Capital Gains Tax

Question 1

Name four examples of a disposal for CGT purposes

Answer 1

-Sale of asset where profit/loss made
-Gifting of an asset
-Compensation payments received for loss/damage
-Destruction of an asset

Question 2

When is the calculation date for a CGT disposal?

Answer 2

Date the disposal becomes subject to a binding contract of sale

Question 3

When are most CGT bills due?

Answer 3

31st Jan following the end of the tax year

Question 4

When are CGT bills related to residential property due?

Answer 4

Within 60 days of completion

Question 5

What is the difference between ascertainable and unascertainable deferred consideration?

Answer 5

Ascertainable - amount to be received is fixed
Unascertainable - amount to be received is variable

Question 6

If deferred consideration is more than 18 months after disposal, how do HMRC usually let the CGT be paid?

Answer 6

In instalments

Question 7

What does it mean if a disposal is not considered to be ‘at arms length’, and how do HMRC value the asset?

Answer 7

There is a close connection between individual disposing and individual acquiring, thus HMRC will use market value for CGT purposes.

Question 8

How does the value differ for assets bought before 1982?

Answer 8

-Market value at 1/4/1982 used as acquisition value
-No costs incurred prior can be taken into account

Question 9

How does the spousal exemption work?

Answer 9

-Transfers between spouses not deemed a disposal
-Original purchase value used as acquisition cost when disposed

Question 10

What is 5/3rds chattels relief?

Answer 10

-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

Question 11

What are the 7 different periods classed as deemed occupation?

Answer 11

-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

Question 12

When must you make an election for which home is treated as the main residence?

Answer 12

Within two years of the purchase of the additional property

Question 13

If someone chooses to let part of their house, how is it treated for CGT?

Answer 13

The part that is let is liable to CGT

Question 14

What is lettings relief?

Answer 14

-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

Question 15

When calculating the acquisition cost of share disposals, what is the set order used?

Answer 15

1. Disposal of shares/units purchased on the same day
2. Disposal of shares/units purchased within the previous 30 days
3. Disposal of shares/units in the remaining pool

Question 16

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?

Answer 16

Individual can elect which shares are treated as being disposed of first

Question 17

What is generally the key differentiator to determine whether costs are offset against income or capital gains tax?

Answer 17

Costs for keeping asset in good state (i.e. repairs) - IT

Costs for achieving higher sale price (i.e. adding a conservatory) - CGT

Question 18

True or false? Costs incurred before 01/04/1982 can be offset against gains.

Answer 18

False

Question 19

In what order must losses be offset against gains?

Answer 19

1. Set against gains arising in the same tax year
2. Residual loss value can then be used in future tax years

Question 20

How long does an individual have to register a loss?

Answer 20

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

Question 21

At what point in the income bucket are gains added?

Answer 21

After all other income sources have been tallied

Question 22

If an individual has a life policy gain, how does their basic rate band get determined?

Answer 22

Add the top-sliced gain to the income

Question 23

What is Business Asset Disposal Relief?

Answer 23

-Dispose of all/part of a business/qualifying shares
-CGT reduced to 10%
-£1m lifetime limit

Question 24

How long must an asset have been owned for to qualify for BADR?

Answer 24

2 years

Question 25

For BADR purposes, what is classed as a 'qualifying interest'?

Answer 25

-At least 5% shareholding AND -Company director

Question 26

If a business closes, how long does an individual have to dispose of business assets to qualify for BADR?

Answer 26

3 years

Question 27

When calculating a CGT liability, when must BADR-qualifying assets be accounted for?

Answer 27

Before any other gains

Question 28

What is investor's relief?

Answer 28

-Dispose of unlisted trading company shares -10% CGT rate -£10m lifetime limit

Question 29

When must shares have been purchased from to qualify for investor's relief?

Answer 29

16/03/2016

Question 30

How long must shares be held to qualify for investor's relief?

Answer 30

3 years continuously

Question 31

What is holdover relief?

Answer 31

-Allows gains to be deferred when assets are gifted -Original acquisition cost by owner A used when calculating owner B's gain

Question 32

Who must claim holdover relief for a transfer between individuals and for a transfer into a trust?

Answer 32

-Individuals: both donor & donee -Trust: only donor & trust must accept gift

Question 33

For transfers between individuals, what assets are eligible for holdover relief?

Answer 33

-Trading assets (assets used in donor's company -Shares in unlisted trading companies where donor holds >5% of voting rights

Question 34

How long must the receiving person remain a UK resident for after receiving a gift to retain holdover relief?

Answer 34

6 years

Question 35

What is business rollover relief?

Answer 35

Allows the company to defer gains on disposal of assets by purchasing new assets

Question 36

Over what time period can a business claim business rollover relief?

Answer 36

New assets must be bought in a period beginning 1 year before and ending 3 years after disposal of the old assets

Question 37

What is incorporation relief?

Answer 37

-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

Question 38

What is EIS reinvestment relief?

Answer 38

-CGT deferred until disposal of EIS shares -Claimed when proceeds from any disposal reinvested into an EIS

Question 39

Over what time period can an individual claim EIS reinvestment relief?

Answer 39

EIS shares must be bought in a period beginning 1 year before and ending 3 years after disposal of the old assets

Question 40

How much exemption do you get from SEIS reinvestment relief?

Answer 40

-50% fully exempt -50% chargeable

Question 41

Why can gift aid/pension contributions help to reduce a CGT liability?

Answer 41

-Extends basic rate band -Means more of the gain taxed at 10%