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SQE 1 (mine) > CGT > Flashcards

CGT Flashcards

1
Q

When is CGT applicable?

A

Payable on chargeable gains made by a chargeable person on
the disposal of chargeable assets in a tax year

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2
Q

Who is a ‘chargeable person’?

A

□ individuals (personal capacity/as sole trader)
□ PRs’ disposing of deceased’s assets
□ Partners (charged separately for their proportion of the gain)
□Trustees, on disposal of a chargeable asset from a trust fund.

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3
Q

Who is NOT a chargeable person?

A

*Companies-pay corporation tax instead
*Charities exempt

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4
Q

What is/isnt a chargeable asset

A

□ All forms of property (inc debts, options and incorporeal (a legal right in property having no physical existence, eg patent/lease))
□ NOT sterling (cash)

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5
Q

What is a chargeable disposal

A

□ Sale
□Gift

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6
Q

5 steps for calculting CGT?

A

Step 1: is there a disposal of a chargeable asset
Step 2: Calculation of the gain
Step 4: Aggregate gains/ losses; deduct annual exemption
Step 5: Apply the correct rate of tax

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7
Q

Step 1: When will there be a disposal of a chargeable asset?

A

Disposal=gift or sale
Gift-market value at time of gift used to calculate
Death of taxpayer-not disposal ( IHT payable instead)

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8
Q

Step 1: Is a disposal of part of an asset chargable to CGT?

A

Yes

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9
Q

Step 2: how do you calculate the gain?

A

Asset sale price
LESS purchase price
LESS:
*Initial expenditure (Cost of asset, Incidental costs of acquisition, expenditure wholly and exclusively incurred in providing the asset (eg building costs)
*Subsequent expenditure ( wholly and exclusively incurred in establishing, preserving or defending title to the asset/to enhance the value of the asset)
*Incidental costs of disposal (Legal/conveyancing/estate agents fee)

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10
Q

Step 2: What is indexation?

A

*Relevant for assets owned between 31 March 1982 and 5 April 1998-adjusted as some increase in value due to inflation?
*To calculate: apply to initial and subsequent expenditure the percentage increase in the Retail Prices Index from the date the expenditure was incurred to the date of disposal of the asset

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11
Q

Step 3: What reliefs are available?

A

*Rollover relief on replacement of business assets
*Rollover relief on incorporation of a business
*Hold- over relief on gifts
*Business asset disposal relief (aka entrepreneurs relief)
*Private residence relief
*Damages for personal injury
*Tangible moveable property (wasting assets and assests that increase in value)

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12
Q

Step 3: what is rollover relief on replacement of business assets and what is the effect?

A

*When sole traders/partners sell qualifying business assets and sale proceeds other qualifying business assets
*CGT postponed until seller disposes of new assets

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13
Q

Step 3: what is a ‘Qualifying business asset’?

A

Land
◊ Buildings
◊ Goodwill
◊ Fixed plant and machinery (but sale results in loss normally)
Used in trade of business not as an investment
NOT company shares

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14
Q

Step 3: When does rollover relief on replacement of business assets apply?

A

◊ sole trader, using in their trade
◊ partnership, using in its trade
◊ individual partner, where partnership using in partnership trade
◊ individual SH, where used in the trade of the company in which SH owns shares and Co is their ‘personal company’ (5% voting shares)

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15
Q

Step 3: time limtis for rollover relief on replacement of business assets

A

*acquire replacement asset within 1y before or 2y after disposal of original, (unless HMRC extends)
*must claim relief within 4y end of tax year they get replacement/asset sold

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16
Q

Step 3: How is rollover relief on replacement of business assets applied?

A

gain notionally deducted from acquisition cost of replacement asset, which gives a lower acquisition cost to use in CGT calculations when the asset is disposed of in the future

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17
Q

Step 3: can you use the annual exemption with rollover relief on replacement of business assets

A

no, its lost

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18
Q

Step 3: what is Rollover relief on incorporation of a business?

