Capital Gains Tax

Question 1

What are the rates of capital gains tax exlcuding residential properties?

Answer 1

Basic tax payer = 10%
About basic tax payer = 20%

Question 2

What are the rates of capital gains tax for residential properties?

Answer 2

Basic tax payer = 18%
About basic tax payer = 28%

Question 3

How do losses work for CGT?

Answer 3

Cannot use in previous periods, losses are put against the current year gains and then if excess it is carried forward. Always put losses to reduce net gains as much as possible as cannot preserve the £6,000 AEA.

Question 4

Disposals to a spouse/civil parter are done at…

Answer 4

Nil therefore no gain or calculation needed

Question 5

What is disposal to a connected person?

Answer 5

A connected person is a direct descendant (parent/grandparent/grandchild)brother/sister/spouse
You are then connected to that on the spouse side

Question 6

Disposals to a connected person are at…

Answer 6

Market value, the donor will pay cgt out of their pocket if gift to connected person (proceeds are mv - cost) but the receiver will not they get it at MV and the cost is MV so cancel out so no CGT charge

Question 7

Disposals to a stranger (arms length) are done at…

Answer 7

Actual proceeds - the norma CGT calc!

Question 8

What is a chattell?

Answer 8

A chattel is a tangible moveable asset e.g. painting or P&M

Question 9

When do we ignore a gain on a chattell?

Answer 9

If the proceeds and cost are under 6,000

Question 10

What is a wasting asset?

Answer 10

A wasting asset is an asset that has <50 years life and need to adjust the cost when sold (cost x remaining years/total years)=cost

Question 11

P&M is sold but it benefitted from capital allowances - what happens now?

Answer 11

As P&M benefitted from capital allowances it has already had relief therefore we pay CGT is it is a gain but if it is a loss we do not use this loss as relief just ignore it

Question 12

Part of land is being disposed on what is the cost formula?

Answer 12

cost = cost x proceeds/proceeds + MV of remaining

Question 13

We can defer the gain on a disposal of part land/buidings if…

Answer 13

disposal is considered small. Small = proceeds are <20,000 AND proceeds are 20% of total MV of land

Question 14

If we elect to go ahead with the small disposal of land/buildings what do we reduce the base cost by?

Answer 14

Proceeds! If we do not go ahead with the small election then we reduce by the cost in the calculation

Question 15

Why would you consider not deferring and not electing for the small election on land/buildings?

Answer 15

If we elect for it we defer the gain, so good we pay not CGT but as we reduce down the base cost by proceeds instead of cost we make the base cost even lower therefore greater amount of CGT to pay in future. May anticipate not having good cashflow in future.

Question 16

If we dispose of a lease that is >50 years how do we deal with that?

Answer 16

Normal! Proceeds - cost = gain

Question 17

I few dispose of a lease that is <50 years (short term) how do we deal with that?

Answer 17

Normal but just do the wasting assets thing with the cost (cost = cost x remaining/life)

Question 18

What is BADR?

Answer 18

It is a rate reducer and therefore if you sell part/all of unincorporated business or are employee and sell shares in a co you have >5% in you can get 10% rate of CGT

Question 19

What is the lifetime allowance of BADR for an individual?

Answer 19

£1,000,000

Question 20

What is rollover relief?

Answer 20

If you dispose of qualifiyng assets for this (land/building/p&m) and reinvest in another one within 4 years (12 months before/3 years after disposal) you can defer the gain. The gain reduces down the base cost. The replacement asset must be used in trade. Full ROR if all funds are reinvested.

Question 21

What is investor relief?

Answer 21

Investor relief is releif for those that are disposing shares but are not employees (therefore cannot use BADR). They must have held shares for 3 years and originally subscribed to the shares. This will reduce CGT to 10%.

Question 22

Does any CGT apply on death?

Answer 22

No! CGT is a lifetime tax therefore if anything is received at death it is at market value and cost is market value so nothing

Question 23

What does a CGT deed of variation do? How long after death does it need to be done?

Answer 23

This alters the deceased’s will by diverting the inherited asset down the line and therefore the new beneficiary gets the asset at market value so not CGT. This is done within 2 years of the date of death. This is useful if say nanan was going to give dad something but he was planning on gifting it to me anyway. This would mean without a deed of variation he would pay CGT if gifted.

Question 24

If I make a loss in the year and then die what happens to that loss?

Answer 24

In the year of death the loss can actually be carried back 3 years and there will then be a refund of CGT. This is done on a lifo basis (start at end = bugs life the last leaf has fallen, use last year not first like fifo)

Question 25

What is Private Residence Relief?

Answer 25

Private Residence Releif is where you are able to avoid CGT if you sell your main residence as the gain = the relief as long as your main residence and has been occupied during ownership.

Question 26

For private resident relief what is a good planning point?

Answer 26

You can elect what property will utlise PRR as long as you have periods of occupancy therefore it will be beneficial to elect the property that you anticipate to have the largest gain to reduce to nil.