Capital Taxes Flashcards
Exempt Assets
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
Allowable Expense within gain/loss computation
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)
Taxable Gain
The amount arrived at by subtracting the annual exempt amount from the capital gain.
Tax rates
10 or 20 percent depending on level of income. Gains made on property are taxed at a higher rate of 18 or 28 percent.
Transfers on death
Not a disposal for capital gains purposes. This is a matter relating to inheritance tax.
Chargeable disposal
Gift or sale of whole/part of an assets
Annual Exempt Amount
£12000 per annum for 2019/20
Entrepreneur’s Relief
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.
Wasting Chattle
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.
Non Wasting Chattle
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)
Capital Gain calculation
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.
Connected Persons
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.
Share Matching
Shares are matched in three steps.
- Same day disposal and purchase
- Within 30 days (FIFO)
- Share Pool
Share Pool
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.
Gift of Quoted Shares
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)
Rollover Relief
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
Gift Relief
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.
Share dilution
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.
Investors’ Relief
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.
Principle Private Residence Relief
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
Partial Principle Private Residence Relief
[ (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.
Domicile
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.
UK Resident and UK Domiciled/Deemed Domicile
Taxable on worldwide income on a arising basis.
Non Resident
Taxable on UK source income only
UK Resident but non UK domiciled/ deemed domiciled
Taxable on UK source income on an arising basis.
The individual has the choice of the arising or remittance basis for their foreign income.
The remittance basis
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
Double Tax Relief
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
