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Advanced Tax > Capital Gains Reliefs for individuals > Flashcards

Capital Gains Reliefs for individuals Flashcards

1
Q

When will you get BADR?

A

Claim up to 31 Jan, 2 years later?

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2
Q

What are the qualifying business disposals for BADR?

A
  • All or substantial part of sole trader/partnership business
  • Assets of sole trader/ partnership following cessasion ( < 3 years)
  • Shares in a personal company
  • Owns >/= 5% AND employee full/part time
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3
Q

What is the restriction rule of BADR in respect of Goodwill?

A
  • Gains in respect of goodwill do not qualify for BADR if:
    1. Goodwill is transferred to a close company and the individual and the company are related:

UNLESS:

  • Individual holds < 5% of OSC; or
  • Owns > 5% but sells shares within 28 days to an unconnected person
  • Individual is a retiring partner.
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4
Q

For BADR - What is an associated disposal?

A
  • Asset owned by an individual used in their:
  • Personal trading company
  • Partnership
  • Sold at same time as shares or partnership interest
  • Disposal made as part of leaving the business

Gains eligible for full relief provided no rent has been charged.

Where rent has been paid but less than market rate, relief restricted. (eg Rent 50% of MV = 50% relief)

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5
Q

What are the time limits for BADR?

A

Must have owned for 24 months prior to disposal.

Claim for 2021-22 by 31.01.24

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6
Q

How does BADR operate?

A
  • On First £1m of gains (Life time Limit)
  • Gain is taxed at 10%
  • Losses & Annual exempt amount to be allocated to gains on non qualifying asset first.
  • Basic rate band will be allocated against gains on qualifying assets first.
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7
Q

Investors Relief: When will you get IR?

A

On qualifying disposals if:
Held for 3 years
Subscribed for after 17.03.2016

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8
Q

Investors Relief: What are the qualifying disposals?

A

Unlisted ordinary shares (inc AIM)
Not an employee
Trading company

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9
Q

Investors Relief: How does IR operate?

A
  • First £10m of gains (lifetime limit)
  • Taxed at 10%
  • Apply losses and AEA to other gains first but:
  • Gains qualifying for IR use basic rate band first.
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10
Q

When will you get PRR relief?

A

On disposal of own home - main residence.

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11
Q

PRR: What is defined as periods of occupation?

A
  • Live in
  • Absence for any reason (3 years deemed occupation)
  • Any period working abroad
  • Working in the UK up for 4 years deemed occupation
  • Last 9 months of ownership

Periods of absence must be sandwiched by periods of actual occupation unless the owners is unable to return due to terms of employment.

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12
Q

PRR: When would you get letting relief?

A

When the property owner is in shared occupancy with the tenant.

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13
Q

PRR: How would you calculate letting relief?

A

Lower of:

  • £40,000
  • PRR exemption
  • Chargeable gain relating to letting period still in charge.
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14
Q

What’s the impact if there is business use of your main residence?

A

The Business proportion will be chargeable.

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15
Q

How do calculate the PRR exemption?

A

Gain x (Occupation period/ Period of ownership)

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16
Q

ROR: When would rollover be triggered?

A

When an individual disposes of and reinvests in qualifying assets in a qualifying time frame

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17
Q

What are the conditions to get rollover relief?

A

Must Re-invest in be in a Qualifying asset:

  • Goodwill
  • Land and buildings
  • Fixed P&M
  • Trade use %
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18
Q

What’s are the tax implications of ROR?

A

Chargeable gain on disposal is lower of:

  • Capital Gain (SP-cost)
  • Proceeds not re-invested
  • Rollover relief defers some or all of gain
  • Gain not charged is deducted from the cost of the new asset (deferred until new asset is sold)
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19
Q

ROR: What happens if you re-invest in a depreciating asset?

A

Gain is FROZEN and crystalised on the earlier of:

  • Sale of replacement asset
  • Date replacement asset ceases to be used in trade
  • 10 years from acquisition.
20
Q

ROR: What’s the impact of non-business use?

A
  1. Only gain relating to business use is eligible for ROR

2. Only proceeds relating to Non business use need to be re-invested.

21
Q

ROR: What are the time periods for reinvestment?

A

Between one year before and three years after the date of sale.

Claim with 4 years of the end of the tax year in which the:

  • Disposals are made; or
  • Replacement asset is acquired if later year.
22
Q

How do ROR and BADR relief interact?

A
  • Rollover relief is allocated first but is an optional relief
  • Disposal of replacement assets will qualify for BADR if conditions are met.

It’s a choice of relief . RR defers / BADR reduces rate to 10%

23
Q

GHR: When would you get gift relief?

A

On any asset with an immediate charge to IHT
On assets that qualify of Agricultural Property Relief
On the gift of qualifying assets.

24
Q

What are the qualifying assets for gift relief?

A
  • Assets used in trade by a sole trader
  • Assets used in trade of donor’s personal company (ie owns > 5%)
  • Shares in unquoted trading company
  • Shares in donor’s personal trading company.
25
Q

When would gift relief be restricted?

A

Sale at undervalue
Relief is the lower of:
Gain
Sale proceeds - cost

Non business use:

  • All assets except shares: Relief for % business use
  • Shares (personal company) : Total gain x (MV of CBA/MV of CA)
26
Q

How does GR interact with BADR?

