CGT 1: Chargeable Gains Arising Flashcards
What is CGT? (3)
Examples? (3)
Capital gain accrues when:
1) ‘chargeable person’ disposes of
2) a ‘chargeable asset’ on a
3) ‘chargeable occasion’.
These ‘terms’ are not found tax legislation but HMRC shorthand
CGT is used to plug in the gaps between income tax and avoidance schemes.
Introduced 6 April 1965
Shares
land
buildings
antiques
jewellery
are examples of assets that may attract a CGT liability if they are disposed of for more than they cost.
ALWAYS CONSIDER BADGES OF TRADE/NATURE OF DISPOSAL - ITSA IS HIGHER THAN CGT
What’s the CGT working out formula (4)
- what you receive for it
LESSS
- allowable disposal expenses
*
LESS - what you paid for it
LESS
- the cost of certain improvements to it.
= Chargebale Gains (normally charged at 20%) - Consider the AEA!
What if you dispose of something for less than you bought it for? (1)
You may be able to claim an allowable loss.
Key legislation for CGT? (1)
TCGA 1992 - Taxation of Chargeable Gains Act 1992.
How does CGT interact with other taxes? (5)
- Income tax: will always take priority over CGT and considered first. May fall outside of ITSA when they are not carrying on a trade
- Stamp duty: Paid by purchaser, and CGT is paid by seller. (SDLT may be deduced from the CGT once sold)
- IHT - Death is not a chargeable occasion for CGT
- Partnership - a partnership is not chargeable to CGT - individual partners are
- Corporation Tax - they pay CT and are dealt with by the office dealing with the company. May be liable to ATED
Who is chargeable to CGT? (4)
**Residency **- Chargeable to CGT when they are resident or ordinarily resident in the UK (Statutory Residence Test).
Non-Residency - If carry on a trade, profession or vocation in the UK - pay CGT on assets used in the trade.
**Non-UK Domiciled but resident **- Liable to CGT on gains arising on assets situated anywhere in the world.
In general, people who are not resident in the UK are not liable to CGT when they dispose of an asset, but there is legislation to use a temporary move as avoidance technique.
Who is Exempt from CGT? (3)
1) People who are not resident in the UK (unless trade in UK)
2) Non-domiciled
3) Companies (except ATED related CGT)
How does a customer notify CGT for gains and losses? (4)
If no SA return received, they must notify HMRC 6 months from the end of the year of assessment.
SA Record? - Notify on SA return (SA108) (include CG computations)
UK Property Owners (not main residential) - Report in 30 days after completion date
Trustees: SA905
PArtners: SA803
SA records will ask a breakdown of 3 different gains/losses categories: Listed shared/Unlisted shares/property and other
What is a trust for CGT? (2)
For CGT purposes trusts are either settlement trusts or bare trusts.
Trusts are legal arrangements where assets **are held in trust **for the benefit of beneficiaries. Trustees are responsible for administering the trust and trust assets
What is the Annual Exempt Allowance?
Was £6,000 (22/23) but as of April 2024 £3,000.
It is given as a deduction from the final figure of total chargeable gains for the tax year less allowable losses (like a personal allowance)
Gains in any tax year which do not exceed the AEA are not chargeable to CGT.
Note: This relates directly to CGT so no AEA for companies at they’re CT
Before £6,000 it was £12,300 (22/23)
AEA Restrictions (3)
- The amount is personal – it cannot be transferred between spouses or civil partners.
- Allowance can’t be carried forward: one year only
- Sets of against CGT only - no sideways relief
Who is a “Chargeable Person”?
Examples of who is
Examples of who isn’t(1)
‘chargeable persons’ means people or entities who may be liable to pay capital gains tax (CGT) if they make a chargeable gain
Once you have established that there is no charge to income tax, you must consider whether a chargeable person has:
* disposed of a ‘chargeable asset’
* on a ‘chargeable occasion’.
Who is a “chargeable person”
- Trustee (though in their capacity as a trustee via a trustee SA return). wWuld be paid out of trust funds not out of the trustee’s pocket.
Who is not a “chargeable person”:
- Charities
- Companies which are nominee’s.
What is a “Chargeable Asset” (4)
Examples?
Assets on their disposal any gain is a chargeable gain.
Examples:
UK property
non-UK property
Land Leases > 50 years
Goodwill, debts and options and other incorporeal property, created property and currency other than sterling (except where bought for personal expenditure outside the UK). However, some of these assets may be subject to special rules which apply for companies.
