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
How is a Discretionary 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
How is a Offshore Trust CGT treated?
(Quick Fire x2)
UK Domicile is liable to CGT on Trust Gains (IF UK Resident in year gain arises)
UK Resident Beneficiary are liable to CGT if any on the distributions
What are Wasting Assets and how are they treated?
Tangible movable property with expected life of less than 50 years.
Exempt from CGT unless used in a business
Quirk - If you sell multiple of the same wasting asset you can be considered a trade and will attract taxation.
What are examples of a Chattel commonly used in the exams?
A Painting or piece of jewellery.
How are Chattels treated for in Tax?
(2 Methods)
Free from CGT if proceeds under £6,000
Gain over £6,000 is multiplied by 5/3rds to give a maximum chargeable gain.
You can choose either the chattels route or normal CGT route
What are the Qualifying Rules for Principal Private Residence Relief (PPR)?
(Quick Fire x7)
- Up to a year between buying the property and actually living in it
- Any period before 1st April 1982
- Any period up to 3 years provided it was preceded by and followed by periods of residence AND no other property qualified as PPR.
- The last 9 months of ownership provided the property had qualified as PPR at some point.
- Periods up to 4 years in total if absence was due to employment elsewhere in the UK - PPR sandwich rules.
- Any period whilst working abroad - PPR sandwich rules
- Any period living in job related accommodation with an intention to return to the PPR.
Tax Treatment of Principal Private Residence Relief (PPR)?
PPR is exempt from CGT on sale.
Total Gain x Period of Occupation / total period of ownership
Quirks #1 - Note if you move out you can claim an additional 9 months ownership.
Quirk #2 - Above increases to 36 months if moved into a residential care home
When is CGT due from a Property Sale?
60 days after sale.
Lettings Relief
How do you calculate the Potential Relief
Potential Relief = ‘Profit’ x (Period Let / Period Owned)
Quirk #1 - Relief is Lower of “Potential Relief” or £40,000
Quirk #2 - Individual Allowance so a couple can claim twice
Lettings Relief
How do you calculate the Liable Gain
Profit of Sale x Percentage of Property Let Out
