Capital gains tax

Question 1

Difference between a wasting asset and depreciating asset

Answer 1

Wasting - useful life not exceeding 50 years;
Depreciating; wasting asset OR will become one in next 10 years (useful life not exceeding 60 years)

Question 2

What is the Ramsay principle?

Answer 2

It states that a transation which:
-has pre-arranged articifical steps
-the only purpose of which is to avoid paying tax (no commercial purpose)
then the whole transaction should be taxed (tax avoidance scheme).

Question 3

McGuckian v IRC (1997) case

Answer 3

Anti avoidance case; a new approach was taken which showed the courts are more likely to look at the broad purpose of legislation (rather than focus on individ steps)

Question 4

What is a ‘material disposal’ of business assets for CGT purposes?

Answer 4

Disposal of assets that were used by the business, and owned by the TP for at least 2 years before disposal

Question 5

When is a claim for BADR to be made?

Answer 5

Anniversary of 31 January following end of tax year of disposal

Question 6

Definition of a trading company in statute and according to HMRC?

Answer 6

Statue - carrying on trading activities that do not include, to a substantial extent activities other than trading activities
HMRC - 20% test - other activities are not ‘substantial’ - looks at revenue, income, assets and time spend on trading v non trade activities
generally HOLLISTIC approach preferable

Question 7

What is a associated disposal?

Answer 7

Where a taxpayer makes a material disposal of the business at the same (or similar) time to disposing of their share in the business. Both eligible for BADR.
Cannot apply to sole traders.

Question 8

What is the 3/8 year rule apply to (associated disposals)?

Answer 8

Generally an associated disposal requires at least 5% interest disposal; however, exception to less than 5% where >5% has been held in 3/8 prior years.

Question 9

Where is BADR available?

Answer 9

-A ‘material disposal’ of business assets; or
- a disposal which is associated with a material disposal

Question 10

What is a material disposal?

Answer 10

-Single asset NOT material

-Disposal of asset or shares in business that must have been owned by taxpayer for at least two years prior to disposal

-For an asset, asset must be sold within three years of the cessation

Question 11

What is a business asset for BADR?

Answer 11

-Whole or part of sole trade or partnership business
-an asset used in business at time business ceases
-a disposal of shares in a company