Capital gains tax- Companies Flashcards
What are the key differences/similarities in the capital gains computation between individuals and companies?
▪ The only relief available to companies is rollover relief
▪ Indexation allowance is available
▪ different matching rules apply for shares and securities
What is indexation alliance?
it is available up to the date of disposal (Dec 2017)
It is based on the retail price index
IA = Cost x Indexation factor
For companies, what is the matching rule for shares?
Share of the same type are matched as follows
- Same day acquisitions (No IA given)
- Shares acquired in the previous 9 days (FIFO basis) (No IA given)
- Acquisitions in a share pool
For company capital gains, regarding shares what are the rules when calculating indexation allowances?
▪ Each purchase and sale is recorded in the pool, but the indexed cost must be updated before recording the ‘operative event’.
▪ When calculating the IA in the share pool, the indexation factor is NOT rounded to 3 decimal places.
▪ When shares are disposed of out of the share pool, the appropriate proportion of the cost and indexed cost, which relates to the shares disposed of, is calculated on an average cost basis.
- WE DO NOT INDEX UP BEFORE A BONUS ISSUE
What is an operative event
▪ Rights issue is an operative event.
- Index up to the date of the rights issue
- Add the number of shares and then the cost of shares to both the cost and indexed cost in the pool
▪ A bonus issue is not an operative event.
- Just add the number of shares into the poop with NIL cost
For company capital gains, regarding rollover relief, what is not the same in comparison to individual relief?
Gain rolled over is the ‘indexed gain’
1) Qualifying business assets ONLY include for both; Land and Buildings for the purposes of trade and FIXED plant and machinery
2) Goodwill is NOT a qualifying asset
2) Indexation allowance
3) Freehold or leasehold interest in land and buildings is a QBA but if the leasehold is for less than 60 years on acquisition then the gain can only be deferred for a maximum of 10 year
AFTER THE REPLACEMENT ASSET IS ACQUIRED. So if the replacement was bought on 1st Nov 18 then the gain becomes chargeable on 1st November 2028
What must yo note with freehold or leasehold interest in land and buildings?
It is a qualifying business assets but if the leashold is for less than 60 yeras on acquisition then the gain can only be deferred for a maximum of 10 years
AFTER THE REPLACEMENT ASSET IS ACQUIRED. So if the replacement was bought on 1st Nov 18 then the gain becomes chargeable on 1st November 2028
What is the claim deadline?
The election must be made for companies within four years of the later of the end of accounting period in which the asset is
- Sold and
- Replacement asset is acquired
1 Oct 2019 Sold
1 Nov 2018 Replacement bought
The company must make the ROR electionn by 31 Dec 2023
Regarding capital losses brought forwards, how is it offset for individuals and companies?
Individuals can restrict so net gains is = Annual exempt amount
Companies can also restrict to protect QCD
What is the formula for chargeable gain when a holding in a company is taken over and there are cash in consideration?
On takeover, there are no chargeable gain arising in respect of the £1 ordinary shares (10k for 10k shares) received as it is paper for paper transaction.
A new share pool is however opened with the deemed cost calculated in respect of the shares on takeover as the base cost.
The indexed cost is allocated between the MV of takeover consideration between the shares and the cash as a percentage of the total indexed cost.
This percentage being: Indexed cost * (x/ total MV of the takeover consideration).
Roll over relief: For company capital gains, Depreciating assets, what happens to gains?
Same as for individuals.
Depreciating assets
▪ Gain deferred/frozen and crystalises on the earlier of
✓ Disposal/sale of depreciating asset
✓ Asset ceases to be used for trade purposes
✓ 10 years from date of acquisition of replacement asset (AFTER THE REPLACEMENT ASSET IS ACQUIRED. So if the replacement was bought on 1st Nov 18 then the gain becomes chargeable on 1st November 2028)
▪ Gain not deducted from the base cost of the depreciating asset
For roll over relief, if there is partial reinvestment of proceeds, how is this treated?
The gain that can be rolled over is restricted.
The gain chargeable is the lower of:
▪ the gain on the qualifying asset disposed of
▪ Proceeds not reinvested
This is then taxable on the disposal of the original asset. The balance (difference) of the remaining gain can be deferred by rolling it into the base cost of the replacement asset
For roll over relief what is the minimum amount that will have to be reinvested in qualifying replacement business assets in order for the company to claim the maximum possible amount of rollover relief in respect of the gain on the disposal
The minimum amount that will have to be reinvested in qualifying replacement business assets in order for the company to claim the maximum possible amount of rollover relief in respect of the gain on the disposal is the NET SALE PROCEEDS (after deducting disposal expenses). Not the gross sale proceeds.
HMRC allow full roll over relief provided the net sale proceeds are reinvested in qualifying assets. It’s not necessary to reinvest the gross sale proceeds
What MUST you remember about indexation allownace?
IT cannot create or increase a loss.
Which means that IF the full indexation allowance would create a negative, the allowance is restricted to make it NIL instead of creating a loss.
For roll over relief, when must a further claim be made by?
A further claim for ROR may be made if another qualifying asset is acquired by 30 November 2022 (three years after the disposal)
