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CII AF1 > Capital Gains Tax > Flashcards

Capital Gains Tax Flashcards

1
Q

What is the difference between valuing assets for CGT and IHT?

A

IHT it is the loss to the estate unlike CGT which is the asset value.

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2
Q

If a disposal is subject to income tax, is it deducted before or after CGT is calculated?

A

Before

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3
Q

How do you establish if income or capital gains tax should be paid on gains and what are the advantages of being treated as CGT?

A

(1) Income tax if trading / CGT if not

(2) CGT Annual Exemption and lower tax rates

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4
Q

HMRC have nine “badges of trade” used to establish if a transaction is one off and subject to CGT or a trading asset, not all needed are to be present, list 4.

A
  1. Inherited or gifted?
  2. Money borrowed to buy the asset?
  3. Personal enjoyment or profit?
  4. Transactions Similar to a Trade?
  5. Profit-seeking motive
  6. Was the asset changed to increase profit?
  7. The number of transactions
  8. Was it sold in a way that was typical of a trade or to raise emergency cash?
  9. A quick buy and sell would suggest a trade.
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5
Q

If an asset was acquired on or before ../../.. the cost is deemed to be the market value on that date and you can deduct post 1982 costs.

A

31/3/82

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6
Q

How is the date of disposal for CGT determined?

A

The date the contract for sale becomes binding, and if the buyer defaults the disposal is treated as void.

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7
Q

How are spouses and civil partners taxed for CGT?

A

Separately

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8
Q

What type of transfers are these and how are they taxed?

(1) When married and living together at some point during the tax year
(2) When separated and not living together during tax year
(3) On divorce

A

(1) Tax free, once sold the original acquisition cost is used.
(2) Taxable, transfer between connected parties
(3) Taxable, between unconnected parties

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9
Q

What are the three CGT benefits of inter spouse transfers?

A

(1) Use of both exemptions
(2) Use of lower tax rate
(2) Off set losses against spouse’s gains

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10
Q

How is CGT treated for spouses with jointly owned assets?

A

Each taxable on their share of the gain, for example 50/50 for Joint Tenants

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11
Q

What are the six CGT disposals other than sales?

A

(1) Gifts including to trusts
(2) Exchanges
(3) Destroyed creating a loss
(4) Compensation for damage (not in a profession)
(5) Insurance payment
(6) Capital for the surrender of rights

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12
Q

What are the five circumstances where the Market Value is used for CGT calculations?

A

(1) Not at “Not at Arm’s Length” sale between connected parties (family)
(2) Deliberate under value between friends
(3) Deliberate bargain price.
(4) Gifts
(5) Holdover relief

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13
Q

Who is entitled to the annual exemption?

A

Everyone.

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14
Q

Wasting assets are exempt for CGT what are they and when aren’t they exempt?

A

(1) Asset with expected life of 50 years or less.

2) Business Machinery where capital allowances have been claimed (So excludes business assets

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15
Q

What 12 assets are exempt from CGT apart from investments?

A

(1) Main residence
(2) Private motor vehicles
(3) *Woodlands
(4) Chattels under £6k
(5) Gambling winnings
(6) Decorations of valour sold by original owner
(7) Assets given to charity/museums
(8) **Assets of national interest
(9) Compensation in a profession
(10) Debts repaid to original creditor
(11) Cashbacks like mortgage lenders
(12) Foreign currency / bank accounts for personal use

  • Woodlands free from CGT but CLT charged and IHT deferred until Timber sold when gifted on death (IHT Woodland Relief)
  • *The new owner must make an agreement to look after , keep in UK and give public access
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16
Q

What are the five stages to a CGT Calculation?

A

(1) Disposal - Acquisition Cost
(2) Deduct Costs (Buy, Sell, Enhancement)
(3) Deduct same year losses
(4) Deduct Annual Exemption
(5) Calculate tax, in order that minimises tax i.e. gains taxable at the highest rate first such as property.

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17
Q

Which nine investments are exempt from CGT?

A

(1) Savings Certificates and Premium Bonds
(2) Gilts, Corporate Bonds, PIB’s
(3) ISA’s and CTF’s
(4) VCT
(5) EIS or SEIS
(6) Pensions
(7) Qualifying life assurance
(8) Up to 100k lifetime limit on Employee Shareholder Shares unless more than 25% voting rights, if received them pre 1/12/2016 limit is £50k.
(9) Shares in an employee Share Incentive Plan (SIP) until transferred to employee absolutely.

The following are not exempt:

(1) 2nd hand insurance policies
(2) non qualifying corporate bonds
(3) UT investing in corporate bonds

18
Q

Tax Rate for CGT

(1) BRT
(2) Above BRT
(3) Addition for property
(4) Entrepreneurs relief

A

All of this is the tax tables;

(1) 10%
(2) 20%
(3) 8%
(4) Always 10%
* The taxable gain is treated as if it sat on top of income

19
Q

What is a negligible value CGT Claim and how long do you have to make the it?

A

Where you still own an asset but it’s value has reduced to next to nothing, you have 2 years to make the claim, treated as having disposed of the asset even though you still own it.

20
Q

How do you to calculate the CGT gain on a part disposal?

(1) The calculation
(2) How do you calculate deductible expenses?

A

(1) Calculate the value of the part disposed as a % of the TOTAL current value and apply that to the original cost.
(2) Apply the same formula above to the expenses unless they only relate to the part retained or disposed.

21
Q

What is the MAXIMUM chargeable gain when calculating CGT on chattels?

