Capital taxes Flashcards
What is the small gift exemption?
£250 per recipient per tax year, cannot exempt part of a larger gift.
What is the marriage/civil partnership exemption?
Parent-£5,000 Grandparent-£2,500 Party to the marriage-£2,500 Anyone else-£1,000 HTT
What is the annual exemption for CLT/PETs?
The first £3,000 gifted each tax year not covered by other exemptions. Any unused AE can be carried forward. It’s always applied chronologically even if the first gift is a PET.
What is a PET? Give examples and when is it chargable?
Pontentially exempt transfer.
All lifetime transfers that don’t fall under a CLT.
IHT is chargeable on a PET only if it is made 7 years prior to death.
What three transfers are exempt from IHT?
- to spouse/civil partner.
- to charity
- to qualifying political parties (two MPs or one MP and at least 150,000 votes)
What should you do with exempt transfers in the IHT working?
State that they are exempt and don’t just omit from answer.
What is a CLT? Give examples?
Chargebale lifetime transfer.
- Creation of or a transfer to a discretionary trust.
- The creation of a non-qualifying interest in possession trust (IIP)
When and how is the lifetime tax calculated?
After the NRB is deducted. If trustees pay it’s 20%, if donor pays it’s 25%.
What are the three stages in the IHT pro forma?
Stage 1 - Calculating the chargeable amount
Stage 2 - Calculating lifetime tax (CLTs only)
Stage 3 - Calculating death tax (gifts 7 years pre death and death estate only)
How do you calculate the diminution in value?
Value of estate before gift-value of estate after gift
How are quoted shares valued for IHT?
Lower of-
- the quarter up rule
- the average of highest and lowest marked bargains on the day of transfer
What is the quarter up rule?
lower quoted price + 1/4 x (higher quoted price - lower quoted price)
How are the proceeds from quoted shares valued for capital gains tax?
lower quoted price + 1/2 x (higher quoted price - lower quoted price)
Value of property transferred=
Value of whole property x ((transferor’s value)/(transferor’s value+value of related property))
How do you calculate the value of the shareholding transferred?
Value of whole shareholding x (Transferor’s no. of shares/total shares held by couple)
The residence nil rate band is limited to the lower of-
- the net value of the property left to direct descendants (MV-mortgage)
- the available band (£175,000)
How is the RNRB tapered?
The residence nil rate band is reduced by £1 for every £2 that the value of the estate exceeds £2 million.
Explain quick succession relief.
QSR reduces the inheritance tax payable on the death estate if-
- property had been acquired by the deceased in five years before death
- there as a charge to inheritance on the initial transfer (lifetime or death tax)
QSR=
tax paid on first transfer x (net transfer/gross transfer) x relevant % (find in HTT)
QSR for specific legacy=
net transfer x (tax paid on first estate/gross first estate) x relevant %
Can you exempt part of a gift using the £250 small gift exemption?
No.
Are endowment mortgages (interest only mortgages) deducted from the value of the property?
NO, as the endowment element of the mortgage should cover the debt.
How are unit trusts valued?
Always at the lower price.
What do you do with VAT in a capital allowances question?
Strip it out.
What is investors relief?
Available to individuals who sell unlisted ordinary shares in a trading company with the following conditions:
-Subscribed for after 17th March 2016.
-Held for a minimum of 3 years.
-Not an employee or officer of the company.
Lifetime limit £10m.
What is private residence relief?
Exempt if occupied for whole period of ownership.
What is a deemed period of occupation? (4)
1) Last 9 months of ownership.
2) 3 years any reason.
3) Working abroad
4) 4 years working in UK
(2-4 must be preceded and followed by actual occupation)
How is PRR calculated if the property isn’t occupied for the whole period of ownership?
Exemption = Gain x (Periods of actual and deemed occupation/Total period of ownership)
What 3 things come under “chargeable disposal”?
- Sale
- Gift
- Sale under value
Is a wasting chattel exempt?
Yes
What is the gain on a chattel that cost under £6k but has proceeds over £6k?
The lower of-
- Normal gain
- 5/3 x (gross proceeds-£6k)
What is the allowable loss on a chattel that cost over £6k but has proceeds under £6k?
-Normal loss but assume gross proceeds are £6k.
How do you calculate the allowable cost on a part disposal?
