Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Income Tax > Capital gains tax- General > Flashcards

Capital gains tax- General Flashcards

1
Q

Who is a chargeable person and what are they taxed on CGT

A

Individual or a company who are UK resident. Taxed on their worldwide disposal

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is a chargeable disposal and also list of exempt disposals? In terms of general, don’t need a list

A 
✓ Sale
✓ Part disposal
✓ Gift
✓ Loss or damage- insurance proceed
WHOLE OR PART DISPOSAL

Exempt disposals
✓ disposals on death- taxed under IHT
✓ gifts to charities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is a chargeable asset and give examples (thinking of everything that falls under CGT and the exemptions

A

ALL ASSETS unless specifically exempt

✓ Land
✓ Buildings
✓ Goodwill
✓ Shares
✓ Chattels (special rules)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Which are exempt chargeable asset?

A
  • Motor vehicles (including vintage cars)
  • Main residence
  • Cash
  • Assets held in ISA’s
  • Corporate bonds / gilt edged securities / debentures
  • NS Certificates
  • Wasting chattels ( horses, boat, caravan < 50 years of life)
  • Non-wasting chattels (cost and sale proceeds < £6,000)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

When is the selling proceedings value not used in the calculation and instead what is used?

A

Market value

  • it is gifted or
  • sold to a connected person ( except couples)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is the CGT Liability profoma

A

Gross disposal proceeds / market value
Less: Selling cost/Allowable expenditure

Net disposal proceeds

Less: Allowable cost/expenditure
Cost of acquisition
Incidental costs of acquisition
Additional (capital) enhancement expenditure (NO REVENUE i.e. replacement

Chargeable gain/(allowable loss) X(X)

Calculate Gains and losses for each disposal
Asset 1
Asset 2
Asset 3
Asset 4 (CY loss) maximum relief (1st)

Net chargeable gains

Less Annual exemption
Less : Capital losses b/fwd (can be restricted to preserve the Annual exemption) (2nd)

Taxable gain

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

how are transfers between spouse and civil partners treated?

A

At a no gain no loss. actual proceeds are ignored and the transferor (giftor) is deemed to dispose of the asset at it’s acquisition cost. effectively transferring over the cost to the spouse.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is the definition of a wasting chattel and examples

how are they treated?

A

life <50 years

e.g. racehorse, boat, caravan

They are EXEMPT from CGT unless plant and machinery used in trade on which capital allowances were claimed.

E.g. A machine is a wasting chattel but as it has been used for trading activities, it is NOT AN EXEMPT DISPOSAL. However, the capital loss is not going to be an allowable as relief will have already been given through the capital allowances computation instead. (i.e. fall in value of asset)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What is the definition of a non-wasting chattel and give example and what are they eligible for

A

They are also eligible for capital allowances (e.g. plant and machinery used in trade)

expected life > 50 years

E.g. antiques, painting
subject to £6k rule

No allowable capital loss arises as capital allowances already given relief for loss in CA’s computation (i.e. fall in value of asset)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is a chattle and give example

A

Tangible, movable property.

Painting, jewellery, racehorse, boat, caravan

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

what is the treatment for non wasting chattle when it cost less than 6k and the profit also was more than 6k?

*Think of what the government motivation is

what is the treatment for non wasting chattle when it cost more than 6k and the profit is less than 6k?

A

Motivation is to allow you to make a bit of money when selling things that incidentally are profitable. Making you choose the lower figure so that you pay lower tax

Taxed on lower of:

▪ Normal calculation
▪ 5/3 x (gross proceeds - £6,000)

Deemed sales proceed 6k
Less: Allowable selling cost x
Net sale proceeds _______x__

Less: Cost of purchase
:incidental cost of acquisition

Allowable loss

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is the matching rule for shares?

A

▪ Same day as the date of disposal
▪ Within the following 30 days
▪ The share pool

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is investors relief?

A

Investors relief extends the benefits of ER to certain investors who would not meet the conditions for ER.

IR applies to the disposal of;
▪ Unlisted ordinary shares in a trading company (including AIM shares)
▪ Trading company
▪ Subscribed for (newly issued shares) on or after 17th March 2016
▪ Which have been held for a minimum period of three years starting on 6th April
▪ By an individual who is not an employee of the company
▪ IR is subject to separate lifetime limit of £10m of qualifying gains
▪ Taxed at only 10%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What are the ways in which capital losses can be relieved?

A

Only allowed to be relieved against capital gains.

