Capital Gains Tax

Question 1

What is Capital Gains Tax?

Answer 1

Liability arises when chargeable person makes chargeable disposal of a chargeable asset.

Question 2

What is a Chargeable Person?

Answer 2

• Resident in UK
• Business partners
• Trustees of trust/settlement
• Husbands & wives assessed as separate individuals for disposals made

Question 3

What is an Exempt Person?

Answer 3

• Registered charities
• Local authorities
• Registered pension schemes
• Investment trusts
• Approved scientific research associations

Question 4

What is a Chargeable Disposal?

Answer 4

• Sale of an asset (except sale of stock/inventory in course of trade)
• Sale of part of an asset
• Gift of all/part of an asset
• Loss/destruction of an asset (outside syllabus)

Question 5

What is an Exempt Disposal?

Answer 5

• Sale of trading stock/inventory in the course of trade
• Gift to charities/art galleries/museums
• Disposals caused by the death of the taxpayer
• Disposals between husband and wife (civil partners)

Question 6

What is a Chargeable Asset?

Answer 6

All assets are chargeable, tangible or intangible.

Question 7

What are Exempt Assets?

Answer 7

• Cars
• Wasting personal property (chattel)
• Non-wasting chattels if cost/sale proceeds <£6,000.
• Gilt-edge securities and qualifying corporate bonds
• National Savings Certificates and premium bonds
• Gambling winnings
• Investment into ISAs

Question 8

What is the Basis of Assessment?

Answer 8

CGT liability for tax year based on chargeable disposals made.
Capital gain & allowable losses on each disposal calculated separately.
CGT payable on excess of net chargeable gains over annual exemption for the year.

Question 9

What is the Annual Exemption for Tax Year 23/24?

Answer 9

£6,000

Question 10

Net Chargeable Gains =

Answer 10

Total Chargeable Gains – Total Allowable Losses

Question 11

What are the Rates of CGT?

Answer 11

Standard Rate = 10%, up to £37,700, thereafter, Higher Rate = 20%.
Rate is different on disposal of residential properties.

Question 12

What is the Disposal Value of Sold Assets?

Answer 12

Disposal Value is always the market price value. Even if the asset was sold at “arm’s length” (undervalue), or given as a gift.

Question 13

What is Allowable Expenditure?

Answer 13

Acquisition cost of asset (MV).
Incidental costs of acquisition.
“Enhanced expenditure” (improvements so long as expenditure still reflects state of asset at time of disposal).

Question 14

What is the Special Rule for Chattels Under CGT?

Answer 14

1. Is it a chattel or not? If not, perform normal CGT computation. If yes, consider Q2.
2. Is it a wasting chattel? If yes, there will be no CGT (EXEMPT). If no, consider Q3.
3. Are the sale proceeds and/or cost £6,000 or less? If so, see special rules.

Question 15

What Happens to Wasting Chattels?

Answer 15

Predictable life of 50yrs or less are generally exempt from CGT.
Gains on disposals not taxed, and losses on disposals not allowable.
Exemption does not apply to chattels consisting of P&M (eligible for CA).

Question 16

What Happens to Non-Wasting Chattels?

Answer 16

Original cost < £6,000 & Gross Proceeds < £6,000 = Exempt.
OC > £6,000 & GP > £6,000 = Normal CGT.
OC < £6,000 & GP > £6,000 = gains restricted to 5/3 (GP - 6,000).
OC > £6,000 & GP < £6,000 = Loss restricted, £6,000 as proceeds, then deduct incidental costs.