Cost x (MV of part sold/MV of total)
When selling shares what are the matching rules (Individuals)?
- Same day
- Next 30 days (FIFO basis)
- s104 pool (Shares aquired prior to date of disposal)
How are transfers between married couples/civil partners charged?
NGNL.
What is rollover relief?
Available to individuals and companies. For land and buildings used in trade, goodwill and fixed plant and machinery. Reinvest 12 months before or up to 3 years after original disposal.
What is gift relief?
Available to individuals. Calculate a new base cost for donee and defer the gain. Not on investment companies.
How does a partial reinvestment work with rollover relief?
Amount that cannot be deferred=lower of (i) gain (ii) proceeds not reinvested.
How does a depreciating replacement asset work with rollover relief? (clue: 3 dates)
Gain crystallises on the earliest of the following 3 dates-
- Disposal of replacement asset.
- 10th anniversary of acquisition of replacement asset.
- Date replacement asset ceases to be used in the trade.
What is business asset disposal relief?
For individuals who sell one of the following-
-All/part unincorporated trading business.
-Assets of a business following cessation.
-Shares in their personal trading co (>5%) if they are also an employee.
Must’ve owned for >2 years. QUALIFYING GAIN TAXED AT 10%. Lifetime limit £1m.
What 6 rows do you put in the stage 1 section of the inheritance pro forma?
- Transfer
- BPR/APR
- Small gifts exemption
- Marriage Exemption
- Annual Exemption (£3k)
-Chargeable Amount
What 5 rows do you put in the stage 2 section of the inheritance pro forma?
- Chargeable Amount
- Remaining NRB
- Taxable amount
- Lifetime Tax @ 20%/25%
- Gross Chargeable Transfer
What 10 rows do you put in the stage 3 section of the inheritance pro forma?
- Gross Chargeable Transfer
- Fall in value relief
- Residence nil rate band
- Nil rate band available
-Taxable amount
- Tax @ 40%
- Tapered amount
- QSR
- Lifetime tax paid
-Death tax
How does the NRB work for lifetime tax?
- Use the NRB in tax year of transfer.
- Reduce by gross chargeable transfer of CLT’s within 7 years prior to date of transfer.
How does the NRB work for the death tax calculation?
- Use NRB in tax year of death.
- Reduce by gross chargeable transfer of CLT’s and PET’s within 7 years prior to date of transfer BUT NOT PET’s more than 7 years before death.
- Any nil rate band remaining on a person’s death transfers on a proportionate basis to his/her surviving spouse.
How does the RNRB work?
- Up to £175k available dependent on the value of the home.
- Applies before the NRB.
- Must leave a home that has been lived in to a direct descendant in the death estate.
- Is restricted if the individual leaves a house out of death estate valued at over £2m.
- Any unused % can be transferred to a spouse or civil partner.
Explain QSR.
-Available on the death estate if deceased received a gift within 5 years prior to death on which IHT was due.
QSR=
tax paid on first transfer x (net transfer/gross transfer) x relevant %
Explain “Fall in value relief”.
- Available where the value of gift in 7 years pre death has fallen.
- Can reduce the value of chargeable gift at death by the fall in value.
What happens if 10% or more of the net chargeable estate is left to charity?
IHT is automatically charged at 36%.
How much relief is given to sole trader business’s, partnership share and shares in an unquoted trading company? BPR
100%
How much relief is given to shares in an quoted trading company and land/buildings/P&M owned seperately by an individual (used by partnership/company he controls)? BPR
50%
What are the 3 restrictions on BPR?
- No BPR on investments.
- 2 year minimum ownership by donor.
- Donee must still own at donor’s death. (if lifetime transfer)
What rate is APR relief?
100%
What are the 3 restrictions on APR?
- Applies to agricultural value of the land.
- 2 year minimum ownership by donor.
- Donee must still own at donor’s death.
What do you pay IHT if you’re UK domiciled or deemed domiciled?
Pay IHT on worldwide property.
What do you pay IHT if you’re non domiciled?
Pay IHT on UK property only.
How do you calculate indexed gain?
Unindexed gain-(cost x (RPI@D-RPI@A))/RPI@A
When selling shares what are the matching rules (Companies)?
