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(APD) Business Law and Practice > Capital Gains Tax (CGT) > Flashcards

Capital Gains Tax (CGT) Flashcards

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1
Q

What are the 4 components of CGT?

A

(1) ‘Chargeable disposal’
(2) of a ‘Chargeable asset’
(3) By a ‘chargeable person’
(4) Giving rise to a ‘chargeable gain’

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2
Q

What is the formula for calculating CGT? There are 3 steps.

A

(1) Calculate BASIC GAIN / LOSS = Disposal consideration - initial expenditure - subsequent expenditure - incidental costs of disposal
(2) Apply RELIEFS & AE
(3) Apply CGT TAX RATE

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3
Q

CGT involves a ‘chargeable disposal’:
(a) What are the 2 types of ‘chargeable disposal’?
(b) What is the main of example of a disposal that will NOT be a ‘chargeable disposal’?

A

(a)
(1) Sale of an asset
(2) Gift of an asset during a person’s LIFETIME

(b) Gift on an asset on DEATH

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4
Q

(1) A ‘chargeable asset’ in CGT includes what forms of property?
(2) What are 4 key examples of property that is not a ‘chargeable asset’?

A

(1) All forms of property (e.g. land, shares)

(2) Except:
(a) Cash
(b) Principal Private Residence
(c) Motor vehicles
(c) Plant machinery

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5
Q

(1) What are 4 examples of ‘chargeable persons’?
(2) What are 2 examples of NOT ‘chargeable persons’

A

(1)
(a) Individuals
(b) PRs
(c) Trustees
(d) Partners

(2)
(a) Companies
(b) Charities

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6
Q

What is meant by ‘chargeable gain’?

A

The increase in the value of an asset

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7
Q

(1) In calculating CGT, what is the ‘disposal value’ of an asset?
(2) What are the 3 exceptions to this?
(3) In these 3, exceptions what is the ‘disposal value’ of the asset?

A

(1) Sale price

(2)
(a) Gift
(b) Sale at an undervalue (i.e. deliberate undervalue)
(c) Disposal to a ‘connected person’

(3) Market value

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8
Q

In CGT, which of the following are classed as a ‘connected person’:
(a) Spouses / civil partners
(b) Parents, children, grandchildren
(c) Close relatives of spouse
(d) Aunts, uncles. nieces and nephews

A

(a) Yes
(b) Yes
(c) Yes
(d) No

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9
Q

Is CGT charged on incidental costs of acquisition (e.g. solicitors’ or surveyor’s fees)?

A

No

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10
Q

What is the ‘basic rate’ of CGT for (a) Property (b) Other assets?

A

(a) 18%
(b) 10%

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11
Q

What is the ‘higher rate’ of CGT for (a) Property (b) Other assets

A

(a) 24%
(b) 20%

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12
Q

What are the 6 main types of relief in CGT?

A

(1) Private Residence Relief
(2) Annual exception (AEA)
(3) Business Asset Disposal Relief (BADR)
(4) Investors’ Relief (IR)
(5) ‘Hold-over’ Relief
(6) ‘Roll-over’ Relief

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13
Q

In CGT, what 4 conditions must be satisfied in order to qualify for FULL ‘Private Residence Relief’?

A

(1) Continuous occupation
(2) Used any part for business use
(3) Garden >0.5 hectares (UNLESS garden is necessary for the reasonable enjoyment of house)
(4) Owned / lived > 1 house

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14
Q

In order to qualify for FULL ‘Private Residence Relief’ in CGT:
(1) What size of garden will NOT qualify?
(2) What is the exception to this?

A

(1) Garden > 0.5 hectares
(2) Garden is necessary for the reasonable enjoyment of the house

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15
Q

What is the annual exception amount (AEA) in CGT?

A

£6,000

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16
Q

What type of relief MAY the following be entitled to:
(a) Officer (e.g.) Director / employee
(b) Shareholder

A

(a) Business Asset Disposal Relief (BADR)
(b) Investor Relief (IR)

17
Q

If Business Asset Disposal Relief (BADR) applies:
(1) What rate of CGT will be charged?
(2) What amount will this apply up to?

A

(1) 10%
(2) Up to Lifetime limit of £1 million

18
Q

What are the two main items Business Asset Disposal Relief applies to in CGT?

A

(1) Sale or gift of whole / part of an Unincorporated company (i.e. sole trader / partnership)

(2) Shares in a TRADING company / company USED to trade

19
Q

BADR can apply to the sale or gift of whole or part of an ‘Unincorporated Business’ (i.e. sole trader or partnership’). What 2 conditions must be met?

A

(1) Own at least 5% of business
(2) Business owned for at least 2 years BEFORE DISPOSAL

20
Q

BADR can apply to company shares:
(1) What 4 must be satisfied for both a CURRENT trading company OR Company USED to trade?
(2) What 1 extra condition must be satisfied for a Company USED to trade?

A

BOTH:
(1) Employee OR Director of the company
(2) Holds at least 5% of the ordinary shares
(3) Right to at least 5% of profits / sale proceeds
(4) 1 to 3 satisfied for at least 2y BEFORE DISPOSAL

COMPANY USED TO TRADE:
(4) Shares disposed of within 3y company CEASING TO TRADE

21
Q

If Investors’ Relief (IR) applies:
(1) What rate of CGT will be charged?
(2) What amount will this apply up to?

A

(1) 10%
(2) Up to Lifetime limit of £10 million

22
Q

(1) Who does Investors’ Relief (IR) in CGT apply to?
(2) Who does it NOT apply to?

A

(a) Shareholders in an unlisted company
(b) NOT officers / employees of the company (even if shareholders)

23
Q

What type of relief - ‘Hold-over’ or ‘Roll-over’ will apply for:
(a) The replacement of a qualifying business asset (QBA)
(b) The gift or sale at undervalue of a a qualifying business asset (QBA)

A

(a) Roll-over relief
(b) Hold-over relief

24
Q

What is ‘Roll-over Relief’?

A

When a qualifying business asset (QBA) is sold and proceeds of sale are used to buy another QBA (i.e. replace the asset)

25
Q

What is the purpose of ‘Roll-over Relief’ in CGT?

A

Allows the payment of CGT to be delayed until the replacement asset is sold

26
Q

What asset can ‘Roll-over Relief’ in CGT NOT be used for?

A

Shares

27
Q

What is the purpose of ‘Hold-over Relief’ in CGT?

A

Postpone potential payment of CGT until the business asset eventually disposed of by new owner

28
Q

What are the 2 conditions for ‘Holdover Relief’ in CGT to apply?

A

(1) Individual disposes of a business asset by:
(a) Gift OR
(b) Sale at undervalue

(2) New owner of asset disposes of it within 4 years from end of tax year disposal was made

29
Q

In reliefs from CGT, can ‘shares’ be used as the asset for relief under:
(1) ‘Rollover Relief’
(2) ‘Holdover Relief’

A

(1) NO
(2) YES (if unlisted)

30
Q

(1) Does transferring an asset to a spouse attract CGT?
(2) When will the spouse pay CGT on the asset?

A

(1) No
(2) When they dispose of the asset

31
Q

What 2 taxes do partners in a partnership pay?

A

(1) Income Tax
(2) Capital Gains Tax (CGT)

32
Q

In the absence of a Partnership Agreement that specified, how will capital gains be shared by the partners in a Partnership?

A

Equally

(APD) Business Law and Practice (11 decks)

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