Capital Gains Flashcards
You must pay Capital Gain Tax
- SALE or GIFT of the whole or part of an asset
- LOSS or DESTRUCTION of an asset
- Compensation in connection with an asset
Chargeable assets
All assets are chargeable unless specifically exempt
Chargeable Person
UK resident is chargeable and is therefore subject to UK CGT on their worldwide assets
Capital Gain Exempt Assets
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
Capital Gain Calculation
Disposal proceeds
Less: Incidental cost of disposal
Less: Acquisition cost
Capital Gain (Chargeable gain) / (Capital loss)
Incidental Cost of Disposal
Valuation fees
Estate agency fee
Legal costs
Advertising costs
Allowable Asset Costs
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)
Annual exempt amount
(Capital Gain)
£12,300 for 2022/23.
If this amount is not used in a particular tax year, then it is wasted.
Rates of Capital Tax
After considering a person’s taxable income, any remaining amount falling within the basic rate band is charged at 10% and so on
Capital Losses
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.
Part disposal of Chargeable Assets
If an individual owns a chargeable asset and disposes of only part of it, a capital gain will arise.
Allowable Cost
Original purchase cost * [A / (A+B)]
A – Disposal proceeds received
B – Market value of the remainder of the asset (Given in question)
Chattels
A chattel is a piece of tangible, movable property
Wasting Chattel
A wasting chattel is one with a life of 50 years or less.
EXEMPT from capital gains
Wasting Chattels exemptions
Plant and machinery (with a life of less than 50 years) on which capital allowances have been claimed are treated as non wasting chattels
Non Wasting Chattels
Non wasting chattels with a life of more than 50 years are chargeable to capital gains tax in the usual way.
Non Wasting Chattels exemptions
if both the proceeds and the cost are less than £6,000, the chattel will be exempt from capital gains tax
Main residence you always lived in and CARS are exempt
Hope you remember that!
Principal Private Residence Relief
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
Principal Private Residence Relief
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
Deemed Occupancy
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.
PPR Relief and Business Use
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.
Letting relief
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
Entrepreneurs’ relief/Business asset disposal relief
covers …..
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
Conditions to get Entrepreneurs Relief
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
Qualifying asset for Entrepreneur Relief / Business Asset Disposal Relief
- Disposal of WHOLE partnership or sole proprietorship. Must be used for trading. Individual asset disposal does not qualify.
- 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.
Investors Relief
Investors’ relief effectively extends entrepreneurs’ relief/business asset disposal relief to external investors in unquoted trading companies.
Qualification for Entrepreneur Relief
Newly issued and acquired by subscription;
Owned for at least 3 years after 17 March 2016
Consequences of Investors Relief
GBP10m lifetime benefit.
In addition to Entrepreneur Relief
Rollover relief
(Replacement of Business Assets)
The replacement of business assets can reduce the CGT by the cost of the new asset)
Conditions for Rollover Relief
- The new and old assets must be used for business purpose.
- Replacement of Asset range:
12mths < New Asset > 36mths - CGT must be less than the univested proceeds,
Qualifying assets for Rollover Relief
Land and buildings.
Fixed plant and machinery.
Steps to calculate Rollover Relief
- Gather Information about
- the old asset
-the new asset
Take note of the purchase and disposal dates - Calculate CGT
- Calculate Uninvested Proceeds (Sales Proceeds - Cost of New Asset
- Uninvested Proceeds
> CGT?
No Rollover Relief
Otherwise
Rollover Relief = CGT - Uninvested Proceeds
Base cost will be used as the cost of the new office when it is disposed of in the future.
Cost of new office less Rollover Relief
Holdover Relief
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
the gain is to be temporarily frozen or “held over” until it becomes chargeable on the earliest of the 3 following dates:
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.
