Capital Gains Tax Flashcards
Step 1: what are the individuals taxable assets for CGT?
Consider wasting chattels (life less than 50 years) and long-life assets below £6,000
Step 2: proceeds of sale
- If sold to someone who is closely related use current market value instead of proceeds of sale
- When determining proceeds subtract cost incidental to the disposition
Step 3: determine cost of acquisition
- when determining costs, add in associated costs such as legal fees, enhancement related costs, and costs incurred by the owner in preserving, establishing or defending title
Step 4: after proceeds and costs determined…
… you subtract costs from proceeds
Step 5: do any reliefs apply?
- consider private residence relief
- business asset disposal relief (if active two years before disposal) - CGT is 10% with a lifetime limit of £1
- holdover relief
- incorporation relief
- Enterprise Investment Scheme
- annual exemption (£12,300) - for BADR, annual exemption must be deducted first
Step 5: reliefs - BADR
- Applies if transferor was active two years before disposal
- partner or sole trader disposes all or part of their trading business
- individual disposes shares in a trading company and the individual owned at least 5% of the voting shares or was an officer or employee of the company
- Individual disposes assets owned and used by the individual’s personal trading company or trading partnership
Step 5: reliefs - holdover relief
Applies when a donor, and donee agreed that the gain will be calculated at a later date with the donor disposes of the assets
Qualifying assets are
- company in which they owned at least 5% of the shares
- Shares in an unlisted trading company
- Shares in the transfers personal company
- assets that qualify for agricultural property relief
Step 5: reliefs - incorporation relief
Applies when an individual transfers their business or partnership as a going concerned to a company and gain will be taxed when the transferor disposes of the shares
Step 5: reliefs - Enterprise Investment Scheme
- investing the gain made in a qualified unlisted company and defer tax due up to one year prior to the gain or three years after it is made
- chargeable when the EIS shares are sold
Step 6: applicable CGT %
Step 7: deadline for payment
- higher or additional rate payer - 20%
- 10% to the extent that gains do not exceed the individuals unused income tax basic rate band (i.e., the amount of basic rate amount remaining after an individual’s income has been taxed)
- gains on residential property taxed at 18% or 28% (but can use AEA first to set off gains)
Deadline
- payable by January 30 following the year in which the gain was made
- UK residential property tax payable within 60 days of completion