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taxation acca > capital gains tax > Flashcards

capital gains tax Flashcards

1
Q

what is cgt charged on?

A

CGT is charged on gains arising on chargeable disposals of chargeable assets by chargeable persons.

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2
Q

what actions are considered chargeable disposals

A

When ownership changes hands &/or Cash consideration is received.

o Sale of an asset or a part

o Gift of an asset or a part

o Exchange of an asset

o Loss or total destruction of an asset

o Compensation received in case of asset damaged

o Compulsory Acquisitions

  • Note: Disposal in case of death or gift to charities is exempt from CGT
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3
Q

what assets are chargeable assets ?

A
  • All type of Capital (Non-Current) Assets are chargeable assets except exempt assets.

the must be assets for business use

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4
Q

what are the exempt assets ?

A

Exempt Assets:
* Motor Vehicles

  • Private/Main Residence
  • Trading inventory
  • Securities and Qualifying corporate bonds
  • National Saving Certificates
  • Foreign Currency acquired for personal use
  • Prizes and betting winnings
  • Investment held in Individual Savings Accounts (ISA)

o Investment limit: £20,000
o Can invest in Cash/deposits (Min age 16 years) or Shares (Min age 18 years).

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5
Q

who are chargeable persons ?

A

Chargeable Persons:
* UK Resident Individuals (current focus)
* UK Resident Companies
* Exempt Persons: Charities &/or Museums

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6
Q

what people are exempt from cgt?

A
  • Exempt Persons: Charities &/or Museums
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7
Q

how to work out the appropriate tax band for the cgt liability

A
  1. you first look at your total taxable income and see what band all of it is falling in
  2. you then compound you cgt on top to get the tax band
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8
Q

what are the cgt tax bands

A

for other assets :
lower rate( up to 37.7k)- 10%
upper rate(above 37.7k)-20%

for residential property:
lower rate-18%
upper rate-28%

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9
Q

when is the cgt tax due

A

31st January after each tax year

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10
Q

what happened if gad ppc are in the income tax statement

A

use the newly extended bands for incometax and cgt

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11
Q

when an individual inherits something in their death, what value must be used for the cost

A

the market value at time of death also known as probate value

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12
Q

how are residential property taxed differently in comparison to other assets for cgt

A
  • residential property tax must be submitted within 60 days pf the transaction
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13
Q

why is a transfer between spouses referred to as a no gain no loss transfer

A

because on the transfer the giver record the same value for sales proceeds and costs of sales . they therefore cancel out and is a ng/nl

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14
Q

what values are used for cost in the sale from spouse to 3rd part after a ng/nl transfer

A

the cost used is the same cost as it was for the previous owner

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15
Q

why do partners transfer capital from each other before selling to a third party

A

a reason may be that one member is lower on employmnet income or any income so they can make more use of their tax brackets.

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16
Q

what is the formula to calculate the market value of the of part disposal

ie cost

A
  • Allowable expenditure = A / (A+B)×Original cost (full cost)
  • A = Disposal proceeds for the part disposal off before deducting any incidental cost of
    disposal
  • B = Market value of the remainder at the time of disposal
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17
Q

what are chattels

A

they are small movable, tangible assets

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18
Q

what are wasting chattels

A

exempt-life less Than or equal to 50 years

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19
Q

what are non wasting chattels

A
  • Life more than 50 years
  • Moveable, Tangible property
  • E-G: Paintings, antiques, jewellery, furniture etc.
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20
Q

what chattels are exempt

A

plant and machinery are exempt when it is owned
privately.
* Grey Hounds
* Motor car is a wasting chattel, so exempt.
* Boat/yacht (up to 10 yrs
life)
* Antique watches
* Racehorse

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21
Q

how is chattels taxed

A

there are 4 scenarios

22
Q
  • Disposal > £6000
  • Cost > £6000
A

normal cg computation

23
Q
  • Disposal > £6000
  • Cost < £600
A

capital gain- lower off:
1. 5/3 (gross disposal - 6000)
2. normal calculation

24
Q

disposal <6000
cost<6000

A

exempt from cgt

25
Q

disposal <6000
cost>6000

A

we assume sales proceeds is 6000

26
Q

how to charge cost for intangible assets and business related non-wasting chattels

A

original cost* (useful life remaining/ full useful life )

27
Q

how tax an item that lis lost or destroyed without insurance ?

A

normal computation with sp as 0

28
Q

how to tax an item that was lost or destroyed with insurance but not replaced?

