Capital Gains Tax Flashcards
What is CGT?
Capital gains tax (CGT) is charged on gains arising on chargeable disposals of chargeable assets by chargeable persons
Who are chargeable persons?
Chargeable persons include individuals and companies, but companies pay corporation tax on their gains, not capital gains tax
What are chargeable disposals?
Chargeable disposals include:
- the sale or gift of the whole or part of an asset
- the loss or total destruction of an asset
What do chargeable disposals not include?
Chargeable disposals do not include:
- Gifts to charities
- Disposals on death
- Disposals between spouses or civil partners
What is the date of disposal for disposals under contract?
For disposals under contract, the date of disposal is:
- when the contract is made, or
- if the contract is conditional, the date when all conditions are met
Which assets are chargeable?
All assets are chargeable unless specifically exempted, in which case they are outside the scope of capital gains tax
Which assets are exempt?
- Cash
- Motor cars (including vintage cars)
- Gilt edged securities and qualifying corporate bonds
- National Savings Certificates/premium bonds
- Prizes and betting winnings
- Assets held in Individual Savings Accounts (ISAs)
- Certain types of chattels (tangible, moveable property)
- Main residency
- Receivables and trading inventory
What are ‘taxable gains’?
The amount of gains left after the deduction of the annual exempt amount
What is the capital gains tax computation?
Gain on Asset 1
Gain on Asset 2
Total = Chargeable gains for the tax year
Less: Annual Exempt Amount (12,300)
Total = Taxable Gains
Tax liability at 10%20%
How can you calculate any unused basic rate band?
You can calculate any unused basic rate band as the difference between taxable income and the basic rate band limit
What is a ‘chargeable gain’?
A chargeable gain is a gain stated before the annual exempt amount has been deducted
What is the proforma to find net disposal consideration?
Disposal consideration - Incidental costs of disposal
What is the pro forma to find the chargeable gain/(allowable loss)?
Net disposal consideration Less: - Allowable costs - Cost of acquisition - Incidental costs of acquisition - Enhancement expenditure
What is disposal consideration? What is the exception?
The disposal consideration is usually the proceeds received for the asset
The exception to this rule is that market value must be used in the case of a disposal that is not made at arm’s length, e.g., a gift
What do incidental costs of disposal include?
- Auctioneer’s fees
- Estate agent fees
- Legal costs
What are the types of allowable expenditure to be deducted from net proceeds?
- The acquisition cost of the asset
- Expenditure on enhancing the value of the asset (capital expenditure) e.g., new extensions, architect’s fees
- Incidental costs of acquisition e.g. legal fees, surveyor’s fees, stamp duty
What is acquisition cost?
The acquisition cost is generally the purchase cost of the asset.
If the asset was inherited the probate value (the market value at death) should be used as the cost
If the asset was received as a gift the market value at the date of the gift should be used as the cost
What is a chattel?
Chattels are tangible moveable property e.g. a picture or table
What are wasting chattels?
Those with an expected life not exceeding 50 years e.g. caravan, boat, animals, plant and machinery (exception)
These are exempt from CGT.
General rule: mechanical or natural life. It is the initial expectation that matters, not the reality
What are non-wasting chattels?
Those with an expected life of more than 50 years.
These include antiques, jewellery, paintings, and moveable plant and machinery on which capital allowances are (or could be) claimed
These are treated under special rules
If the gross proceeds and the cost of the non-wasting chattel are less than £6000, how do you treat it?
These are exempt from CGT
What if the proceeds and the cost of the non-wasting chattel are more than £6000?
These are taxable as normal, in accordance with usual CGT rules
What if the gross proceeds of the non-wasting chattel are more than £6000 but the cost was less than £6000?
Marginal gain is restricted to lower of:
- normal gain
- 5/3 x (gross proceeds - £6000)
What if the gross proceeds of the non-wasting chattel are less than £6000 but the cost was more than £6000?
Marginal loss is restricted: gross proceeds deemed to be £6,000
What are gross proceeds?
Gross proceeds are sales proceeds before deducting any incidental costs of disposal
