Capital Gains Tax

Question 1

When is CGT applicable?

Answer 1

CGT is charged when there is a chargeable disposal of a chargeable asset by a chargeable person, which gives rise to a chargeable gain.

Question 2

What are chargeable assets?

Answer 2

An asset unless excluded:
Principal residence
Cars
Wasting assets
Other tangible moveable property
UK sterling

Question 3

What are the 4 steps in calculating CGT?

Answer 3

1. Sale price - disposable expenditure = Net Sale Proceeds
2. Net sale proceeds - (initial expenditure + subsequent expenditure) = Total chargeable gain
3. TCG - (loss carried forward + annual exemption) = Taxable chargeable gain
4. Taxable chargeable gain @ appropriate rate = Total capital gains tax payable

Question 4

Is entrepreneur’s relief available?

Answer 4

Disposing of shares in a trading company
Officer for at least a year
Owned at least 5% of share capital for at least a year
£10m life time ER
This reduces CGT to 10%

Question 5

What is disposal expenditure?

Answer 5

Incidental costs of disposal e.g. agents fees

Question 6

What is subsequent expenditure?

Answer 6

Expenditure on the asset which enhances value.

Expenditure incurred in establishing, preserving or defending title to the asset.

Question 7

What is initial expenditure?

Answer 7

The base cost of the asset (purchase price)

Associated cost of acquisition e.g. lawyers fees

Question 8

What is hold-over relief?

Answer 8

Where the donor gives the donnee a gift of the capital asset, and both parties elect to hold over CGT. The effect of this is to mean that no CGT is payable by the donor. The donnee will pay CGT on subsequent disposal of the asset. The donnee will use the figure the donor acquired the asset for as the initial expenditure.