Capital Gains Tax

Question 1

Step 1: what are the individuals taxable assets for CGT?

Answer 1

Consider wasting chattels (life less than 50 years) and long-life assets below £6,000

Question 2

Step 2: proceeds of sale

Answer 2

• 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

Question 3

Step 3: determine cost of acquisition

Answer 3

• 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

Question 4

Step 4: after proceeds and costs determined…

Answer 4

… you subtract costs from proceeds

Question 5

Step 5: do any reliefs apply?

Answer 5

• 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

Question 6

Step 5: reliefs - BADR

Answer 6

• 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

Question 7

Step 5: reliefs - holdover relief

Answer 7

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

Question 8

Step 5: reliefs - incorporation relief

Answer 8

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

Question 9

Step 5: reliefs - Enterprise Investment Scheme

Answer 9

• 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

Question 10

Step 6: applicable CGT %

Step 7: deadline for payment

Answer 10

• 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