Calculating capital gains tax

Question 1

For there to be a capital gain there must have been?

Answer 1

• chargeable disposal by a
• chargeable person of a
• chargeable asset.

Question 2

What is a chargeable disposal?

Answer 2

• the sale of an asset or
• the gift of an asset or
• when an asset is lost or destroyed.

Question 3

When are gifts exempt from capital gains tax?

Answer 3

• Gifts on death as this falls under the inheritance tax
• Gifts of assets to charities
• Gifts to a spouse also do not give rise to a chargeable gain.

Question 4

What is a chargeable person?

Answer 4

An individual resident in the UK will be chargeable to CGT in the UK on worldwide assets.

Question 5

What is a chargeable asset?

Answer 5

All assets are chargeable unless exempt

Question 6

What 11 assets are exempt to capital gains tax?

Answer 6

• Cars
• UK government stock (gilts)
• Principal private residence (the individual’s own home)
• Wasting chattels (life of < 50 years)
• Non-wasting chattels bought and sold for less than £6,000
• Qualifying corporate bonds
• Gambling/lottery wins
• Stocks in ISA’s
• Medals for bravery (if awarded NOT if purchased)
• Foreign currency for personal use
• Gold sovereigns minted after 1837

Question 7

What are gross proceeds?

Answer 7

This is normally the sale value or the market value if the disposal is a gift or sold to a connected party.

Question 8

What are Incidental costs of sale?

Answer 8

These are costs incurred which were necessary for the sale to take place such as advertising, estate agent’s fees, auctioneer’s fees etc.

Question 9

What is Enhancement expenditure?

Answer 9

This is capital expenditure that increases the value of the asset and is intact at the date of disposal. For example, this may be an extension added to the property disposed of.

Question 10

What is Chargeable gain?

Answer 10

This is the gain after deducting all the allowable expenses from the net proceeds

Question 11

When is capital gains tax payable?

Answer 11

The tax due is always payable on 31 January following the end of the tax year.

Question 12

What are the capital gains tax rates?

Answer 12

• The rate of tax depends on whether the taxpayer is a basic rate taxpayer or higher rate/additional rate taxpayer
• For 2023/24, 10% tax is payable on any gains up to the unutilised element of the basic rate band (£37,700), 20% will be payable thereafter
• Remember the basic rate band can be extended by personal pension contributions and gift aid payments

Question 13

What is the annual exempt amount for CGT?

Answer 13

• £6000
• It can only reduce gains down to nil, it cannot create a loss or be carried forward.

Question 14

How must capital gains losses be offset?

Answer 14

• In full against current year gains, then carried forward to offset future gains.
• Losses should only be used to reduce gains down to the AEA.

Question 15

How do you calculate a part disposal?

Answer 15

Original cost * A / (A+B)
A= market value of part disposed of (gross proceeds)
B= market value of remainder of asset

Question 16

Who are connected people?

Answer 16

• Brothers / sisters + spouses
• Children + spouses
• Grandchildren + spouses
• Parents + spouses
• Grandparents + spouses
• Business associates + spouses

Question 17

What happens when you dispose to a connected person?

Answer 17

Disposals to connected parties MUST be at market value.

Question 18

What happens if there is a loss on disposal to a connected person?

Answer 18

If a loss is made on a disposal to a connected party, then it can only be utilised against gains to that same connected party. So, for example, a disposal is made to Alf’s sister which results
in a loss of £10,000. This loss cannot be netted off against other gains in the year, and when carried forward it can only be used to reduce gains arising on transfers to his sister.

Question 19

What happens if you dispose an asset to your spouse or civil partner?

Answer 19

Disposals between spouses or civil partners do not give rise to a chargeable gain or an allowable loss, they are always deemed to be at NO GAIN/NO LOSS.

Question 20

How can you tax plan for Capital Gains Tax

Answer 20

• A married couple or civil partnership can transfer assets between spouses at no gain no loss, therefore assets should be allocated between the couple to ensure that on disposal:
  – both annual exempt amounts are being used
  – the partner with the lowest rate of tax pays the tax
  – capital losses of either partner are fully utilised wherever possible.
• In addition to planning within a marriage or civil partnerships, individuals can also plan to reduce their tax liability
  – Delay the sale of an asset until the following tax year if the annual exemption has already been used in this tax year
  – Delay the sale of an asset if income is expected to be lower in the following tax year making the rate capital gains tax lower
  – Invest in assets that are exempt from capital gains tax, such as shares held in an
  ISA.