Capital Gains Tax Flashcards
Name four examples of a disposal for CGT purposes
-Sale of asset where profit/loss made
-Gifting of an asset
-Compensation payments received for loss/damage
-Destruction of an asset
When is the calculation date for a CGT disposal?
Date the disposal becomes subject to a binding contract of sale
When are most CGT bills due?
31st Jan following the end of the tax year
When are CGT bills related to residential property due?
Within 60 days of completion
What is the difference between ascertainable and unascertainable deferred consideration?
Ascertainable - amount to be received is fixed
Unascertainable - amount to be received is variable
If deferred consideration is more than 18 months after disposal, how do HMRC usually let the CGT be paid?
In instalments
What does it mean if a disposal is not considered to be ‘at arms length’, and how do HMRC value the asset?
There is a close connection between individual disposing and individual acquiring, thus HMRC will use market value for CGT purposes.
How does the value differ for assets bought before 1982?
-Market value at 1/4/1982 used as acquisition value
-No costs incurred prior can be taken into account
How does the spousal exemption work?
-Transfers between spouses not deemed a disposal
-Original purchase value used as acquisition cost when disposed
What is 5/3rds chattels relief?
-Chattel disposals > £6k
-Can use two methods:
-Actual gain
-5/3rds of the excess over £6,000
-No use if acquisition cost > £6k or disposal value > £15k
What are the 7 different periods classed as deemed occupation?
-Year delay between property purchase & move-in
-3 years if preceded and followed by residence
-4 years where employment elsewhere in UK, if preceded and followed by residence
-Any period where working abroad, if preceded and followed by residence
-Any period living in job-related accommodation, if intention is to return to main residence
-Last 9 months of ownership, provided property lived in at any point during ownership period
-Any period before 1/4/1982
When must you make an election for which home is treated as the main residence?
Within two years of the purchase of the additional property
If someone chooses to let part of their house, how is it treated for CGT?
The part that is let is liable to CGT
What is lettings relief?
-Allows £40k of gain on let part tax-free
-Available if property qualified for principle private residence relief
-Can utilise twice if property jointly owned
-From April 2020, only applies to landlords in shared occupancy with tenant
When calculating the acquisition cost of share disposals, what is the set order used?
- Disposal of shares/units purchased on the same day
- Disposal of shares/units purchased within the previous 30 days
- Disposal of shares/units in the remaining pool
Where employees acquire and dispose of shares on the same day under an approved employee share scheme, which shares are deemed as being disposed of first?
Individual can elect which shares are treated as being disposed of first
What is generally the key differentiator to determine whether costs are offset against income or capital gains tax?
Costs for keeping asset in good state (i.e. repairs) - IT
Costs for achieving higher sale price (i.e. adding a conservatory) - CGT
True or false? Costs incurred before 01/04/1982 can be offset against gains.
False
In what order must losses be offset against gains?
- Set against gains arising in the same tax year
- Residual loss value can then be used in future tax years
How long does an individual have to register a loss?
Within 4 years of the end of the tax year in which the loss arose
i.e. loss in July 2019 must be registered by the end of the 23/24 tax year
At what point in the income bucket are gains added?
After all other income sources have been tallied
If an individual has a life policy gain, how does their basic rate band get determined?
Add the top-sliced gain to the income
What is Business Asset Disposal Relief?
-Dispose of all/part of a business/qualifying shares
-CGT reduced to 10%
-£1m lifetime limit
How long must an asset have been owned for to qualify for BADR?
2 years
For BADR purposes, what is classed as a ‘qualifying interest’?
-At least 5% shareholding
AND
-Company director
If a business closes, how long does an individual have to dispose of business assets to qualify for BADR?
3 years
When calculating a CGT liability, when must BADR-qualifying assets be accounted for?
Before any other gains
What is investor’s relief?
-Dispose of unlisted trading company shares
-10% CGT rate
-£10m lifetime limit
When must shares have been purchased from to qualify for investor’s relief?
16/03/2016
How long must shares be held to qualify for investor’s relief?
3 years continuously
What is holdover relief?
-Allows gains to be deferred when assets are gifted
-Original acquisition cost by owner A used when calculating owner B’s gain
Who must claim holdover relief for a transfer between individuals and for a transfer into a trust?
-Individuals: both donor & donee
-Trust: only donor & trust must accept gift
For transfers between individuals, what assets are eligible for holdover relief?
-Trading assets (assets used in donor’s company
-Shares in unlisted trading companies where donor holds >5% of voting rights
How long must the receiving person remain a UK resident for after receiving a gift to retain holdover relief?
6 years
What is business rollover relief?
Allows the company to defer gains on disposal of assets by purchasing new assets
Over what time period can a business claim business rollover relief?
New assets must be bought in a period beginning 1 year before and ending 3 years after disposal of the old assets
What is incorporation relief?
-Defers gain upon transition from an unincorporated business to a ltd co.
-Gain calculated by reducing the base cost of the shares by the original gain
What is EIS reinvestment relief?
-CGT deferred until disposal of EIS shares
-Claimed when proceeds from any disposal reinvested into an EIS
Over what time period can an individual claim EIS reinvestment relief?
EIS shares must be bought in a period beginning 1 year before and ending 3 years after disposal of the old assets
How much exemption do you get from SEIS reinvestment relief?
-50% fully exempt
-50% chargeable
Why can gift aid/pension contributions help to reduce a CGT liability?
-Extends basic rate band
-Means more of the gain taxed at 10%
