9: Capital Gains Tax

Question 1

What is CGT and who does it apply to?

Answer 1

Charges on gains arising on chargeable disposals of chargeable assets by chargeable persons

Lots of exceptions

Chargeable persons
- individuals
- companies though corp tax

Exempt
- charities

Question 2

Three kind of exemptions to worry about for CGT?

Answer 2

Exempt person

Exempt asset

Exempt disposal!

Question 3

What are the exempt assets?

Answer 3

Cash
Motor cars
Gilted securities and qualifying corporate bonds
National Savings Certificates
Premium bonds
Prizes and betting winnings
Assets held in ISAs
Chattels of types (wasting)
Main residence

Question 4

What are the four chargeable disposals?

Answer 4

Sale
Gift
Exchange
Loss or destruction

(To a charity)
(On death)
(Between spouses or civil partners)
(To an art gallery)

Question 5

What is the date of disposal?

Answer 5

When the contract is made

OR

If the contract is made, when it becomes unconditional (ie. contracts were exchanged).

Question 6

What is a chargeable gain and a taxable gain?

Answer 6

Chargeable gain is a gain stated before the annual exemption amount has been deducted

Taxable is after

Question 7

What is the annual exempt amount?

Answer 7

£6,000 a year

Question 8

How to calculate the rate of CGT?

Answer 8

Gains falling into BRB (under 37,700) - 10%

Gains in excess of BRB (over 37,700) - 20%

Question 9

Write out everything in a disposal pro forma?

Answer 9

Disposal consideration

Less:
Incidental costs of disposal
Costs of acquisition
Incidental costs of acquisition
Enhancement expenditure

Chargeable gain
Less: annual exempt amount
Taxable gain

Remember: repairs and redecoration are not allowable costs!

Question 10

What is ‘disposal consideration’?

Answer 10

The proceeds received an asset

HOWEVER, if the disposal is not made at arm’s length (ie. a gift), the market value must be used.

Question 11

What is ‘acquisition cost’?

Answer 11

The purchase cost of the asset. But:

• if the asset was inherited, the market value at death should be used.
• if the asset was a gift, the market value at the date of the gift should be used

Question 12

What are chattels?

Answer 12

Tangible moving property.

Not a building, not shares

Question 13

What are wasting chattels?

Answer 13

Expected life is under 50 years

Caravan, boat, animals, plant and machinery

Exempt from CGT

Question 14

What are non-wasting chattels?

Answer 14

Expected life over 50 years

Antiques
Jewellery
Paintings

Special rules apply!

Question 15

NWC: Proceeds and cost both under £6k?

Answer 15

Exempt

Question 16

NWC: proceeds and cost both over £6k?

Answer 16

Tax as normal

Question 17

NWC: proceeds under 6k, cost over 6k?

Answer 17

Marginal loss is restricted

Proceeds replaced by £6k

Question 18

NWC: proceeds over £6k, cost under £6k?

Answer 18

Marginal gain is restricted! Lower of:

Normal gain

(Proceeds - 6000) /3 x5

Question 19

How do you approach sets of non-wasting chattels?

Answer 19

Sets are groups of similar or complementary items that are worth more together than seperately

When only a bit is disposed of, you need to get the acquisition cost of just the bit disposed!

Cost x A/(A+B)

Cost x disposed (disposed + retained)

Question 20

What happens with disposals if sets to connected people?

Answer 20

Both assets are considered together with the £6000 rule

Question 21

Two equations to remember for CGT?

Answer 21

For marginal profit:
(proceeds - 6,000) /3 x5

For sets of chattels

Cost x A/(A+B)

A - disposed
B - retained

Question 22

Does stamp duty count as a cost towards disposal?

Answer 22

Yes!