CY- Partial not allowed
CF- Partial relief allowed to preserve AEA

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is the formula to work out the cost of the part disposal?

A

This is basically the percentage of the cost relating to the proportion that was sold

Cost x (A/A+B)

A= sales proceed of part disposal/consideration
B= Market value of the remainder
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

What is the date of payment

A

CGT is collected as part of the self-assessment system, and is due in one amount on 31 January following the tax year. Therefore, a CGT liability for the tax year 2019–20 will be payable on 31 January 2021. Payments on account are not required in respect of CGT.

Date of payment 31st January following the tax year

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

How are losses dealt with and the profoma brief?

A

Must be set off against current year chargeable gains. . Offset before brought forward losses and cannot be restricted to preserve AEA

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

How are brought forward losses dealt with?

A

They are offset after AEA is deducted which means that you can restrict how much in order to protect the AEA as it would’ve already been deducted

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

How are losses dealt with for connected person?

A

They can only be offset against gains to same connected person

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What are the list of planning opportunities between spouses?

A
  • Annual exemption allowance
  • Capital losses
  • Basic Rate Band
  • Timing of disposal
  • Piecemeal
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What is AEA planning opportunity?

A

Each individual will have their own annual exemption if this is not used then will be wasted. So you can transfer assets between the two to utilise both exemptions.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What is Basic rate band planning opportunity?

A

Gains that fall in to the basic band will be taxed at 10%/18% instead of 20%/28%, there may be one partner who is a low earner, and still has some of their basic band remaining. So you can ensure that the gains are realised by the partner who has BRB remaining

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What is Capital losses planning opportunity?

A

You can ensure that gains are realised by the spouse who has capital losses. Otherwise if taken by the person who doesn’t, they’ll have to pay tax.
Capital losses brought forward can be allocated to gains, however the loss cannot be given to the other partner, so the transfer of the asset will have to happen before disposal at a NGNL and then the disposal will result in a gain which can then be set against the loss.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What is Timing of disposal planning opportunity?

A

If the disposal hasn’t yet happened, it may be worth delaying the disposal to the next tax year, as you get a new annual exemption, as well as a new basic rate band. Also the payment of the CGT will be delayed another 12 months.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

What is Piecemeal planning opportunity?

A

Selling assets piecemeal across different tax years to utilise more than one AEA

26
Q

When thinking of planning, what is another thing to consider with CGT when disposing of assets?

A

Impact on income tax

Are the assets income generating? – Need to look at many taxes not just the one! E.g. if someone is gifting shares which generate dividends

27
Q

How are wasting assets dealt with an give an example

A

This is a wasting asset. A wasting asset is one which has a remaining useful life of 50 years or less. The cost of such an asset must be adjusted for the expected depreciation over the life of the asset.It is not a chattel e.g. copyright royalties

So a normal gain computation but allowable cost is calculated as;

Cost x (Remaining Life at disposal/Estimated useful life)

With copy right disposal, only the years used up allowance of the cost is allowed
• Copyright is a wasting asset as it has an expected life of less than 50 years. the allowable expenditure is restricted to take account of the assets natural fall in value. The asset’s fall in value is deemed to occurs on a straight-line basis over it’s useful life

28
Q

How are insurance proceeds treated?

A

If an asset is lost or destroyed, then the receipt of insurance proceeds is treated as a normal disposal. However, relief is available if the insurance monies are used to purchase a replacement asset within a period of 12 months.

Depends on whether

1) Asset was lost or destroyed
2) Asset was damaged

29
Q

How are insurance proceeds treated if lost or destroyed?

A

At deemed disposal.

1) Not reinvested- Normal computation
2) Reinvestd within 12 months- Elect for no gain no loss
3) Partially reinvested within 12 months (Replacement asset bought for less than insurance proceeds)

  • Proceeds NOT reinvested taxed as chargeable gain
  • Balance of gain is rolled over

Balance of gain = (Ins Proceed-Cost of damaged asset)

30
Q

How are insurance proceeds treated if asset is damaged (part working part not)?

A

If an asset is damaged, then the receipt of insurance proceeds is treated as a part disposal. However, if all the proceeds are used to restore the asset, then a claim can be made to ignore the part disposal rules.

1) Not used in restoration
- Normal part disposal computation; Proportion of the insurance received to the value of the asset plus the insurance;

Insurance received/(value of damaged asset+ IR)

2) Used in restoration
- Part disposal rule UNLESS ‘rollover’ election made to deduct the proceeds from the cost of restored assets on subsequent disposal

31
Q

What is the definition of reorganisation?