- Same day
- Previous 9 days (FIFO basis)
- s104 pool (Shares aquired prior to date of disposal)
If you lived in your home at the same time as your tenants, you may qualify for Letting Relief on gains you make when you sell the property. What 3 things is this the lowest of?
- The same amount you got in Private Residence Relief
- £40,000
- The same amount as the chargeable gain you made while letting out part of your home
What does a basic rate and higher rate tax payer pay on residential property capital gains?
18/28
What does a basic rate and higher rate tax payer pay on normal capital gains?
10/20
A factory that was used in your business was sold to your son for 185k when it was worth 205k. It cost 100k in 1992. What is the chargeable gain?
£Proceeds (MV) 205,000
Less cost (100,000)
105,000
Gift relief (balancing figure) (20,000)
Gain chargeable (£185,000 – £100,000) 85,000
When disposing of shares that were “subscribed to at par” what would be the allowable cost?
Usually £1 per share.
How do you calculate gift relief?
Total CBA/Total CA
Is a storage unit (held as an investment) a CA or CBA?
CA only.
Is an office building used in trade a CA or CBA?
Both.
Is a car that’s used in trade a CA or CBA?
Neither.
Is plant used in trade CA or CBA?
Both.
Is cash belonging to a business CA or CBA?
Neither.
Is a business’s debtors balance a CA or CBA?
Neither.
When not all of the asset is transferred as a lifetime transfer, how do you calculate the value of the transfer?
The loss in value as a result of the transfer.
Should you include or exclude the proceeds of a life assurance policy (OWN LIFE) in the death estate?
Include.
Should you include or exclude the proceeds of a life insurance policy (HELD IN TRUST) in the death estate?
Exclude.
Should you include the spouses shares when calculating price per share?
Yes.
Are gaming debts allowable in the IHT working?
No.
Name 4 factors when calculating period of deemed occupation.
- Last 9 months of ownership.
- 3 years for any reason.
- Working abroad.
- 4 years working in the UK.
How do you treat a gain on a clock?
Exempt. Classed as a wasting chattel.
What is the “gross chargeable transfer” (last line on stage 2 and first line on stage 3 of IHT) made up of?
If donor is paying tax (assumed) add the 25% IHT to chargeable amount at the bottom of stage 1. If not then it is just the chargeable amount at the bottom of stage 1.
What are the 4 columns in a PRR working?
- Dates.
- Actual Occupation.
- Deemed Occupation.
- Taxable
When calculating SDLT should you include or exclude VAT for a newly constructed freehold commercial property?
Include.
When calculating SDLT should you include or exclude VAT for a newly constructed residential property?
Exclude (residential property is zero rated).
What are admin costs restricted to for property in the death estate?
5%
Can you get an indexation allowance on the % of the property that you let out to unconnected parties?
No.
Can you include the SDLT when calculating the gain on the sale of a property?
Yes.
If the allowances are bigger than the 40% IHT charge is it possible to get a refund?
No, tax is 0.
Is the RNRB tapered when you go over £2m on your house or the entire estate?
Entire estate.
What date is someone deemed domicile?
6th April (15 years out of the last 20 HTT)
When can you get BPR on the residential part of a farm?
If you are running it, e.g not if there’s a tenant on the farm.
For CGT how do you value shares?
Average of the quoted prices (2 numbers)
When you split UK gains and Overseas gains up in the CGT proforma, which do you tax first?
UK.
House was bought for £300,000, extension was £40,000 but has burnt down. What is the allowable cost, and why?
£300,000 as the extension isn’t in existence at time of sale.
What should you remeber in a capital gains question where there are lots of different assets?
Different rates
Can you deduct a capital loss brought forward that has arisen from a sale to a connected person?
No.
How many marks is the NRB working worth?
3, SO DO IT.
What does the NRB proforma look like?
Date Date Date of Death Stage 2 Lifetime NRB Less chargeable in p7y Remaining NRB
Stage 3
NRB at death
Less chargeable in p7y
Remaining NRB
Do you taper CLT’s or PET’s at death?
Both.
Are CLT’s and PET’s chargeable at 36% if there was a large charitable donation on death?
No, only charge 36% on the death estate.
What happens when a gain is rolled over into a depreciating asset (life of under 60 years)?
Doesn’t reduce base cost of new asset,deferred until the earliest of the 3 dates.