A

do the normal cgt calc with sp as the insurance value

29
Q

how tp tax an item that was lost or destroyed with insurance and replaced

A
30
Q

how to tax an item that has not had full rollover relief into the next item

A

the tax will arise at the lower of :

  • normal gain on the old asset
    -excess cash kept(sales proceeds of the old asset - cost of the new asset)
31
Q

how will you determine the cost for a part disposal of an asset that was damaged and have received insurance compensation for

A

original cost x A/A+B

A= mv of the damaged part(the amount you are given back usually insurance proceeds)
B= MV of the remaining part

32
Q
A
33
Q

what’s private residence relief ?

A

You do not pay Capital Gains Tax when you sell (or ‘dispose of’) your home if all of the following rules apply:

34
Q

what types of occupation are exempted

A

actual occupation
deemed occupation

35
Q

what 4 conditions are required for deemed occupation?

A
  1. Working Abroad: Any period during which the owner of the residence is abroad due to work.
    (however, the residence should be occupied before and after absence)
  2. Working in UK away from home: Upto 4 years (however the residence should be occupied
    before and after absence)
  3. Upto 3 years absence without any reason (however the residence should be occupied
    before and after absence)
  4. Last 9 months of ownership (as long as the residence had previously been used at some
    point in the past)
36
Q

what is the formula for calculating prr:

A

gain x (occupational months/ownership months)

37
Q
A
38
Q

steps to calc prr

A
  1. make 3 collums: occupational months, taxable months and ownership months\
  2. using deemed occupational rules sort months into these groups
  3. then in months that are ownership months but not occupational months go into the tax column
  4. use formula to calc prr
39
Q

so how to use it ti calculate chargeable gain?

A

workout your capital gain like normal and take away prr.

40
Q

what is letting relief ?

A

This is applicable for room/space rented out in the main residence (not applicable if the entire
residence has been rented out)

41
Q

when is the 9 month rule applicable ?

A

The 9 month deemed occupation is only available in cases where the property was fully
occupied exclusively by the owner. in case if it was always let out then the 9 month rule will not
be available

42
Q

how do you calculate letting relief?

A

you chose the lower off:

  1. Maximum 40,000
  2. PRR
  3. Letting Relief = Gain * (Letting Days/ Ownership Days)
43
Q

which people generally use Business Asset Disposal Relief

A

entrepreneurs
Sole traders
Business

UNQUOTED BUSINESS

44
Q

what is an unquoted business?

A

An unquoted public company or an unlisted public company is a firm that has issued equity shares that are no longer traded on a stock exchange.

45
Q

what is BADR available on ?

A
  1. whole business or substantial part of business
  2. Disposal of shares, available on the following conditions.

Min. 5% or more holding
and
unquoted trading co LTD,
and
you should have been an employee or Officer (director) of the co.

  1. Period of Holding: minimum 2 or more years prior to disposal
  2. BADR CGT 10% even if there is no BRB
  3. Lifetime Limit on the first 1,000,000 of chargeable gains
46
Q

what Is investor relief

A

it is relief for an investor? and only relief for shares

47
Q

what are the conditions in which investor relief can be claimed

A

Not an employee
and
no min % of holding

  1. Subscribed to the shares (PRIMARY MARKET), means directly bought them from the company
  2. Unquoted co (i.e., unlisted)
  3. On/After 17 March 2016
  4. Hold the shares for a of Min - 3 years starting from 6th April 2016
  5. Lifetime limits on the first GBP 10 million of chargeable gains. CGT 10%
48
Q

what conditions are needed for rollover relief

A

Replacement relief / Rollover Relief
1. The new and old assets are both used for trade, by the person carrying out the business.
Only then is the rollover relief applicable.

  1. The new and old assets both fall in one of the below categories:
    o Land & Buildings (occupied/used only for trade)
    o Fixed Plant & Machinery (immovable)
    o Goodwill
  2. The reinvestment of proceeds from the disposal must happen one year before the date of
    disposal or three years after the date of disposal
49
Q

how to calc rollover relief when not alll is reinvested into new item

A

charge the lower off

normal gain
or
excess cash

50
Q

when should corporation tax be paid by employees when the accounting period is less than 6 months

A
  • first installment is due by the 14th day of the 7th month after the start of the accounting period
  • subsequent installments are due at 3 monthly installments thereafter, until the date of the final installment is reached
  • last installment due by: 14th day of the 4th month after the end of the accounting period. earlier installments are only due if they fall before the date of the final installment.

taxation acca (10 decks)

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