A
  • Gift of shares may qualify for GHR and BADR
  • Gift relief allocated first but is an optional relief
  • Disposal of gift assets will a qualify for BAFR as long as conditions are met.
27
Q

What are the conditions relating to residency for GHR?

A
  • Donee has to be a UK resident
  • If Donee ceases to be a UK resident within 6 years of the end of the tax year in which the gain was made, the deferred gain will become chargeable the day before they become non resident
28
Q

What are the exceptions relating to residency for GHR?

A

If:
The donee goes overseas for full time employment
Regains UK residency within 3 years
Has not disposed of the asset while away

the gain will not be chargeable.

29
Q

What is the impact of gift relief?

A

The Donor:
Proceeds = MV
No gain at time of the gift.

Donee:
Donor’s gain deducted from the base cost of the gifted asset for the donee

30
Q

What are conditions to elect for GHR?

A

Joint election made by 4 years after the tax year of gift.

5 April 2026 for gifts in 21-22

31
Q

Shares in a personal trading company restrictions for GHR?

A

Restriction trigger when company owns chargeable non business assets.

Where Donor holds less than 5% of voting rights:

For unquoted shares - restriction doesn’t apply
For Quoted Shares - GHR is not available at all.

32
Q

When would you get incorporation relief?

A

When a sole trader or partnership incorporates their business to a Ltd co.

Gains arise on the individual chargeable assets of the business

Incorporation relief may be available to defer the gains.

33
Q

How do you calculate incorporation relief with shares and cash as a mix?

A

Total gains x Value of shares issued/ Total consideration.

  • Reduces the chargeable gain, the IR is then deducted from the value of the shares at a base cost
  • Element of the gain deferred until disposal of shares
  • Option to manipulate the cash consideration received to utilise capital loss and annual exempt amount
34
Q

What are the conditions of IR?

A
  • Business is transferred as a going concern
  • All of assets transferred to co. (except cash)
  • Consideration - Wholly/Partly in the form of shares.
  • Relief is automatic if conditions are satisfied.
35
Q

What are the election rules of IR?

A

Can elect to disapply.
Why?
- gains covered by AEA loss
-to take advantage of BADR

Deadline 31.12.25 for incorp in 21/22
1 year earlier if sold in 22/23

36
Q

How do IR and BADR interact?

A

Any gains remaining after incorporation relief will qualify for BADR if conditions are met.

Gain in respect of Goodwill don’t qualify for BADR unless -individual hold <5 % of OSC
- is a retiring partner

Incorporation relief is allocated proportionally to chargeable gains.

Shares acquired through incorporation, the period of ownership of the unincorporated business counts towards the 2 year ownership period.

37
Q

In relation to inc relief why might gift holdover relief be an alternative?

A
  • Individual wants to retain ownership of some asset e.g land and buildings to avoid SDLT.
  • Assets will be gifted to the company and gains deferred against the cost of assets for the company.
  • Disadvantage - lower base cost fo company giving a higher profit on disposal.
38
Q

When would get EIS reinvestment relief?

A

Gains on disposal of any asset where proceeds are re-invested in qualifying EIS shares with in a time period.

Must elect for EIS - it’s not automatic.

39
Q

What’s the impact of EIS reinvestment relief?

A

The gain is deferred and frozen until:

  • Disposal of EIS shares by investor or spouse, or;
  • Investor or spouse becomes non-resident within 3 years.

Deferred gain is taxed at 10% or 20% if BADR not available and 10 % if BADR was available on disposal.

The gain on the disposal EIS shares is exempt provided owned for at least 3 tears.

40
Q

What are the conditions of EIS re-investment relief?

A

Individual:
UK Resident when the gain arises and when the re-investment is made.

Investment:

  • Subscribing for new shares
  • Wholly for cash
  • in an EIS company.
41
Q

How do you calculate EIS re-investment relief?

A

Lowest of:

  1. Capital Gain
  2. Amount re-invested
  3. Any smaller amount chosen

No max investment and can utilised AEA/losses.

42
Q

What is the time period for EIS re-investment relief?

A

Within a 4 year period starting 1 year before and ending 3 years after the date of sale.

Claim for 2021/22 by 31 January 2028.

43
Q

When would get SEIS reinvestment relief?

A

To gains on disposal of any asset where proceeds are re-invested in qualifying SEIS shares which qualify for SEIS IT relief in same year

Within time frame.

44
Q

What’s the impact of SEIS reinvestment relief?

A

50% of lowest of:

  • Capital Gain; or
  • Amount invested qualifying for IT relief (Max £100K)

Max claim £50k - or any smaller amount gain be chosen.
Can utilise losses /AEA.

45
Q

What are the conditions for SEIS re-investment relief?

A

Individual:
UK resident when gain arises and when re-investment made.

Investment:
Subscribing for new shares;
Wholly for Cash;
In SEIS company.

46
Q

When would the SEIS reinvestment relief be withdrawn?

A

IF shares are sold within 3 years.

47
Q

What are the timeframes of SEIS reinvestment relief?

A

Reinvest in tax year of disposal.

Claim for 2021/22 by 21 Jan 2028.

Advanced Tax (23 decks)

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