C - Chargeable Gains for Individuals Flashcards

1
Q

What is the scope of capital gains?

A

This is charged on gains arising on chargeable disposals:
of chargeable assets
by chargeable persons

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2
Q

what is a chargeable person?

A

either:
an individual who pays capital gains tax
a company who pay for chargeable gains in their corporation tax.

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3
Q

What is a chargeable disposal?

A

the sale or gift of the whole of or part of an asset
or the loss/destruction of an asset
or exchange of an asset
or receipt of a capital sum derived from an asset
NOTE gifts from charities and disposals on death should be excluded

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4
Q

Which assets are chargeable?

A
all assets are chargeable unless specifically exempted, exempt assets include:
cash
gilt edge securities
prizes and betting winnings 
receivables
main residence
qualifying corporate bonds
assets held in ISA's
wasting chattel
motor cars - all types and ages
NS&I certificates and premium bonds
trading inventory
non wasting chattel.
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5
Q

what is the proforma for the calculation of individual disposals?

A
Disposal proceeds
less allowable selling costs
gives net disposal proceeds
from which deduct:
cost of acquiring the asset
incidental costs of acquisition 
cost of additional enhancements
gives chargeable gain or allowable loss.
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6
Q

What is recognised as disposal proceeds?

A

The actual sale value unless a gift or inheritance

gift - value is market value

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7
Q

What are allowable selling costs?

these may also occur as costs of acquisition

A
these may include costs such as:
advertising costs
agents fee
auction fee's
legal fee's
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8
Q

What is recognised as the cost of acquisition?

A

actual purchase cost or
probate value if inherited or
market value if a gift.

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9
Q

what costs may be recognised as enhancement expenditure?

A

Capital expenditure relating to the improvement of an asset e.g. adding an extension
NOTE general repair cost cannot be included.

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10
Q

What is meant by net gains in the tax year?

A

this will be the aggregate of all chargeable gains and allowable losses in the year.

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11
Q

what is the annual exempt amount?

A

Every individual is entitled to and annual exempt amount AEA
Gains up to this amount are not subject to tax
2020/21 AEA is £12,300
this behaves in a similar way to personal allowance, so cannot be carried forward.

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12
Q

How is the CGT payable calculated?

A
Net chargeable gains for the year
less: AEA for the year
less: capital losses bought forward
gives taxable gains
CGT liability at relevant rate
less: payments on account in respect of residential property sold ing the year.
CGT payable.
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13
Q

What are the rates for calculating CGT?

A

This should be calculated after income tax.
For basic rate tax payers:
10% on gains falling with in the unused basic rate band
20% on gains in the higher rate band
Higher/additional rate tax payers:
all gains taxed at 20%
Gains on residential property are taxed at 18% and 28% respectively.
Property gains should be shown on a separate column in the pro forma.

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14
Q

When is CGT due by

A

31st January following the end of the tax year.

Payments on account are only required for disposal of residential property.

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15
Q

How are payments on account for residential property calculated?

A

The return for this type of disposal must be submitted within 30 days of the disposal, with payment of the related tax due at the same time.
Tax due on disposal =
gain on property
less current year losses to date
less losses bought forward.
less AEA
a reasonable assessment of income is used to determine the tax rate.
NOTE subsequent gains/losses are ignored.

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16
Q

What can be done by way of tax planning for CGT?

A

AEA should first be set against property related gains

consider timing of disposal of assets to maximise use of AEA.

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17
Q

When do special rules apply to the computation of gains?

A

transfers between spouses or civil partners
Part disposals
chattels and wasting assets
assets lost\destroyed or damaged

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18
Q

How is the transfer of assets between spouses or partners dealt with?

A

This is tax neutral:
No gain or loss arises
actual proceeds are ignored, deemed proceeds = acquisition cost
NOTE these rules only apply when a couple is living together.

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19
Q

What about when there is a part disposal of an asset?