A

Exchange of existing shares for shares of another class in the same company

32
Q

What is the definition of Take over?

A

When a company acquires shares in another company either in exchange for shares in itself, cash or a mixture of both.

33
Q

What is the treatment of consideration of share for share?

A
  • No CGT disposal at time of takeover/reorganisation

* Cost of the original shares become the cost of the new shares

34
Q

What is the treatment of consideration of cash and shares?

A
  • Part disposal of the original shares
    Cash received/(Cash received + MV of new shares)
  • Gain arises on the cash element of the consideration
35
Q

Is qualifying corporate bond taxable under CGT? and along with which others?

A

Qualifying corporate bonds, gilt edged securities and a main residence and all CARS (regardless of any business use) are all exempt from CG

36
Q

Are cars taxable under CGT?

A

all CARS (regardless of any business use are all exempt from CG

37
Q

What is the rule between capital allowances and CGT?

A

Assets used in the trade are still chargeable assets and will potentially realise a chargeable gain if they are sold at a profit.

Any tax allowable loss arising on the sale of business plant and machinery is reduced to take account of relief given by capital allowances. (i.e. fall in value of asset)

38
Q

When does wasting chattel rules do not apply

A

One instance when wasting chattels are not exempt from capital gains tax is when the wasting chattel is used in TRADE and CAPITAL ALLOWANCES have been CLAIMED or could have been claimed on them.

There would therefore be two potential tax liabilities arising from the sale of business machinery at a gain:

  • > the first as a balancing charge, and
  • > the second in the form of tax on the chargeable gain.

Any tax allowable loss arising on the sale of business plant and machinery is reduced to take account of relief given by capital allowances.

The wasting chattel rules do not apply to assets on which capital allowances have been claimed

39
Q

What is the annual exemption amount?

A

12,000

40
Q

What is the letting relief?

A

Lowest of

1) Letting relief 40k
2) PPR Relief - calculation of PPR
3) Gain on letting- remaining amount after deducting PPR

41
Q

For rollover relief, only which kind of Plant and machinery qualify for rollover relief?

A

Only fixed (not movable) P&M qualify for ROR.

42
Q

What condition for goodwill must be met in order for it to qualify for roll over relief?

A

It only qualifies for ROR provided it is disposed of by the sole trader and not a company

43
Q

When is rollover relief not available on the replacement asset.

A

The gain chargeable is the lower of:
▪ Whole gain i.e. the gain on the qualifying asset disposed of
▪ Proceeds not reinvested

So if the whole gain is chargeable (if the proceeds not invested is greater than the whole gain), there is no ROR available because we didn’t reinvest enough money.

44
Q

For gift relief, What is the chargeable gain and the amount of gift relief available for sales made at a profit (i,e, donor has made a profit)

A

The full gain cannot be deferred using gift relief where there are actual proceeds in excess of cost (i,e, donor has made a profit)

Anika sold her 3k shares in a trading company to her son for £53k which was originally bought for £41.5k. The market value of the shares is 98k

Chargeable gain is;
Proceeds - Cost (£53k-£41.5k)= 11.5

The gift relief will be limited to this 11.5k

Gift Relief

Proceeds (MV)                      98K
Less: Cost                             (41.5k)
Gain before relief=               56.5k
GIFT RELIEF (Bal Figure)        (45k)
Chargeable gain=                 11.5k

Base Cost 98k- GR (45K)= 53K

45
Q

What must you remember when there are disposals of assets of a business ceasing to trade which qualifies for entrepreneurs relief?

A

▪ Assets of sole trader/partnership trading business that has now ceased. PERIOD of ownership of the individual assets don’t matter as long as the business itself was owned for 2 years

46
Q

In what order is AEA relieved?

A

AEA should be offset against gains on residential property in priority to other gains in order to save the max amount of tax. After then any other non qualifying assets

47
Q

Are repairs allowed to be deducted from Sales proceeds when calculating the gain

and what about capital expenditure?

A

This is CAPITAL GAINS TAX. Only the capital (enhancement element is allowed)

Replacing the warehouse’s floor is a revenue expenditure and is therefore not deductible from proceeds when the warehouse is sold. As a repair it would have instead been deductible from trading profits when the replacement was made

The cost of a new boundary wall is capital expenditure as the wall is a separate distinct entity

48
Q

when must be replacement assets be bought by for roll over relief in order for relief to be available?

