Capital Gains Tax Reliefs Flashcards
Principal Private Residence
A taxpayer’s only or main residence, including grounds or gardens totalling up to half a hectare or such larger area as is required for the enjoyment of the house having regard to the size and character of the house.
PPR: More than one residence
Only one PPR allowed. Spouses / partners may only have one PPR between them.
If 2+ properties elect which is to be PPR within 2 years of acquisition of second property.
PPR: Deemed occupation
- The last 18 months if the property has been PPR at some time. Even if the individual has another PPR during this period.
The following only count if no other PPR
- Any period (or periods added together) of up to three years (36 months) absence for any reason.
- Any periods of absence during which the individual was required by his employment to live abroad
- Any period (or periods added together) of up to four years (48 months) during which the individual was required to live elsewhere due to his work so he could not occupy the property.
The periods of absence must usually be preceded by a period of actual occupation and followed by actual occupation. However, not required to resume residence in last two situations if terms of employment require him to work elsewhere.
PPR - Business use
If part of the property is used EXCLUSIVELY for business purposes, the gain attributable to that part of the property will not be given PPR relief.
PPR - Break down of marriage
If owner ceased to live in the property disposes of his interest to the other party. In this case still deemed to be in occupation provided
- the other party continues to live in the property and
- the owner who has left has not made an election to treat another property as PPR.
PPR - Letting relief
If a property has been occupied as a PPR letting relief may be available for that part of the gain that does not qualify for PPR.
Letting relief is the lowest of
- letting gain
- PPR relief
- £40,000
Roll over relief - basic
Replacement of business assets relief defers payment of tax on gains because the proceeds from selling one asset are reinvested when a replacement asset is acquired. The logic is that the taxpayer has insufficient funds to pay the tax. The gain on the disposal of the old asset is rolled over into the base cost of the new asset.
Who is roll over relief available for?
individuals (sole traders and partners) and companies
Conditions for roll-over relief
Both the old asset and the new asset must be qualifying business assets.
Qualifying assets include:
- Land and buildings (occupied and used for trade purposes)
- fixed plant and fixed machinery
- Goodwill (sole traders and partners only - NOT COMPANIES)
The old and new asset do not need to be the same type of asset.
Roll over relief: qualifying time period
the new asset must be acquired during a qualifying time period of one year before and three years after the date of disposal of the new asset
Roll over relief: claim must be made…
within the later of four years of the end of the tax year (accounting period for companies) in which the gain is realised or the new asset is acquired.
Rollover relief: how to calculate
1) calculate the gain
2) proceeds x
reinvested(x)
———
Taxed now x
The proceeds become the base cost of the new asset for future disposal..
Rollover relief: non business use
When an asset has non-business use, relief is only available on the business element of the gain
Technique: have two columns - one for non business and one for business and apportion disposals and costs. Rollover relief is a separate working and is proceeds of the business element less cost of replacement factory.
Rollover relief: depreciating assets
Where replacement asset is a depreciating asset, the gain is not rolled over by reducing the cost of the replacement asset. Rather it is deferred until it crystallises on the earliest of:
1. the disposal of the replacement asset
2. ten years after the acquisition of the replacement asset
3. The date the replacement asset ceases to be used in the trade.
An asset is a depreciating asset if it is, or within the next ten years will become, a wasting asset (ie an expected life of 60 years or less)
Rollover relief: Free parking
Where a gain on disposal of asset 1 is deferred against a replacement depreciating asset (asset 2) it is possible to transfer the deferred gain into a non-depreciating asset (asset 3) provided the non depreciating asset (asset 3) is bought before the deferred again on asset 2 has crystallised.
Gift Relief - What is gift relief?
Normally any gift of a chargeable asset is a chargeable disposal and a gain needs to be calculated using the market value of the asset as disposal consideration.
A claim may be made by an individual (the donor) for the gain arising on a gift of a BUSINESS asset to be deferred until the recipient of the gift (the donee) disposes of the asset at a later date.
Qualifying business asses for gift relief
Assets used in business carried on by the donor or by the donor’s personal company (a company in which the donor has at least 5% of the voting rights) or
- shares or securities in a trading company where either the shares are unquoted or the company is the donor’s personal company
A joint election must be made and signed by both the donor and the donee within four years after the end of the tax year of the gift.
Gift relief: How does it work?
If gift relief applies, there is no gain arising for the donor on the disposal of the asset. Therefore no capital gains tax is payable.
The donee’s deemed cost of acquisition (which is the market value at the date of the gift) is reduced by the amount of the gain which would have been chargeable had gift relief not been applied.
Restriction on gift relief (1)
on shares in personal company. Gift relief is only available for shares in a trading company. If that trading company has chargeable non-business assets on its balance sheet (eg shares in another company or an investment property) gift relieg will be restricted using the fraction
MV of chargeable assets (CA)
Restriction on gift relief (2)
… where consideration received.
Market value is still used to calculate the gain. Any excess of actual consideration over the base cost of the asset is immediately chargeable.
Entrepreneur’s relief - effect
Entrepreneur’s relief charges the rate of CGT to 10% on certain disposals of business assets for individuals regardless of their level of taxable income.
Entrepreneur’s relief - conditions
This relief is available in respect of gains or disposals of
- all or part of a trading business the individual carries on alone or in partnership
- assets of the individual’s or partnership’s trading business following the cessation of the business.
- shares in (and securities of) the individual’s ‘personal’ trading company (or holding company for a trading group)
A personal trading company is…
one where the individual making the disposal
- owns at least 5% of the ordinary share capital of the company and
- is an officer or employee of the company, or a company in the same group of companies.
Entrepreneur’s relief is claimed by…
netting off gains and losses in respect of the business disposal
- taxing the gain at 10% (after deduction of losses and the annual exempt amount, though these can be allocated to gains not eligible for entrepreneurs’ relief in priority)
Entrepreneur’s relief - limit
No annual limit
the lifetime limit is £10 million
Entrepreneur’s relief time limit
Entrepreneur’s relief must be claimed. The time limit for the claim is 12 months from 31 January following the tax year in which the qualifying disposal is made.