A

the deemed cost of the part being sold is:;
cost x MV of part disposed/MV of whole asset
where there are incidental or enhancement costs:
relating sole to the part disposed - deducted in full
relating to the whole asset - apportioned in the same way as the cost.

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20
Q

What are chattels and wasting assets?

A

A chattel is a tangible moveable item of property which falls in to two further categories:
Wasting - expected life < 50 years, is exempt from CGT e.g. caravan, boat, animals.
Non wasting - expected life > 50 years, special rules apply e.g. antiques, Jewellery, art.

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21
Q

what are the special rules that apply to non wasting chattels?

A

Proceeds Cost
£6000 >£6000 chargeable gain/loss as normal
£6000 allowable loss restricted deemed GP £6000
>£6000

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22
Q

What about plant and machinery?

A

expected life is usually less than 50 years so is always as wasting asset.
the exception is if it is used for the purpose of trade and was eligible for capital allowances.
If sold at a gain - normal gain will arise subject to the special rules.
if sold at a loss - no capital loss will arise.

23
Q

what about structures and buildings

A

Disposal proceeds in CGT computation must be increased by allowances gained in relation to qualifying structures and buildings

24
Q

what about wasting assets that are not chattels?

A

allowable cost is deemed to waste on a straight line basis.

allowable cost = remaining life @ disposal/estimated life @ acquisition.

25
Q

How are assets that are lost, destroyed or damaged dealt with?

A

with complete loss or destruction - proceeds+ insurance proceeds received.
If no insurance this is a capital loss for tax purposes.
If the insurance proceeds are used to fully replace the asset within 12 months:
disposal can be treated on No gain/no loss basis
any insurance proceeds in excess of deemed disposal proceeds should be deducted from the allowable cost of the replacement asset.
If insurance proceeds are partialy used to replace the asset:
immediate chargeable gain arises on the excess.
remaining is transferred on NGNL basis.

26
Q

How is the allowable cost of the replacement asset calculated?

A

Cost of replacement less excess proceeds received.

excess proceeds = proceeds received less original cost.

27
Q

what about if all compensation is used?

A

the tax payer can elect to not do a partial disposal instead deduct proceeds from cost of asset going forward.

28
Q

What shares and securities are exempt from CGT?

A
Listed government securities
Shares held in an ISA
qualifying corporate bonds:
represent a normal commercial loan
expressed in sterling
acquired after 13 March 1984.
29
Q

How are quoted shares of a PLC company valued?

A

If gifted or transferred to a connected company:
market value at date of gift
Market value = average share price quoted on the stock exchange.

30
Q

What are the share matching rules for individuals?

A

1 - acquisitions on the same day as disposal
2 - Acquisitions within the next 30 days FIFO basis
3 - share pool.

31
Q

How are reorganisations and take overs dealt with?

A

referred to as a paper for paper exchange
As no cash proceeds gains are deferred.
Cost of old shares becomes the cost of the new shares
treatment is automatic
If different types of shares - apportion based on new shares market value.

32
Q

What if mixed consideration is received?

A

New shares - apportioned original cost, no gain until shares are sold.
Cash - Gain will arise based on apportioned part of the original cost.

33
Q

what is private residence relief?

A

tax payers main residence is exempt from CGT
only one property can be main residence at a time
Tax payer can elect which property if dwelling in multiple.

34
Q

How is PRR calculated?

A

if a property is occupied throughout ownership - exempt.
If occupied for part of the period, the gain must be calculated then PRR applied.
Where there has been a period of absence the PRR exemption calculation is:
Gain x periods of occupation/total period of ownership.

35
Q

What is deemed occupation?

A

this may be conditional:
a) Up to three years absence for any reason
b) Any period spent living over seas for employment
c) up to 4 years absence when working in the UK
NB must be preceded and followed by actual occupation, except if employer sends else where.
or unconditional:
last 9 months of occupation

36
Q

is PRR available on business use?

A

No - where property is used exclusively for business purposes PRR cannot be claimed.
If mixed use then PRR must be apportioned.

37
Q

what is letting relief?

