CGT

Question 1

What are the three criteria that must be met in order to consider CGT?

Answer 1

• A chargeable person/body
• A chargeable disposal (Transfers on death or gifts to charity are exempt)
• A chargeable asset

Question 2

List some assets that are specifically exempt from CGT

Answer 2

Cars
Wasting chattels (< 50Y)
Non wasting chattels if bought and sold < £6,000
Gilt edged securities
Qualifying corporate bonds
National savings certificates
ISAs

Question 3

WHat cost is assumed on the disposal of gifts?

Answer 3

Market value at time of gift

Question 4

What is the formula to follow for part disposals?

Answer 4

Cost * A/(A+B)

A = MV of part disposed
B = MV of the part retained

Question 5

Is the AEA for CGT tapered?

Answer 5

No

Question 6

How must a current year loss be dealt with for CGT?

How are brought forward losses dealt with under CGT and how are they different to CY losses?

If relief for trading loss is given against CGT, how does this impact the carried forward loss claim?

Answer 6

A CY Loss MUST be offset against CY Gains, even if this wastes the AEA

Brought forward losses are net off against the first available gains after the deduction of CY losses and AEA. This means that brought forward losses will never waste AEA

We are always deemed to offset capital losses brought forward in full before giving relief for trading losses

Question 7

What are the rates CGT is charged at?

Answer 7

10% if gains fall within BRB
20% if gains fall within Higher Rate band

Residential property CGT bands are 18%/28%

BADR rate is always 10%

Question 8

How should AEA be allocated?

How is this different to how basic rate band is applied

Answer 8

Against the highest rated gains first;
Residential property, then normal gains, then BADR qualifying gains

BADR gains fill up basic rate bands first - tax rule that we can’t chose

Question 9

For spouse connected persons CGT relief, do couples need to have gone through a ceremony?

What is the CGT relief for civil partners?

How do connected persons rules for CGT differ for family members & spouses?

What are the specific rules regarding capital losses incurred on disposals to a connected person?

Answer 9

Yes, cohabiting does not qualify

Nil gain / Nil loss -> acquisition cost for receiving partner = acquisition cost for original partner

Spouse rules - Nil Gain Nil Loss
Connected person disposals occur at full market value

Losses incurred on disposals to a connected person can only be set off against gains made on disposals to the same connected person - not a normal capital loss that can be set against all gains

Question 10

What are the share matching rules for disposing of shares? (For individuals)

Answer 10

Shares are matched against acquisition of shares in the following order;

1. Same day as date of disposal
2. Following 30 days on a FIFO basis
3. S.104 pool

Question 11

How are bonus shares shown in the S.104 pool?

How are rights issue shares shown in the S.104 pool?

Answer 11

Bonus shares are added to the pool at the same date as original shares but at nil costs

Rights issue shares are added at the same date as original purchase of shares at specified cost

Question 12

When there is a gift of quotes shares, what are the rules to determine the market value of the shares for CGT?

Answer 12

Mid point of the quoted prices * number of shares

Question 13

When is the normal due date for payment of CGT?

What are the other possible payment options for CGT?

Answer 13

Normal due date:
31 Jan following the end of the tax year of disposal (No POAs)

Installments:
Avaliable in respect of a gift of L&B or > 50% shares in a company.
As there are no monetary proceeds from this gift for the recipient
Paid in 10 annual installment starting on 31 Jan following the tax year of the gain
Installments are interest bearing

UK Residential Property:
Punative measure
Need to fle a UK Land return & payment fo CGT within 60 days of completion of the disposal

Question 14

What are the conditions of Rollover Relief?

Answer 14

• Rolling over the gain into the base cost of a replacement asset
• Both assets must be qualifying and used in the trade of the taxpayer
  1. L&B
  2. FIXED P&M
  3. Goodwill (individuals only)
• Replacement asset must be acquired from 1 year before to 3 years after fisposal
• Only business portion of new asset is avaliable for releif
• Chargeable gain is the lower of the actual chargeable gain from first disposal and the proceeds not reinvested are immediatley taxed. Balancing figure is the rollover relief

Summary for rules relating to rollover relief is in hardmans

Question 15

How is gift relief applied to CGT?

Answer 15

• Only avaliable on qualifying business assets
  1. Assets used in a business owned by donor
  2. Shares in an unquoted trading company
  3. Shares in a quoted trading company if donor owns company >5% company
• If a company holds some investments, then part of its value is not qualifying for gift releif purposes. So gain is restricted to:
  Chargeable Business Assets (trade) / Chargeable Assets (trade + investment)
• If there is consideration recieved for the gift, the gift relief is the difference between MV & consideration recieved
• Gain is deducted from the base cost of the gifted asset for the donee

Question 16

What assets qualify for BADR?

Answer 16

Disposal of:
1. Shares
* 5% in a trading company, employed for 2 Y in that co
2. Unincorporated business
* Sale of all or part of the business, not just an asset
* Needs to have been owned for 2 Y
3. Assets of unincorporated business following cessation
* Owned for 2Y before cessation & sold within 3Y of cessation

Question 17

What is the lifetime limit for BADR relief?

Answer 17

£1,000,000

Question 18

When do BADR claims need to be made?

Answer 18

12 months from 31 Jan folloring the tax year in which the disposal is made

Question 19

What mnemonic helps to remember whether a disposal qualifies for BADR

Answer 19

FTTW
Five %
Two years (held shares)
Trading co
Worked for

Question 20

What happens when a shareholding that qualifies for BADR is diluted through no fault of the shareholder?

Answer 20

1. Deemed disposal at day before date of dilution
2. Can freeze the 10% CGT liability at that date to be paid when eventually dispose (so can take advantage of the lower rate)
3. When actual disposal occurs, cost of shares is updated to MV at date of deemed disposal (as you are deemed to have bought them back at that point)
4. CGT is charged at normal rates on actual disposal + frozen CGT liability

Question 21

What is the lifetime limit for investors relief?

Answer 21

£10,000,000

Question 22

What qualifies for investors relief?

Answer 22

Disposal of shares by an individual that;
* Have been held for 3y prior to disposal
* Issued after 17 March 2016
* Unlisted trading co
* Must have been new shares, not repurchased

Question 23

How is deemed occuopation applied when calculating partial PPR (Private Residence Relief)

Answer 23

• Always deemed occupation for last 9 months of ownership

If preceeded and followed by actual occupation:
* 3Y absence for any reason are allowed deemed occupation
* Any absence due to employment overseas
* 4Y limit to working elsewhere in uk

If employer prevents occupation on return, deemed occupation is still allowed

Question 24

How is personal residents relief calculated?

Answer 24

(Actual + Deemed occupation / Total ownership) * Net gain

Question 25

How is letting relief calculated and when is it avaliable?

Answer 25

Only avaliable for lodgers - not if letting out whole property

Lower of:
* Letting gain
* PRR
* £40,000