Capital Gains Tax Flashcards
CGT exemption amount?
£12,300
What is a disposal?
A disposal for CGT purposes typically happens when ownership comes to and end, often when assets are sold but also when assets are gifted outright or into trust.
Certain disposals are exempt from CGT:
- no CGT on gifts between spouses (any gain is deferred until the second spouse disposes of the asset)
- Gifts to charity are free of CGT
- no CGT payable on death
Assets liable to CGT:
- Stocks and Shares, including mutual funds
- Property that isn’t main residence
- Business assets
Assets NOT liable to CGT:
- main residence
- cash / foreign currency for personal use (e.g. holiday euros/dollars)
- government issued gilts
- EIS and VCT shares which have benefitted from income tax relief
- wasting assets such as cars
- Investors with onshore and offshore investment bonds are not subject to CGT on the investment gains they make. Gains on these investments are subject to income tax under the chargeable event rules.
CGT Rates
10% & 20%
Example:
Mary disposes of shares which have a taxable gain of £60,000, after deducting her annual CGT exemption of£12,300. She has also surrendered her onshore bond which has a chargeable event gain of £30,000, which has been held for 6 years. Mary’s salary for the tax year is £41,270.
It is the averaged bond gain (£30,000/6) which is added to her other income to determine the rate of CGTpayable on the share disposal. The averaged gain of £5,000 when added to her salary of £41,270 leaves £4,000(£50,270-£46,270) of unused basic rate band.
The tax on the capital gain of £60,000 is taxed as follows ;
£4,000 @ 10% = £400
£56,000 @ 20% = £11,200
Capital Gains Tax =
£11,600
Capital gains on properties?
Capital gains made on the disposal of second properties are taxed at the higher rates of 18% and 28%.
Holdover relief?
Gift holdover relief can allow gains to be deferred when assets are gifted. To qualify for the relief, the gift has to be either business assets including unlisted trading company shares or any gift into a relevant property trust(discretionary trusts, non-qualifying interest in possession trusts).
The relief works by reducing the new owner’s acquisition cost by the amount of the held-over gain.
EIS deferral relief?
When a capital gain arises on the disposal of an asset, the gain can be deferred by purchasing shares in an EIS. The shares can be purchased up to one year before or up to three years after the disposal of the original asset. The deferred gain will be resurrected once there’s a disposal of the EIS shares. There’s no CGT on the investment growth on the EIS shares provided they’ve been held for three years.