Exempt Assets
Examples of what is NOT a “Chargeable Asset”? (4)
Always exempt;
1) Cars
2) chattels worth no more than £6,000 (tangible, moveable property)
3) gilt-edged securities (also called loan stock)
4) Qualifying corporate bonds (QCBs).
5) Sterling (foreign is)
Examples of what MAY be exempt as a “Chargeable Asset”
Other assets may be exempt, depending on the circumstances in which they are acquired.
- medals for valour
- simple debts and life insurance policies will all be exempt in the hand of the first owner but may be chargeable assets for subsequent owners depending on the circumstances in which they were acquired
- Shares, though you’d have to sell a lot
What is a “Chargeable Occassion”?
Examples?
When a chargeable gain may accrue of disporsal/part of an asset.
1) Something is sold
2) Assets are exchanged
3) Gift is made (because gifts are not arms length)
4) Moving from personal to trading stock S161 TCGA1992
Examples of what is not a “Chargeable Occassion”
- Death of the owner of the asset.
- Spousal transfers - treated as being made on a no gain, no loss basis.
Examples what MAY be a “Chargeable Occassion”
Capital sum is derived from an asset
Loss/destruction of an asset
Negligible value claim is made.
When is the date of disposal?
- Date of any contract
- Conditions precedent in the contract are fulfilled
- if no contract, date of disposal is asset transfer date, unless specific rules apply.
The date of disposal is important because it can determine the rate of tax charged, the availability and calculation of reliefs and whether or not the gain is chargeable.
What is not a disposal date?
- the death of the owner of an asset
- a transfer of an asset between nominee (or the legal owner) and beneficial owner
- a theft of an asset
- a transfer of an asset as security for a mortgage
- share reorganisations or exchanges.
What is “consideration” for CGT?
No definition of consideration in TCG 1992
Note: Consideration does not have to be in money and could be assets
A farmer sells two fields at auction. The auction price is £50,000 and the auctioneer deducts a 3% commission before passing the cash on to the farmer. The farmer receives £48,500. But the disposal consideration used in calculating the chargeable gain is the full £50,000.
Market Values and Arms length
When is market value used?
Examples:
Disposal of an asset is not by way of ‘a bargain made at arm’s length’.
- gifts
- a transfer into a settlement by a settlor (broadly speaking the person who created the settlement)
- a distribution by a company to its shareholders
- where the consideration received cannot be valued
- where the transaction is loss of employment
What are connected people in TCG 1992
These transactions are ‘otherwise than by way of a bargain made at arm’s length’.
Connected persons include:
- Spouses and civil partners
- certain other relatives,
- trustees,
- business partners and connected companies.
What takes priority; ITSA or CGT?
ITSA! - Consideration is explained in S37 TCGA 92
CG has lower rates that ITSA
37Consideration chargeable to tax on income.
(1)There shall be excluded from the consideration for a disposal of assets taken into account in the computation of the gain any money or money’s worth charged to income tax as income of, or taken into account as a receipt in computing income or profits or gains or losses of, the person making the disposal for the purposes of the Income Tax Acts.
1)Remittance Basis: What is it
2) When are the rules not applied?
1) When you are non-domiciled you can choose to use the remittance basis. This means you’re taxed on money coming INTO the UK
2)
- Rules changed April 2017
- Remittance basis is not available if you are deemed domicile in the UK.
Before 2008/09, Anwar would not have been liable to CGT as Non-Doms were not liable for any gains overseas where the proceeds were not remitted to the UK
Election under S161(1). What is it?
Election under S161(3). What is it?
Minimises Capital Gains due.
Appropriations to and from trading stock: How does this work?
A person may acquire an asset for non-trading purposes and subsequently transfer it to trading stock. (s161(1) TCGA 1992, and CG69200+).
In such circumstances, if a sale of the asset at market value would have resulted in a chargeable gain or allowable loss, the transfer to trading stock is a deemed disposal (at market value) for CG purposes at the time that the appropriation takes place.
If, however, the taxpayer makes an election under s161(3) TCGA 1992, there will be no chargeable gain or allowable loss on the appropriation of the asset to trading stock. (s161(3) TCGA 1992, and CG69200).
Instead, the market value of the asset is then reduced or increased by the chargeable gain or allowable loss when working out the trading profits or losses for income tax.
