Capital Gains

Question 1

You must pay Capital Gain Tax

Answer 1

1. SALE or GIFT of the whole or part of an asset
2. LOSS or DESTRUCTION of an asset
3. Compensation in connection with an asset

Question 2

Chargeable assets

Answer 2

All assets are chargeable unless specifically exempt

Question 3

Chargeable Person

Answer 3

UK resident is chargeable and is therefore subject to UK CGT on their worldwide assets

Question 4

Capital Gain Exempt Assets

Answer 4

Motor cars

Animals (wasting chattels that do not qualify for capital allowances)

Debtors

Cash

Chattels bought and sold for less than £6,000

Corporate bonds

Government securities

Trading stock

Shares in individual savings accounts ISA

Shares in a VCT

Foreign currency for private use (Cash)

Works of art given for national use

Damages for personal injury

Life insurance policies (Cash)

National Savings and Investment certificates

Question 5

Capital Gain Calculation

Answer 5

Disposal proceeds
Less: Incidental cost of disposal
Less: Acquisition cost
Capital Gain (Chargeable gain) / (Capital loss)

Question 6

Incidental Cost of Disposal

Answer 6

Valuation fees

Estate agency fee

Legal costs

Advertising costs

Question 7

Allowable Asset Costs

Answer 7

Original cost of acquisition

Incidental costs of acquisition

Similar to incidental costs of disposal

Capital expenditure incurred in enhancing the asset

Enhancement expenditure is capital expenditure which enhances the value of the asset.

Excluding:

• Cost of repairs
• Cost of insurance
• Any expenditure met by public funds (e.g. council grants)

Question 8

Annual exempt amount
(Capital Gain)

Answer 8

£12,300 for 2022/23.

If this amount is not used in a particular tax year, then it is wasted.

Question 9

Rates of Capital Tax

Answer 9

After considering a person’s taxable income, any remaining amount falling within the basic rate band is charged at 10% and so on

Question 10

Capital Losses

Answer 10

Current Capital Losses are offset against current capital gain to the maximum and cannot be restricted to avoid wasting the annual exemption.

Unrelieved current capital losses are carried forward to the next year

Capital lossess B/F are offset AFTER the annual exemption and unrelueved losses are carried forward.

Question 11

Part disposal of Chargeable Assets

Answer 11

If an individual owns a chargeable asset and disposes of only part of it, a capital gain will arise.

Question 12

Allowable Cost

Answer 12

Original purchase cost * [A / (A+B)]

A – Disposal proceeds received
B – Market value of the remainder of the asset (Given in question)

Question 13

Chattels

Answer 13

A chattel is a piece of tangible, movable property

Question 14

Wasting Chattel

Answer 14

A wasting chattel is one with a life of 50 years or less.

EXEMPT from capital gains

Question 15

Wasting Chattels exemptions

Answer 15

Plant and machinery (with a life of less than 50 years) on which capital allowances have been claimed are treated as non wasting chattels

Question 16

Non Wasting Chattels

Answer 16

Non wasting chattels with a life of more than 50 years are chargeable to capital gains tax in the usual way.

Question 17

Non Wasting Chattels exemptions

Answer 17

if both the proceeds and the cost are less than £6,000, the chattel will be exempt from capital gains tax

Question 18

Main residence you always lived in and CARS are exempt

Answer 18

Hope you remember that!

Question 19

Principal Private Residence Relief

Answer 19

Simply, don’t pay any tax if you sell your house except if you did not live there all the time or it was used for business

Question 20

Principal Private Residence Relief

Answer 20

FULL Exemption: If property was occupied for entire period of ownership

PARTIAL Exemption: If you stay for part of the period

Capital gain * Period of occupation/Period of ownership

Question 21

Deemed Occupancy

Answer 21

Last 9 months - if the property was the individual’s main residence at some point in time.

Any periods during which the individual was required by his employment to live abroad/elsewhere in the UK.

Up to three years for any reason.

The person must come back to live in the house after this period in order for this time to be considered to be deemed occupation.

Question 21

PPR Relief and Business Use

Answer 21

Where part of a residence is used exclusively for business purposes throughout the period of ownership, the gain in relation to that part is not covered by relief.

Question 22

Letting relief

Answer 22

Letting relief applies if individual lets all or part of residence while living in the house.

This relief is the lower of:
PPR relief given
£40,000
Gain attributable to letting

Question 23

Entrepreneurs’ relief/Business asset disposal relief

covers …..

Answer 23

Covers the first £1,000,000 of qualifying chargeable gains that a person makes in their lifetime.

charging CGT at 10% for the disposals on which it is claimed

Question 24

Conditions to get Entrepreneurs Relief

Answer 24

Dispose a qualifying asset.

Own asset for at least 2 years before disposal.

Claim relief by 1/31 following the tax year of disposal

So 2022/23 disposal is 2024/25 Claim

Question 25

Qualifying asset for Entrepreneur Relief / Business Asset Disposal Relief

Answer 25

1. Disposal of WHOLE partnership or sole proprietorship. Must be used for trading. Individual asset disposal does not qualify.
2. Disposal of individual assets of sole trader/partnership must take place within three years of cessation of trade.

3.The disposal of shares in a trading company, where the individual has >=5% shareholding and is also an employee of the company, for 2 years prior to the disposal.

Question 26

Investors Relief

Answer 26

Investors’ relief effectively extends entrepreneurs’ relief/business asset disposal relief to external investors in unquoted trading companies.

Question 27

Qualification for Entrepreneur Relief

Answer 27

Newly issued and acquired by subscription;

Owned for at least 3 years after 17 March 2016

Question 28

Consequences of Investors Relief

Answer 28

GBP10m lifetime benefit.

In addition to Entrepreneur Relief

Question 29

Rollover relief
(Replacement of Business Assets)

Answer 29

The replacement of business assets can reduce the CGT by the cost of the new asset)

Question 30

Conditions for Rollover Relief

Answer 30

1. The new and old assets must be used for business purpose.
2. Replacement of Asset range:
   12mths < New Asset > 36mths
3. CGT must be less than the univested proceeds,

Question 31

Qualifying assets for Rollover Relief

Answer 31

Land and buildings.

Fixed plant and machinery.

Question 32

Steps to calculate Rollover Relief

Answer 32

1. Gather Information about
   - the old asset
   -the new asset
   Take note of the purchase and disposal dates
2. Calculate CGT
3. Calculate Uninvested Proceeds (Sales Proceeds - Cost of New Asset
4. Uninvested Proceeds
   > CGT?
   No Rollover Relief

Otherwise

Rollover Relief = CGT - Uninvested Proceeds

Question 33

Base cost will be used as the cost of the new office when it is disposed of in the future.

Answer 33

Cost of new office less Rollover Relief

Question 34

Holdover Relief

Answer 34

If the new asset purchased is a depreciating asset (EUL < 60 years)

the gain arising on the disposal of the old asset is not rolled over and cannot be deducted from the cost of the new asset

Question 35

the gain is to be temporarily frozen or “held over” until it becomes chargeable on the earliest of the 3 following dates:

Answer 35

Date on which the new asset is disposed of.

Date on which the new asset ceases to be used in the trade.

10th anniversary of acquisition of the new asset.