A

applies where a tax payer lets out part of their property while in occupation.
Let part must be for exclusive use
does not apply if not main residence.

38
Q

How much is letting relief?

A

Lower of:
£40,000
PRR given
Gain relating to the let period.

39
Q

What is business asset disposal relief? BADR

A
this is available on qualifying assets during the individuals life.
on first £1,000,000 of gains
arising on qualifying assets disposed of
Taxed at 10%
will reduce remaining basic rate band.
40
Q

What are qualifying disposals for BADR

A

All or a substantial part of an unincorporated trading business
Assets of a business within three years of ceasing to trade
shares in a personal trading company and individual is an employee of that company.
NB
asset must have been owned for min 2 years
Shares - mist have worked and held >5% for more than 2 years.
Must be claimed within 12 months of 31st Jan following the end of the tax year.

41
Q

How is BADr calculated?

A

1 calculate gains on disposal of assets
2 separate gains that qualify from those that don’t
3 To maximise relief deduct losses and AEA from no qualifying first.
4 tax gains qualifying at 10%
5 tax non qualifying gains - remember BADR uses up BRB.

42
Q

what is investors relief?

A

extends the benefits of BADR to certain additional investors
Unlisted ordinary shares in a trading company
Newly issued shares on/after 17/03/2016
Held for a min of 3 years from 06/04/16
held by an individual who is not an employee of the company.
nb there is a separate lifetime allowance of £10,000,000.

43
Q

What is replacement of business assets relief, also known as roll over relief?

A

Where the gain arising from the disposal of a qualifying business asset can be rolled over when the proceeds are reinvested in a new qualifying asset within the qualifying time period.
must be claimed within 4 years of the later of the end of the tax year of disposal/purchase

44
Q

What is the qualifying time period for roll over relief?

A

I year before to one year after the sale of the qualifying asset

45
Q

what is a qualifying asset for roll over relief?

A

Goodwill (unincorporated only), land and buildings, fixed plant and machinery.

46
Q

how is roll over relief applied:

A

The gain on disposal is deducted as relief in the CGT calculation for the disposal
Gain is deducted from the acquisition cost of the new asset.
A gain can be rolled over several times.

47
Q

What about roll over relief for depreciating assets

A

Depreciating assets have an expected life of less than 60 years.
For tax purposes these are Fixed plant & machinery, a lease for qualifying land & buildings with < 60 years to run.
The gain is not deducted, it is deferred until the earlier of:
1. disposal of the asset
2. 10 years from acquisition
3. Date the asset ceases to be used in trade.
the maximum deferral period is 10 years.

48
Q

What is Gift relief?

A

Where a gift of an asset may result in CGT for the donor an election can be made by donor and donee to defer a gain until the asset is sold by the donee.
It is available on the outright gift or sale at under valuation by an individual of a qualifying asset.

49
Q

what is a qualifying asset for gift relief?

A

Assets used in the trade of the donor or the donors personal company
unquoted trading shares & securities
quoted shares & securities of the donors personal company.

50
Q

How does the relief operate?

A

For the donor:
gain is calculated using MV at the time of the gift.
Gain is deferred - not chargeable
For the donee:
Gain is deducted from the acquisition cost (MV at time fo gift) to give base cost.
Base cost is used to calculate gain when asset is disposed of.

51
Q

What should be considered before making an optional gift relief claim?

A

If the gain is small it may be covered by AEA
would the donor qualify for BADR or IR
if the donor wishes to achieve a certain result.

52
Q

What about if the asset is sold at under value?

A

GR still applies:
MV is still used as proceeds when calculating the gain
If actual proceeds are less than original cost - GR applies to all of gain.
If actual proceeds are greater than original cost - excess is chargeable to CGT, remainder is subject to GR.

53
Q

What about assets not used wholly for trade and shares in personal trading company?

A

Where not used wholly for trade - relief is restricted.
For shares in personal trading company:
GR is restricted to - Total Gain x (CBA/CA)
CBA = MV of chargeable business assets of the company
CA = MV of chargeable assets of the company.