

What is a clogged loss?

Answer 10

An allowable loss that can only be used against the gain involving the same connected party

Question 11

Which gains is it best to deduct allowable losses on, before calculating CGT?

Answer 11

The larger gains, as it’s more tax efficient.

Question 12

How are asset costs arrived at for pre-1982 acquisitions?

Answer 12

Market value as at 31 March 1982

Question 13

Which deductions are not allowed for pre-1982 acquisitions?

Answer 13

Acquisition costs (such as legal fees)
Enhancement expenditure