A

when individual sells interest in unincorporated business to Co->Gain rolled over to shares which seller gets as consideration so CGT payable when they sell these (Gain deducted from cost of new shares)

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19
Q

Step 3: is Rollover relief on incorporation of a business applied automatically?

A

Yes

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20
Q

Step 3: what are the conditions for Rollover relief on incorporation of a business to apply

A

*Business transferred as going concern (so run same after just with diff owner)
*Consideration is all shares issued by Co (or only % received can be rolled over
*Business transferred with all its assets

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21
Q

Step 3: can you use the annual exemption with rollover relief on incorporation of a business?

A

No, its lost

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22
Q

Step 3: what is hold- over relief on gifts?

A

when making gift/sale of undervalue of certain types of business asset, CGT not payed but donee will be charged CGT if they dispose of asset

23
Q

Step 3: conditions for Hold- over relief on gifts
to apply

A
  1. Must be gift/gift element of sale at undervalue
  2. Both parties must agree/elect within 4y end of tax year of disposal
  3. Must be chargeable ‘business asset’
24
Q

Step 3: for hold- over relief on gifts of business assets, what is a ‘business asset’?

A

*assets used in donor’s trade, or their interest in such assets (if sole trader or partner)
*shares in unlisted trading company
*shares in a personal (5% voting shares) trading company (even if listed)
*assets owned by SH and used by their personal trading company

25
Q

Step 3: when will hold- over relief on gifts of business assets not apply?

A

If donee Co, relief n/a to gift of shares

26
Q

Step 3: can you use the annual exemption with hold- over relief on gifts?

A

No

27
Q

Step 3: What is the effect of business asset disposal relief (aka entrepreneurs relief)?

A

Reduces a ‘qualifying business disposal’ to a flat rate of 10%, subject to lifetime cap of £1million

28
Q

Step 3: What is a ‘qualifying business disposal’ for a sole trader/partnership?

A

Where disposes of whole/part of business and:
*Its disposed of as a going concern
*assets disposed of following cessation of the business (provided they were used in the business at the time of cessation)

Interest in business as a whole,( not assets) must have been owned either:
1. For 2y ending with the date of disposal
2. For 2y ending with cessation of business IF disposal is within 3y after cessation

29
Q

Step 3: What is a ‘qualifying business disposal’ for company shares?

A

◊ Co is trading
◊ AND Co is a ‘personal company’ ( at least 5% ordinary share capital with at least 5% voting rights) AND:
* beneficially entitled to at least 5% of profits available for distribution to equity holders AND at least 5% of the assets available on a winding up
*OR beneficially entitled to at least 5% of the proceeds of sale if the whole of the ordinary share capital of the company were disposed of
◊ AND disponer is an employee/officer of Co
◊ AND above satisfied for 2y ending with:
*date of disposal
*OR date co ceased trading (and the disposal within 3y cessation of trading).

30
Q

Step 3: time limits for Business asset disposal relief (aka entrepreneurs relief)

A

on or before the first anniversary of the 31 January following the tax year in which the qualifying disposal was made

31
Q

Step 3: what reliefs are avaliable for Tangible moveable property?

A

□ Wasting assets-assets with a predictable life of less than 50y (inc consumer goods eg kitchen appliances/TVs)=exempt
□ Tangible assets that increase in value (eg antiques)=exempt if consideration for disposal £6k or less

32
Q

Step 3: What is private residence relief?

A

Applies to: dwelling house inc grounds of 1/2 hectare that individual has occupied as main residence through period of ownership (excluding last 9mo)
Effect: exempt

33
Q

Step 3: what is relief for damages for PI?

A

Effect: exempt

34
Q

Step 4: how much is the annual exemption

A

£3,000

35
Q

Step 4: can the annual exemption be carried forward?

A

Yes to following year

36
Q

Step 4: How does the annual exemption interact with Rollover on replacement of business assets or hold over relief?

A

Cant also use:
*Business asset disposal relief
*Annual exemption
Specifically rollover on replacement cant generally be used with:
*hold over
*Rollover on incorporation

37
Q

Step 4: how does the annual exemption and other reliefs interact with rollover on incorporation?