A

5/3rds of excess of DISPOSAL proceeds over £6k

22
Q

Is CGT paid on death and how are the beneficiaries treated?

A

(1) No CGT on death.

(2) Beneficiaries acquire at market value at the date of death which should be the same as the IHT value.

23
Q

Payment of CGT

(1) When must you inform HMRC if you have made a gain greater than the annual exemption
(2) When is the tax due
(3) What changes in 2020

A

(1) Via your normal self assessment or within 6 months of the end of the tax year.
(2) 31st January, no payment on account
(3) A payment on account within 30 days for non exempt residential property
* Delaying disposals until new tax year defers the due date.

24
Q

Can capital expenditure be deducted as the purchase price for CGT calculations if the owner created the asset?

A

Yes

25
Q

What are the three costs that can be deducted when calculating CGT and one cost that cannot?

A

(1) Fees; Estate Agent / Stockbroker / Legal
(2) Tax (SDRT, SDLT, LBTT, LTT)
(3) Enhancements

Cost against income such as repair costs cannot be deducted as a cost for CGT but are an allowable expense when calculating income tax on rental income

26
Q

How are deferred /contingent payments treated for CGT?

(1) If amount is known
(2) If amount is unknown
(2) When can it be paid in instalments

A

(1) Included in the disposal proceeds and recalculated if not received.
(2) Further CGT is payable on the difference when it is eventually received.
(2) If payable more than 18 months after disposal.

27
Q

How can losses be used to off set CGT?

(1) losses made in the same tax year
(2) Losses brought forward
(3) Time limitation for claiming a loss with HMRC
(4) Time limitation for carrying forward excess
(5) Under what conditions do they need to be reported to HMRC?

A

(1) Must off set losses against gains in the same tax year even if that takes gain below the exemption amount.
(2) Can use just enough to the annual exemption amount
(3) Within 4 years of the end of the tax year they relate to, whether or not used in that period
(4) Indefinitely once claimed
(5) Only if more than 4 x exemption amount or wish to offset against gains
* Can’t use contrived schemes to create a loss for tax advantage.
* Can off set losses in a away that minimise the tax due

Deduct same year losses from all gains in the tax year then bring forward enough losses from previous years to bring down to exemption level

28
Q

Can losses be claimed on assets that are exempt?

A

No except EIS and SEIS shares.

29
Q

What six types of absence are ignored for Private Residence Relief from CGT?

A

(1) First 12 months before taking residence
(2) Last 18 months if main residence at some time, (36months if disabled / going into long term care).
(3) Periods totalling up to 3 years.
(4) For work in UK up to 4 years, must lived there before and after.
(5) Working outside the UK.
(6) Living in job related accommodation.
Must live in property before and after exemption period unless work requires you to live elsewhere and have no other property claiming Private Residence Relief during the time of absence.

30
Q

With Private Residence Relief from CGT if the property was the main residence for part of the period of ownership how is the gain proportioned?

A

Work out % of time occupied and apply to the gain.

31
Q

If property is purchased to make a gain by renovating and selling can Private Residence Relief from CGT be claimed?

A

No

32
Q

What is the maximum size of land that can be included for CGT Private Residence Relief?

A

5,000 square metres.

33
Q

There is no Private Residence Relief from CGT for part of a home used wholly for ……. but ok if …..

A

business / part used

34
Q

How are multiple homes treated for Private Residence Relief from CGT and how many times can married couples living together claim?

A

(1) Can elect which home is your main residence, within two years of acquisition of additional residence.
(2) Can only claim the exemption from one property at a time.

35
Q

Residential Letting Exemption from CGT

(1) When does it apply
(2) What is the maximum exemption amount?
(3) Do married couples get an exemption each?
(4) What changes in 2020?

A

(1) If used as main residence at some point and let as residential accommodation either in whole or part.
(2) Lesser of £40k or PRR on part occupied by the owner
(3) Yes
(4) No exemption where whole house is let

36
Q

If a part disposals of land are under £20,000 in a year and each one is less than 20% of the whole what additional point should you consider?

A

You can claim not to have made a disposal but the proceeds are taken off your cost when calculating the future disposal.

37
Q

Is CGT payable on an IHT exempt or potentially exempt gift ?

A

Yes

38
Q

If the donor pays CLT when gifting can it be deducted when calculating the gain? (Assuming no CGT holdover relief is claimed)

A

Yes

39
Q

How are investments in shares of the same type and class treated for CGT?

A

(1) Treated as one asset, known as a section 104 holding
(2) Work out the cost per share for each acquisition then add them together for the total cost
(3) Deduct the total cost from the proceeds, unless a purchase occurs within 30 days

40
Q

What is the impact of the following on the CGT section 104 share pool?

(1) Reinvested Income Units
(2) Accumulation Units

A

(1) Treated as additions to the pool
(2) If you have accumulation units no new units are added but the existing increases in value. If these notional distributions are subject to Income Tax, they are treated as expenditure.

41
Q

CGT Treatment of the following shares?

(1) Bonus, provided free
(2) Rights, purchased by existing shareholders
(3) Scrip or Stock Dividend, shares issued in replacement of cash dividends

A

(1) No acquisition cost
(2) New acquisition
(3) New acquisition

42
Q

What is the order to which costs are matched on shares of the same type?

A
  1. Shares acquired on the same day as disposal
  2. Shares acquired in the following 30 days
  3. From a weighted average pool of shares held

CII AF1 (21 decks)

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