Capital Gains Tax Flashcards
Who pays capital gains tax?
Individuals are liable to CGT on the net gains made on the disposal of certain physical assets and the realisation of various financial assets in a tax year if they are resident in the UK in that year. Non‐residents are liable to CGT gains from UK property.
It is also worth noting that companies are liable for tax on chargeable gains, but pay via the corporate tax system. Companies have no entitlement to the CGT annual exempt amount enjoyed by individuals.
What counts as a disposal?
The principal types of disposal are:
sale of an asset, be it a sale of the whole asset or a part sale;
gift of an asset, be it whole or in part;
destruction of an asset, be it whole or in part – this might be physical destruction by fire or flood, for example, or legal ‘destruction’ where an investor’s shares drop to a negligible value and result in a loss;
sale of any right in an asset, or money received to forfeit any right.
Disposals are also treated as occurring when:
a capital sum is received as compensation for damage or injury to assets;
a capital sum is received under an insurance policy for damage, injury or loss of assets;
a capital sum is received from surrender rights of an insurance policy;
a beneficiary under a trust becomes absolutely entitled to settled property against
the trustees.
What is the date of disposal?
When an individual sells an asset, the date of sale is determined to be the date at which the contract becomes legally binding. This may be a different date from when any money or the asset changes hands.
What are the exemptions to CGT?
- Annual exemption amount
- Transfers between spouses and civil partners
- Upon death
Others:
Private motor vehicles, including classic cars.
Personal belongings, antiques, jewellery and other tangible movable property (referred to as ‘chattels’), provided each object is disposed of for £6,000 or less.
Gifts to the nation of items of national, historic or scientific interest. Foreign currency for personal expenditure.
British government stocks (gilts).
Qualifying corporate bonds (sterling bonds issued by companies). NS&I Savings Certificates and Save As You Earn schemes.
Premium Bonds winnings and lottery winnings.
Gains on qualifying life assurance policies disposed of by the original owners.
Gains from assets held in individual savings accounts (ISAs), Junior ISAs and Child Trust Funds.
Tangible movable property (excluding business assets) with an expected life of less than 50 years (ie wasting assets).
Shares issued under the enterprise investment scheme (EIS), the seed EIS (SEIS), and the business expansion scheme (BES) after 18 March 1986. (See the Investment topics for more information.)
Shares in venture capital trusts (VCTs) that qualify for income tax relief. Woodlands.
Shares held by employees in a share incentive plan (SIP) up to the date they are transferred to the employee.
Decorations for valour disposed of by the original owner.
Certain compensation payments, including those related to the Windrush scandal. Gifts of assets to charities or for the public benefit.
Pension funds.
Relief of CGT?
-private residence relief
-multi homes, may select which one, long as owner has lived in both homes — select within 2 years of acquisition
How to calculate Capital Gains tax?
Determine the disposal proceeds (actual sale price or market value). Deduct the cost of purchasing the asset.
Deduct any costs incurred in arranging the purchase and sale and any enhancement costs.
Set off any capital losses.
Deduct the annual exempt amount.
Calculate the tax.
Note: A basic‐rate taxpayer may pay tax at both the basic and the higher rate where a gain takes them over the basic‐rate tax threshold
How to calculate disposal proceeds?
The proceeds from a disposal should be determined for CGT purposes as follows:
If the asset is sold on a commercial basis then the sale price is used.
If an asset is gifted then the market value at the time of the gift is used.
If the asset is sold to a connected person (eg a family member), the market value is used even if the asset was sold for less than this.
If the asset has been sold in a bargain not made at arm’s length then the actual market value will be used.
Any costs incurred when selling the asset, ie legal costs, broker fees, etc, can be deducted from the sale price.
What is exempt from capital gains tax?
Person’s main residence
Gilts
Corporate bonds
Motor Vehicles
Personal possessions below $6000
