Capital Gains Tax

Question 1

What is CGT?

Answer 1

Capital gains tax (CGT) is charged on gains arising on chargeable disposals of chargeable assets by chargeable persons

Question 2

Who are chargeable persons?

Answer 2

Chargeable persons include individuals and companies, but companies pay corporation tax on their gains, not capital gains tax

Question 3

What are chargeable disposals?

Answer 3

Chargeable disposals include:

• the sale or gift of the whole or part of an asset
• the loss or total destruction of an asset

Question 4

What do chargeable disposals not include?

Answer 4

Chargeable disposals do not include:

• Gifts to charities
• Disposals on death
• Disposals between spouses or civil partners

Question 5

What is the date of disposal for disposals under contract?

Answer 5

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

Question 6

Which assets are chargeable?

Answer 6

All assets are chargeable unless specifically exempted, in which case they are outside the scope of capital gains tax

Question 7

Which assets are exempt?

Answer 7

• 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

Question 8

What are ‘taxable gains’?

Answer 8

The amount of gains left after the deduction of the annual exempt amount

Question 9

What is the capital gains tax computation?

Answer 9

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%

Question 10

How can you calculate any unused basic rate band?

Answer 10

You can calculate any unused basic rate band as the difference between taxable income and the basic rate band limit

Question 11

What is a ‘chargeable gain’?

Answer 11

A chargeable gain is a gain stated before the annual exempt amount has been deducted

Question 12

What is the proforma to find net disposal consideration?

Answer 12

Disposal consideration - Incidental costs of disposal

Question 13

What is the pro forma to find the chargeable gain/(allowable loss)?

Answer 13

Net disposal consideration
Less:
- Allowable costs
- Cost of acquisition
- Incidental costs of acquisition
- Enhancement expenditure

Question 14

What is disposal consideration? What is the exception?

Answer 14

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

Question 15

What do incidental costs of disposal include?

Answer 15

• Auctioneer’s fees
• Estate agent fees
• Legal costs

Question 16

What are the types of allowable expenditure to be deducted from net proceeds?

Answer 16

• 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

Question 17

What is acquisition cost?

Answer 17

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

Question 18

What is a chattel?

Answer 18

Chattels are tangible moveable property e.g. a picture or table

Question 19

What are wasting chattels?

Answer 19

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

Question 20

What are non-wasting chattels?

Answer 20

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

Question 21

If the gross proceeds and the cost of the non-wasting chattel are less than £6000, how do you treat it?

Answer 21

These are exempt from CGT

Question 22

What if the proceeds and the cost of the non-wasting chattel are more than £6000?

Answer 22

These are taxable as normal, in accordance with usual CGT rules

Question 23

What if the gross proceeds of the non-wasting chattel are more than £6000 but the cost was less than £6000?

Answer 23

Marginal gain is restricted to lower of:

• normal gain
• 5/3 x (gross proceeds - £6000)

Question 24

What if the gross proceeds of the non-wasting chattel are less than £6000 but the cost was more than £6000?

Answer 24

Marginal loss is restricted: gross proceeds deemed to be £6,000

Question 25

What are gross proceeds?

Answer 25

Gross proceeds are sales proceeds before deducting any incidental costs of disposal