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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 5 conditions must be satisfied in order to qualify for FULL ‘Private Residence Relief’?

A

(1) Only own 1 home
(2) No part leased (UNLESS lodger)
(3) No part used SOLEY for business use
(4) Continuous occupation
(5) Garden 0.5 hectares or less (UNLESS garden is necessary for the reasonable enjoyment of 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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