Capital Gains Tax Flashcards
6 step process for establishing CGT
(Est Ded Loss Exm Cal)
- Establish disposal proceeds
- Deduct acquisition costs / Selling costs / Costs of enhancements
- Deduct current year losses
- Deduct previous year losses down to annual exemption amount
- Deduct Annual Exemption Amount (AEA)
- Add gain to taxable income to calculate CGT rate
Opportunities for CGT planning
(Quick Fire x3)
Personal Pension / Gift Aid = Extends BR Band
Utilise Growth Funds rather than Income Funds
Bed & Breakfast of Investments
Assets exempt from CGT include
(Quick Fire x10)
- Private residence
- Private motor cars
- Directly held gilts / qualifying corporate bonds
- Pension funds
- ISAs
- Woodlands
- National Savings Certificates
- EIS (if held for 3 years) / VCT
- Gains on gambling
- Wasting assets
Transfers between spouses and civil partners treatment?
Treated on a no gain no loss basis;
Take’s on original acquisition cost
Must have lived together that tax year
How are losses treated for CGT?
Losses first set against gains in current tax year
Losses in excess can be carried forward indefinitely
Losses must be claimed / reported within 4 years or are lost
What is Business Asset Disposal Relief (BADR)?
Quick Fire x4 [Formerly Entrepreneur’s Relief]
Business Sale Relief
Must of held asset for 2+ years
£1,000,000 lifetime max.
10% tax rate
Who Qualifies for BADR?
(Quick Fire x3 - Business Asset Disposal Relief)
Must own assets for 2+ years
Disposal of a trading company
Shareholder Test : 5% Shareholder + 5% company profits
What is Investor’s Relief?
(CGT - Quick Fire x4)
Available to external investors
Lifetime limit of £1,000,000
Held for 3yrs min.
10% rate applies
What is Holdover Relief?
Allows you to “Hold the gain” on disposal. Recipient is liable to the gain at disposal.
What is Business Asset Rollover Relief?
Allows Businesses to invest assets into new equipment without paying a gain.
Must be a trading business.
What is Incorporation Relief?
Defers gains when you move from non-LTD Co to LTD Co.
Strategies to minimise CGT
(Quick Fire x7)
- Utilise Annual Exemption (£12,300 2022/23)
- Utilise other losses to offset gain
- Reduce profit by utilising expenses / costs
- Utilise ISA / Pension Wrappers
- Utilise reliefs such as EIS deferral
- Invest in Income producing assets over growth
- Transfer asset between spouses
How is a Bare Trust CGT treated?
(Quick Fire x4)
- Gift into a trust is a disposal - holdover relief if this is a business asset.
- Beneficiary taxable at their own rates on disposal by trustees.
- They can use their AE and any taxable gains will be taxed at the appropriate rate.
- Beneficiary must include gains on their self-assessment.
How is a Vulnerable Beneficiary Trust CGT treated?
(Quick Fire x1)
Trustees charged the amount of CGT as if charged on the recipient / beneficiary.
E.g. calculate normal trust tax, the beneficiaries tax if they’d personally received it, and the trust minuses the difference.
How is a Interest in Possession Trust CGT treated?
(Quick Fire x3)
Gift into trust treated as disposal (Standardly)
Highest rate applicable - AE Exemption at ½ CGT Allowance *
* (½ AE / Trusts made by settlor) to a min of 1/10th or £1,230
