C - Chargeable Gains for Individuals Flashcards
What is the scope of capital gains?
This is charged on gains arising on chargeable disposals:
of chargeable assets
by chargeable persons
what is a chargeable person?
either:
an individual who pays capital gains tax
a company who pay for chargeable gains in their corporation tax.
What is a chargeable disposal?
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
Which assets are chargeable?
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.
what is the proforma for the calculation of individual disposals?
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.
What is recognised as disposal proceeds?
The actual sale value unless a gift or inheritance
gift - value is market value
What are allowable selling costs?
these may also occur as costs of acquisition
these may include costs such as: advertising costs agents fee auction fee's legal fee's
What is recognised as the cost of acquisition?
actual purchase cost or
probate value if inherited or
market value if a gift.
what costs may be recognised as enhancement expenditure?
Capital expenditure relating to the improvement of an asset e.g. adding an extension
NOTE general repair cost cannot be included.
What is meant by net gains in the tax year?
this will be the aggregate of all chargeable gains and allowable losses in the year.
what is the annual exempt amount?
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.
How is the CGT payable calculated?
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.
What are the rates for calculating CGT?
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.
When is CGT due by
31st January following the end of the tax year.
Payments on account are only required for disposal of residential property.
How are payments on account for residential property calculated?
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.
What can be done by way of tax planning for CGT?
AEA should first be set against property related gains
consider timing of disposal of assets to maximise use of AEA.
When do special rules apply to the computation of gains?
transfers between spouses or civil partners
Part disposals
chattels and wasting assets
assets lost\destroyed or damaged
How is the transfer of assets between spouses or partners dealt with?
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.
What about when there is a part disposal of an asset?
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.
What are chattels and wasting assets?
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.
what are the special rules that apply to non wasting chattels?
Proceeds Cost
£6000 >£6000 chargeable gain/loss as normal
£6000 allowable loss restricted deemed GP £6000
>£6000