Capital Taxes

Question 1

Exempt Assets

Answer 1

Motor Vehicles
Wasting Chattles (tangible, moveable, predictable life)
Non wasting chattles sold at at a gain of max £6000 consideration 
Gift-edged securities
Qualifying Corporate Bonds
National Savings Certificates
Shares and investments held in ISAs
Gift to charity is an exempt disposal

Question 2

Allowable Expense within gain/loss computation

Answer 2

Cost of acquisition (or MV@ time of receipt)
Incidental cost of acquisition (legal/professional fees)
enhancement expenditure (capital expenditure reflected in the state of the asset at disposal)

Question 3

Taxable Gain

Answer 3

The amount arrived at by subtracting the annual exempt amount from the capital gain.

Question 4

Tax rates

Answer 4

10 or 20 percent depending on level of income. Gains made on property are taxed at a higher rate of 18 or 28 percent.

Question 5

Transfers on death

Answer 5

Not a disposal for capital gains purposes. This is a matter relating to inheritance tax.

Question 6

Chargeable disposal

Answer 6

Gift or sale of whole/part of an assets

Question 7

Annual Exempt Amount

Answer 7

£12000 per annum for 2019/20

Question 8

Entrepreneur’s Relief

Answer 8

Tax rate of 10%.

Any unused basic rate band it set against entrepreneur’s gains first before other gains or property gains.

Qualifying disposals are

• all or part of trading business
• Shares in an individuals personal trading company, where they own at least 5% of ordinary share capital and are officer or employee of the company.

Cumulative lifetime limit of £10 million.

Question 9

Wasting Chattle

Answer 9

Tangible, moveable and with an expected life of less than 50 years. Exempt from capital gains taxes.

If the asset is plant and machinery and the owner has claimed capital allowances then the asset will be treated as a non-wasting chattle.

Question 10

Non Wasting Chattle

Answer 10

Expected life of more than 50 years.

If the asset cost and gross proceeds are both less than 6000 then it is exempt from CGT.

If asset cost and gross proceeds are both more than 6000 then the gain would be calculated the normal way.

If asset cost was more than 6000 but the gross proceeds are less than 6000 then loss is restricted by limiting gross proceeds to 6000.

If the asset cost was less than 6000 but the gross proceeds are more than 6000 then the lower of the following is deemed to be the gain:

Normal gain calculation of consideration minus purchase price and incidental costs

OR

5/3 (gross proceeds - 6000)

Question 11

Capital Gain calculation

Answer 11

Gross disposal consideration (what was paid)
minus allowable costs such as purchase cost or MV of asset on the date of receipt, incidental costs of acquisition or disposal, and any enhancement expenditure reflected in the state of the asset.

Question 12

Connected Persons

Answer 12

Disposal to a connected person is always at market value on date of disposal. Meaning you cannot dispose of an asset to a connected person for less than the market value.

Question 13

Share Matching

Answer 13

Shares are matched in three steps.

1. Same day disposal and purchase
2. Within 30 days (FIFO)
3. Share Pool

Question 14

Share Pool

Answer 14

Average cost of shares is used to calculate the cost of shares. This cost feeds into calculation of gain on disposal of Shares.

It is called the S.104 pool.

Question 15

Gift of Quoted Shares

Answer 15

If quoted shares are gifted then the below formula is used to calculate the market value. It uses the range of share values,

lower quoted price + 0.5*(higher quoted price - lower quoted price)

Question 16

Rollover Relief

Answer 16

Relief given on the sale of qualifying asset where the proceeds of sale are reinvested into a replacement asset qualifying asset.

The relief is rolled over into the gain of the replacement asset, therefore reducing the taxable gain and CGT liability.

A qualifying asset would be plant and machinery with a value larger than £6000, land and buildings and goodwill for individuals (not companies).

The gain and relief is apportioned to account for any non-business use.

If the replacement asset is depreciating in nature (expected life of less than 60 years) then the gain is not rolled over it is frozen until the earliest of:

• Disposal of replacement asset
• 10yrs after acquisition of replacement asset
• replacement asset ceases to be used in the tax payers trade

Question 17

Gift Relief

Answer 17

Qualifying business assets for gift relief are;

Assets used in a business carried on by the donor or by the donor’s personal company (at least 5% voting rights)

or

Shares or securities in a trading company where the shares are either unquoted or from the donor’s personal company (at least 5% share ownership).

If the gift is of qualifying shares in the donor’s personal company and the company holds some investments the relief is restricted to;

“Chargeable business assets/Chargeable Assets”

In the instance where consideration is received and is in excess of base cost, then the asset is immediately chargeable.

Question 18

Share dilution

Answer 18

If the individuals shareholding becomes diluted to less than 5% after a share issue then they can elect to continue with entrepreneurs relief.

On the date of dilution their shareholding will be deemed sold and repurchased for the new issue price. This will give a notional gain figure to tax under ER.

Question 19

Investors’ Relief

Answer 19

Investors’ relief is given from the tax year 19/20. It is a 10% tax rate on qualifying disposals.

Qualifications are;

Shares disposed of that were subscribed for as new ordinary shares

Be in an unlisted company, issued by the company on or after 17th March 2016 and have been held for a period of 3 years after 6th April 2016.

Lifetime limit of £10 million.

Question 20

Principle Private Residence Relief

Answer 20

Disposal of principle private residence is exempt from capital gains tax.

For individuals with more than one residence they mat elect which is to be regarded for PPR. This election must be made within two years of acquisition of the second property.

[ (Actual + Deemed occupation)/Ownership ] x Net Gain

Question 21

Partial Principle Private Residence Relief

Answer 21

[ (Actual + Deemed occupation)/Ownership ] x Net Gain

Where deemed occupation is

• last 18 months of ownership

OR

If preceded and followed by actual ownership:

• 3 years for any reason
• Any time in overseas employment
• Up to 4 years working elsewhere in the UK

Work to the nearest month for the exam.

Question 22

Domicile

Answer 22

Legal concept.

Can be:

• place of birth ‘origin’
• Dependency, if below 16 years old then the domicile will be where the guardian resides.
• Choice, if you choose to sever ties.

A domicile may be ‘deemed’ if the individual has been a resident in the UK for a minimum of 15 of the last 20 tax years. Or if the individual was born in the UK and resident in the UK during the tax year.

Question 23

UK Resident and UK Domiciled/Deemed Domicile

Answer 23

Taxable on worldwide income on a arising basis.

Question 24

Non Resident

Answer 24

Taxable on UK source income only

Question 25

UK Resident but non UK domiciled/ deemed domiciled

Answer 25

Taxable on UK source income on an arising basis.

The individual has the choice of the arising or remittance basis for their foreign income.

Question 26

The remittance basis

Answer 26

Foreign income/ gains that are ‘enjoyed in’ (remitted) to the UK are taxable in the UK.

Remittance basis is automatic if the un-remitted income/gains is less than £2000.

If it is more than £2000 then there is the option to elect the remittance basis. Election will mean the loss of personal allowance and annual exempt amount. Additionally, there is a remittance basis charge (RBC) if the individual is a long term resident in the UK. These are as follows:

• Resident of at least 7 of the previous 9 tax years pay £30,000
• Resident of at least 12 of the previous 14 tax years pay £60,000

Question 27

Double Tax Relief

Answer 27

Where foreign taxes are levied on income or gains which are also taxed in the UK usually there will be a tax credit reducing UK liability.

The relief is calculated as the lower of:

• Overseas tax suffered
  or
• UK Tax on the overseas income/gains