9: Capital Gains Tax Flashcards
What is CGT and who does it apply to?
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
Three kind of exemptions to worry about for CGT?
Exempt person
Exempt asset
Exempt disposal!
What are the exempt assets?
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
What are the four chargeable disposals?
Sale
Gift
Exchange
Loss or destruction
(To a charity)
(On death)
(Between spouses or civil partners)
(To an art gallery)
What is the date of disposal?
When the contract is made
OR
If the contract is made, when it becomes unconditional (ie. contracts were exchanged).
What is a chargeable gain and a taxable gain?
Chargeable gain is a gain stated before the annual exemption amount has been deducted
Taxable is after
What is the annual exempt amount?
£6,000 a year
How to calculate the rate of CGT?
Gains falling into BRB (under 37,700) - 10%
Gains in excess of BRB (over 37,700) - 20%
Write out everything in a disposal pro forma?
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!
What is ‘disposal consideration’?
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.
What is ‘acquisition cost’?
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
What are chattels?
Tangible moving property.
Not a building, not shares
What are wasting chattels?
Expected life is under 50 years
Caravan, boat, animals, plant and machinery
Exempt from CGT
What are non-wasting chattels?
Expected life over 50 years
Antiques
Jewellery
Paintings
Special rules apply!
NWC: Proceeds and cost both under £6k?
Exempt
NWC: proceeds and cost both over £6k?
Tax as normal
NWC: proceeds under 6k, cost over 6k?
Marginal loss is restricted
Proceeds replaced by £6k
NWC: proceeds over £6k, cost under £6k?
Marginal gain is restricted! Lower of:
Normal gain
(Proceeds - 6000) /3 x5
How do you approach sets of non-wasting chattels?
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)
What happens with disposals if sets to connected people?
Both assets are considered together with the £6000 rule
Two equations to remember for CGT?
For marginal profit:
(proceeds - 6,000) /3 x5
For sets of chattels
Cost x A/(A+B)
A - disposed
B - retained
Does stamp duty count as a cost towards disposal?
Yes!