A

Relief is only available if the replacement warehouse was bought one year before the date of disposal

49
Q

In what order is everything taxed?

A

The gains qualifying for entrepreneurs relief have to be taxed first and they utilise the remaining BR band therefore the remaining gain on non qualifying assets (e.g. necklace) will be taxed at 20%

50
Q

What is the deadline for making any election for entrepreneurs relief

A

An election for Entrepreneur’s relief must be submitted by 31 Jan 2022. ( within 12m of the 31 January following the tax year in which the disposal is made

51
Q

If they ask you a question asking how much capital gains tax you would’ve saved if it was transferred to a partner with basic rate band remaining,g how would you work this out?

A

You basically calculate the amount you save (difference in the % of the amount you don’t have to pay such as AEA) because of the transferee’s available AEA and BRB.

You would calculate the BRB remaining firstly. Then you would also calculate the excess tax (for residential it is 10% [28%-18%]) and multiply this by the amount of BRB remaining. Taking into account any % x AEA that you’re saving

Example.

For the tax year 2019–20, Jane is a higher rate taxpayer but her husband Claude does not have any taxable income. During March 2020, Jane is going to dispose of a residential property, and this will result in a chargeable gain of £120,000.

If 50% ownership of the property is transferred to Claude prior to its disposal, this will enable his annual exempt amount and basic rate tax band for 2019–20 to be utilised. The CGT saving for the couple will be £7,110:

£

Annual exempt amount 12k at 28% =3,360
Lower rate tax saving £37,500 at 10% =3,750
(28% – 18%)

=7,110

52
Q

What is the value per share when someone disposes it quickly?

A

The selling price of £4.95 (What they sold it for) is going to be the value per share. NOT the market value

53
Q

How do you calculate the base cost of the replacement asset for which you received the insurance proceeds for the the damaged asset

Asset 1 £44k
Proceed £62k
Replacement £63,600

A

The insurance proceeds were fully reinvested within 12 months therefore the gain can be deferred in full

Insurance proceed 62k
Less Cost               (46)
= Chargeable gain=18k

Cost of replacement table 63, 600
Less: Gain deferred -18k
= Base cost = 45,600

54
Q

WHAT MUST BE USED?

A

The annual exempt amount

55
Q

What is the profoma of gift relief?

A 
SP : MV
Less (Cost)
=Gain
Less: Gift Relief
=Chargeable gain     
Less: AEA                  
=Taxable gain
56
Q

When you are gifted a house from your uncle/anyone and then you subsequently sell that house, what do you use as the cost of property ?

A

The market value at the time of the gift

57
Q

What cost is not allowed in selling property?

A

Replacing the chimney is revenue expenditure as it is a subsidiary part of the house. so it is not allowed where as an enhance ment expenditure is allowed (Capital!)

Building a new wall boundary is a separate entity and is an enhancement expenditure (Capital, enhancing the value) so it is a capital expenditure and is allowed

Insurance is not allowed!

58
Q

How do you decide where to apply basic rate band to first

A

how any unused basic rate tax band is allocated between chargeable gains does not make any difference to the overall CGT liability (since the differential is 10% in both cases).

59
Q

how are capital gains calculated for something that capital allowance had been claimed on?

A

Think of it as depreciation. You’re not allowed the full cost anymore because it doesn’t reflect the condition /value of that asset. The value has been reduced
The allowance cost (purchase cost) is amended to include the capital allowances that were already claimed. So the new purchase cost is going to be (Cost- Claimed capital allowance).

On 12 March 2020, he sold machinery for £22,600. The machinery had been purchased on 1 June 2016 for £34,000. Giles claimed capital allowances totalling £11,400 in respect of this machinery.

The cost of £34,000 is reduced by the capital allowances claimed of £11,400, giving an allowable cost of £22,600. Since the proceeds are also £22,600, the disposal is on a no gain, no loss basis.

60
Q

What must you remember about An unincorporated business?

A

An unincorporated business is not treated as a separate entity for CGT purposes. Therefore, when a business is disposed of you should deal with each asset separately.

61
Q

Where an individual inherits an asset at someones death and when they try to sell the asset, what is used as the cost?

A

Where an individual inherits an asset, the cost of acquisition is the market value at the DATE OF DEATH i.e. the probate value

62
Q

What is difference between share disposal between companies and businesses

A

Individual

1) Same day
2) FOLLOWING 30 days
3) Share pool

Companies

1) Same day
2) PREVIOUS 9 DAYS
3) Share pool

Income Tax (20 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions