CGT Flashcards
Rates and due dates
Non BADR
Lower - 10%
Higher 20%
residential prop
Lower 18%
higher 24%
when calculating unused BRB extend it for :
1- Gross gift aid donations
2- Gross personal pension contributions
CGT is due on 31 January following end of tax year of disposal
CGT is due within 60 days of disposals, based on estimates of taxable income and availability of capital losses and the AEA
BADR
best way to offset capital losses and AEA
best way to use unused BRB
reduce tax to 10%
Capital losses and AEA can be dedcuted in most beneficial way as follows:
1) From gains on res prop (18/24%)
2) gains on other assets (10/20%)
3)gains qualifying for BADR (10%)
any unsued BRB is set against gains qualifying for BADR before non quali gains
remaining band used against other assets before res property. This is because diff between basic and higher on other is 10% (20-10) where as res is 6% (24-18)
Deferred consideration
three types of future consideration:
1) Amount payable by instalments - single disposal calculated under normal gain rules
2) future payment contingent but unknown - single payment - future payment is included in total proceeds at the time of sale.
IF contingency not met - comp can be subsequently amended.
3) Future payment contingent and unknown - if the future payment depends on future event, there are two disposals. right to future consideration is known as Chose in action.
Disposal of asset:
proceeds received
+
PV of chose in action
-
cost
=
gain
Disposal of chose in action:
Proceeds recieved
less
cost (which is PV of chose in action in above)
=
gain
for individuals a loss on chose in action can be carried back and offset against original gain on disposal of asset
CGT Tax reliefs: BADR - sale of all/part of business by an INDIVIDUAL
conditions
owship period
additional aspects
Conditions : sole trade, partnership, furnished holiday accomodation
Ownership period (note) : Business owned at least 2 years
Additional aspects:
goodwill not qualify for BADR where - Goodwill disposed of to a close company (eg on incorporation)
and
The Individual disposing of entity has at least 5% of company
BADR available of if in less than 28 days of incorp the individual disposes of the shares to another unconnected company (not close OR close and own less than 5%)
CGT Tax reliefs: BADR - qualifying disposals sale of assets used in sole trade or partnership after cessation
Condition: assets sold within 3 years of cessation
Owship period : business owned for at least two years to cessation
CGT Tax reliefs: BADR - sale of all/part of business by an INDIVIDUAL
condition:
1) own at least 5% of - OSC, VR, rights to profits and assets on winding up OR proceeds on sale of company
2) Officer or employee
3) trading company (or holdco of trade group)
Owship period:
Above conditions satisfied for at least 2 years prior to disposal
Additional aspects:
Relief may be denied if company has substantial non trading activities (>20% turnover, assets or staff resources)
For shares issued under EMI option scheme :
Ownership period runs from date option was granted
AND
No need for individual to hold 5% or more
Where sole trade or partnership transferred to a company wholly or partly in return for shares
2 year owship requirement for BADR on a disposal of shares by original trader/partner can include both pre and post incorporation periods
Calculating BADR relief
limit
due date
1) net off gains and losses in respect of business disposal
2) Tax gain at 10% (after deduction of losses and AEA)
cummulative life time limit of £1m (gains arising after 11 March 2020 (£10m before)
limit is on amount of gains which badr can be claimed on
Claim must be made within 12 months from 31 Jan following the tax year in which the disposal is made
31 Jan 2027 for disposals made in 24/25
Shareholdings ceasing to qualify as a personal company
where individuals shareholding is diluted to below 5%, and ceased to be classed as personal company - following elections available:
-Deemed disposal of shares at date of diluting share issue, so that a quali gain for BADR arises
-Further election to defer gain on deemed disposal until actual disposal (election must be made within 4 yrs of deemed disposal.
any further gain between deemed and actual disposal would not qualify for BADR
Associated disposals
conditions for asset to be associated disposal:
- individual disposing of whole or part of an interest in partnership or shares in company (at least 5%)
-Disposal made as part of individuals withdrawal from business
AND
- Assets being sold owned by individual 3 years prior to disposal and used for purpose of business 2 years before material disposal of business asset’s or cessation of trade
-still treated as material disposal if disposal is of >5% but disposing of entire holding and previously held at least 5%
BADR restricitons:
rent
non business use
BADR restricted if rent recieved by individual for use of asset. Partial exempt if reduced rent
BADR on non MV rent
i.e. rented out asset at 40% of market rate
60% x gain = BADR
40% x Gain = other
NON Bus use:
if part used for business then proportion of gain which is business use gets BADR
Investors relief
how does it work
lifetime limit
what qualifies
how work - CGT at 10% on qualifying disposals
Lifetime limit - £10m gains on which relief can be applied
what qualifies - disposal of shares by individual, shares must:
1) subscribed for as new ordinary shares by iniv making disposal
2) be in an UNLISTED trading company Or unlisted holdco of trade group)
3) have been issued by co on or after 17 March 2016 and have been held for period of 3 years from 6 April 2016
4) have been held continoually for 3 years before disposal
must use up any unused BRB before other gains do
Unlike BADR - No minimum shareholding % and not available to TPs who were employees of the company they invested in
Rollover relief
Available to ? on what?
Qualifying assets
conditions
how much gain deferred
restrictions
How is gain deferred
claim date
other
Available to
individuals:
assets used in sole trade/prtship
or
a company where indv owns 5% or more Voting rights
Companies:
asset used in trade of company
Qualifying assets:
- L+B (ocpied and used for trade)
-Fixed P+M
-Ships, aircraft, hovercraft - satellites, space stations and spacecraft
-Goodwill (sole traders and Pship only not company)
Conditions:
Old and new asset both used for purposes of trade
new asset acquired 1 year before or 3 years after disposal
HOW MUCH GAIN DEFERRED
net proceeds fully reinvested - whole gain deferred
partially reinvested - Gain equal to net proceeds not reinvested taxed immediately.
RESTRICTIONS:
Restrict for non business use
HOW IS GAIN DEFERRED
Non depreciating asset = reduce base cost of replacement asset by deferred gain
Depreciating asset (UEL < 60 years) = gain crystalises on earlier of:
1)Disposal of replacement asset
2) 10 yr from purchase of replacement asset
3)date replacement asset ceases to be used in trade
CLAIM date
later of 4 years end of Tax year (APs for companies) in which:
gain realised
new asset acquired
OTHER:
If replacement asset is depreciating can transfer deferred gain to a non depreciating asset if it is acquired before deferred gain crystalises
Gift aid
available to
qualifying assets
Conditions
How much is the gain deferred
Restrictions
who for - individuals
quali assets :
-Assets used in a business carried on by the donor
or
-Assets used by donors personal company (5% or more voting rights)
or
-Shares or securities in a trading company where either the shares are :
1) Unquoted, or
2) the company is the donors personal company
CONDITIONS
Gift or sale at undervalue of qualifying assets
GR not available on gift of shares/securities in donees company
HOW MUCH IS GAIN DEFERRED
- If no actual proceeds - whole gain
- If some actual proceeds - gain equal to actual proceeds less cost is taxable immediately
RESTRCITIONS
if gift of shares and owner owns 5% or more GR resticted to
Gain x CBA/CA
CBA = chargeable business asset of company
CA = chargeable assets of company
HOW IS GAIN DEFERRED
Deferred gain reduces base cost for the donee
CLAIM DATE
Joint election signed by both sides - within 4 years from end of tax year of gift
OTHER
- full relief available for gains arising where there is also an immediate charge to IHT (i.e. CLT)
All assets qualify
election only signed by donor
Proforma Rollover
Proceeds x
cost (x)
gain x
relief (X)
chargeable now X*
- Net proceeds not reinvested
gain before relief needs indexing for companys
Proforma gift aid
Proceeds X
cost (x)
Gain X
Relief (x)
chargeable now x*
Actual proceeds less cost
Incorporation relief
Where an individual transfers their business to a company in exchange for shares, any chargeable gains arising can be deferred by reducing the base cost of those shares
Interaction of releifs (what order)
If more than one relief available
1) Rollover
2) Incorporation relief
3) Gift relief
4) SEIS
5) EIS deferral
6) BADR/investors relief
