4. Capital Gains Tax

Question 1

If an individual is UK resident, are they liable for CGT on all their assets, wherever situated?

Answer 1

Yes

Question 2

Disposals of what type of property is an exception to the general rule that non-UK residents are not liable for CGT in UK?

Answer 2

Disposals of interests in UK land, whether residential or commercial

Question 3

What are two types of assets which are exempt from CGT?

Answer 3

1. Wasting chattels
2. Non-wasting assets worth less than £6,000

Question 4

What is a wasting chattel?

Answer 4

Moveable property with a life of less than 50 years, excepting machinery used in business

Question 5

If an individual transfers an asset to their spouse, at what value is the spouse deemed to have acquired the asset at?

Answer 5

At the same cost as the donor spouse

Question 6

What is the requirement for expenditure which enhances the value of an asset to be deductible?

Answer 6

It must still form part of the asset when it is disposed

Question 7

What are the six reliefs available when calculating gains?

Answer 7

1. Private Residence Relief
2. Business Asset Disposal Relief
3. Hold Over (Gift) Relief
4. Replacement of Business Assets Relief
5. Incorporation Relief
6. Enterprise Investment Scheme Reinvestment Relief

Question 8

Under Private Residence Relief, what is the equation to calculate how much of the gain is exempt from CGT?

Answer 8

Gain x (period of occupation / period of ownership)

Question 9

For Private Residence Relief, the last how many months of ownership will be treated as deemed occupation, and what is the one condition for this to apply?

Answer 9

Nine months, regardless of how long the taxpayer lived there, as long as they occupied the property as their home for some time

Question 10

For Private Residence Relief, in addition to the last nine months no matter what, what are the three periods of absence which can qualify as deemed occupation if they punctuate periods of actual occupation, and can they apply cumulatively?

Answer 10

1. Any period of absence, up to three years, for any reason
2. Any period, with no limit, where the owner is abroad for employment
3. Any period, up to four years, where the owner is absent from the property due to working elsewhere (not abroad)

They can apply cumulatively.

Question 11

Disposal of what three types of assets qualify under Business Asset Disposal Relief?

Answer 11

1. All/part of trading business carried on as a sole trader/partner
2. Shares in a trading company if the individual owns at least 5% ordinary voting shares and was an officer/employee
3. Assets owned and used by the individual’s personal trading company

All must be for at least two years before disposal.

Question 12

Under Business Asset Disposal Relief, what is the CGT rate paid on qualifying assets, and what is the lifetime limit on this relief?

Answer 12

10%. £1 million lifetime limit.

Question 13

What is Hold Over (Gift) Relief?

Answer 13

Where an individual disposes of a business asset by giving it away, but donor and recipient agree to defer any gain on to the recipient, who when they dispose of the asset, will be treated as acquiring the gift at the donor’s cost basis

Question 14

What four types of business assets qualify for Hold Over (Gift) Relief?

Answer 14

1. Assets used for the purposes of trade or profession
2. Shares in an unquoted trading company
3. Shares in the donor’s personal company
4. Assets that qualify for agricultural property relief

Question 15

When is Replacement of Business Assets Relief available?

Answer 15

Where a sole trader or partner disposes of a qualifying business asset and reinvests the proceeds in other qualifying assets within one year before or three years after the initial disposal

Question 16

What are included as qualifying business assets for the purpose of Replacement of Business Assets Relief?

Answer 16

Land, buildings, and plant/machinery

Question 17

Under Replacement of Business Assets Relief, until when is the charge to CGT deferred?

Answer 17

Until the replacement asset is disposed of

Question 18

When does Incorporation Relief arise, and how does it operate?

Answer 18

When an individual transfers their sole trader or partnership interest to a company, part or all of the gain from the transfer is deferred by subtracting the acquisition cost of the company shares from the gain, which will then be taxed when the shares are disposed of

Question 19

How does Enterprise Investment Scheme Reinvestment Relief allow deferral of CGT liability?

Answer 19

If an individual reinvests any chargeable gain in shares of qualifying unquoted companies within one year before or three years after, the gain can be deferred until after the EIS shares are disposed of

Question 20

What is the only CGT relief available to companies as well?

Answer 20

Replacement of Business Assets Relief

Question 21

What is the most tax-efficient way to use the CGT annual exempt amount and why?

Answer 21

Put AEA toward gains on residential property first, as they carry rates of 18% and 28% compared to 10% and 20% for all other assets

Question 22

What is the order in which losses are offset against gains of the same year and utilisation of the AEA?

Answer 22

Losses are automatically offset, before the AEA is deducted

Question 23

What is the order in which losses which are carried forward are offset against gains and utilisation of the AEA of the year of gains?

Answer 23

Losses which are carried forward deducted after the AEA, such that the AEA is not wasted

(Opposite of same year/carry back)