A

Cant also use: *Business asset disposal
*Annual exemption *Rollover on replacement of assets
*Hold over
BUT if consideration is part cash part shares, can sometimes use rollover on inc for part relating to shares and business asset disposal and annual exemption for part relating to cash

38
Q

Step 4: how does the annual exemption and other reliefs interact with business asset disposal relief?

A

Cant be claimed with hold over/rollover
CAN use annual exemption before

39
Q

Step 5: rates of tax for assets qualifying for business asset disposal relief?

A

*10% regardless of income
*Where have some gains that qualify and some don’t 10% rate will be added to their income first, meaning that their other gains will be treated as the top
slice of their income and therefore be more likely to be taxed at 20%, or at 28% on residential property

40
Q

Step 5: rates of tax for assets qualifying for residential property

A

8%

41
Q

Step 5: rates of tax for assets qualifying for assets other than residential property/qualidting forbusiness asset disposal relief

A

*10%-if capital gains + taxable income don’t exceed threshold for basic income tax (£37,700)
*20%-capital gains + taxable income over the basic rate threshold

42
Q

Step 5: rates of tax for trustees and PRs

A

20%
28% for residential property

43
Q

Step 5: how is CGT calculated when theres more than 1 disposal?

A

□ Chargeable assets in different categories must be calculated separately so that the correct rate of tax can be applied.
□ Losses and annual exemption can be deduced from gains subject to higher tax first
1. Deduct from residential prop first
2. Then assets which don’t qualify for business asset disposal relief
3. Then assets which do qualify for business asset disposal relief

44
Q

What can be done if a gain is transferred at a loss?

A

*If CGT losses exceed gains, setting losses against gains will wipe out gains and so no CGT to pay (loose annual examption)
*If still unabsorbed losses, may be caried forward indefinatley and used to the reduce gains to limit of the annual exemption

45
Q

How do tou calculate setting a loss against a gain?

A

(a) work out the gain or loss each tax year;
(b) deduct any losses of the current year from gains;
(c) deduct any losses brought forward from previous years to reduce any remaining gains to the limit of the annual exemption;
(d) deduct the annual exemption from any remaining gains

46
Q

What happens when theres is a part disposal?

A

any initial and subsequent expenditure are apportioned when calculating the gain

47
Q

What happens with disposals between spouses?

A

If living together, no deemed gain or loss for disposals
BUT when recipient disposes, they pay CGT on gain made by them AND spouse

48
Q

How is CGT paid in partnerships?

A

*Treated as if each partner making separate disposal in proportion of % ownership of partnership assets
*can choose own relieds if any

49
Q

How is GCT relevent when a new partner joins a partnership?

A

will involve the other partners disposing of part of their existing share of the asset because the assets are shared amongst more partners

50
Q

Are LLPs treated the same as partnerships for CGT purposes?

A

Yes mostly BUT may be treated as body corporate when ceases to trade,

51
Q

Is CGT relevent to share buyback?

A

Normally charge to income tax
BUT CGT relevant if:
i. buyer a trading co and shares not listed on recognised stock exchange
ii. purpose of buyback is to raise cash for IHT or for the benefit of the company’s trade
iii. Seller owned shares for at least 5y
iv. seller is selling all of their shares or substantially reducing by at least 25% to a maximum of 30% of the issued share capital

52
Q

When must GCT be paid?

A

*before 13 Jan following end of tax year OR 30d from making assessment if later
*BUT for residential prop: must submit provisional calculation of gains made form sale and pay dx due within 30d completion

53
Q

How is CGT paid?

A

HMRC’s real- time CGT service
HMRC property service
self- assessment tax return

54
Q

Can CGT be paid in installments?

A

In 10 annual instalments if (rare):
* disposal= gift
* qualifying asset is land, a controlling shareholding in co or any shareholding in a company whose shares are unquoted;
* conditions for hold- over relief to apply NOT met
If yes, first payment will be due by 31 January following the end of the tax year in which the disposal was made.

SQE 1 (mine) (30 decks)

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