CGT

Question 1

Advantages of holding BTL personally?

Answer 1

Annual except amount to reduce CGT.

Lower accountancy costs/simple to administer as there are no company accounts or returns to complete.

Question 2

Disadvantages to holding BTL personally?

Answer 2

Income is subject to income tax at full higher marginal rates.
Income taxed on an arising basis.
Mortgage interest relief gradually being phased out.
Additional 8% surcharge applicable to capital gains on disposal 18%/28%
Additional Stamp duty surcharge on 3% on purchase of property.

Question 3

Advantages to holding BTL via limited company?

Answer 3

Subject to Corporation tax (19%) on profits, which is lower than 40%/45%.
Mortgage interest is an allowable expense.
Dividends within the dividend allowance tax free. after taxed at 7.5%/32.5% which is lower than Income tax rates.
Limited company can retain profits and allow deferral of tax and renewed allowances to be utilised in future tax years.
Losses can be set against other income.

Question 4

Disadvantages to holding BTL via Ltd company?

Answer 4

Gains subject to corporation tax at 19% with no annual exempt amount/ personal allowance.
Annual returns and company accounts required so higher accountancy costs.
Mortgage interest rates and fees are generally higher.
More restricted range of mortgage products available.

Question 5

Calculation of a gain

Answer 5

1. Determine the disposal proceeds.
2. Deduct the acquisition cost.
3. Deduct any cost incurred in arranging the purchase or sale and any enhancement costs.
4. Set off any allowable capital losses. Losses in the same year can be used in the most beneficial way.
5. Deduct annual exemption (11,700)
6. Calculate tax at appropriate rate. CGT due 31st January following the tax year of sale. IE Sale 1st July 2018 (18/19 tax year) would be payable 31st Jan 2020.

Question 6

Part disposals

Answer 6

A/A+B x original cost.
A= Proceeds of the part disposed of.
B= Market value of the part retained.

Question 7

Property that does not qualify as main residence

Answer 7

Total Gain x Period of occupation/total period of ownership.
The following period of absence are ignored.
A delay of up to a year between the property being acquired and the owner taking up residence. This one year can be increase by a further year if agreed with HMRC.
Any period before 1st April 1982.
The last 18 months of ownership, provided it was used as the main residence at some time.
Any period up to 4 years in total when employment elsewhere in the uk prevented residence.
Any period of living in job related accommodation, where an intention to return to main residence.

Question 8

Multiple homes - determine which home should be treated as main residence.

Answer 8

Election must be made within 2 years of acquisition of additional residence. Election can be changed but change cannot be backdate more than 2 years.
If election is not made HMRC can decide based on facts which property is main residence.
Married couples can only claim main residence for one property.

Question 9

Letting exemption

Answer 9

page 94… study.

Question 10

CGT main exemptions?

Answer 10

£11,700 allowance.
Spouses £11,700 allowance.F
Chattels under £6,000
Private motor vehicles.
Residential property.
NS&I saving certificates & premium bonds
Government & most corporate bonds.

Question 11

Chattels over £6,000

Answer 11

Amount over £6,000 = x x5 /3.
Ie ring costing £1,000, sold for £7,800.
7,800 - 6,000 = 1,800 x5 /3 = £3,000 rather than a gain of £6,800.

Question 12

Pre owned Assets Tax

Answer 12

Income tax is charged on an annual cash value of people still having free or low cost enjoyment of the asset they previously owned.
Land - based on market rental.
A percentage of capital value (determined by the official interest rate for income tax purposes) currently 2.5% for chattels. Ie £400,000 divided by 2.5% x 20% income tax.
No charge if cash value is less than £5,000.
Cash values as at April for relevant tax payer.
Chattels must be revalued every 5 years.

Question 13

Holdover relief - individual

Answer 13

Individuals can hold over the gain on disposals of certain assets by way of a gift.
Transfers that attract an immediate charge to IHT, mainly CLT, qualify for holdover relief. Available even if no IHT is payable because the transfer is within NRB.
No CGT is payable at the time of the gift however the acquisition cost to the done is reduced by the amount of the held over gain, which will increase the amount of gain made by the donee on disposal.
Donee and donor must jointly claim holdover relief.
Relief only available for gifts to persons resident in the UK. If the donee cease to be UK res within 6 years the gain crystalizes. Donee liable, if he fails to pay doner then liable.
Relief not available for transfer of shares to a company.

Question 14

Holdover relief - transfers to a trust

Answer 14

Holdover is not available for transfers of assets to a trust where the settlor has an interest. This includes the settlors spouse the therefor can still benefit in the future. If relief has been given it may be clawed back (in the clawback period = starts immediately and ends 6 years after the end of the year of assessment) if the settlor obtains an interest.

Question 15

Reinvestment into EIS

Answer 15

CGT relief is available where gains are reinvested into EIS shares.
To qualify, reinvestment must be made within 3 years after the disposal subject to CGT.
Gain will be deferred until the disposal of the EIS shares.
30% income tax relief available. upto a max of 1m
If EIS shares are held until death the original gain will never be taxed.

Question 16

Reinvestment into SEIS

Answer 16

Partial exemption is available where gains are reinvested into SEIS share.
It differs to EIS, Gains are not deferred instead 50% of reinvested gains are exempt, the other 50% of reinvested gains are chargeable to CGT.
Relief is restricted to a limit of £100,000 of gains reinvested in each tax year.

Question 17

CGT calc summary

Answer 17

Check that disposal is a CGT gain.
Qualifying Gains (ER then Non qualifying gains.
Current years losses must be offset against current year gains.
Carry forward losses indefinite if registered within 4 years.
Use losses and annual allowance to minimize highest rate of tax.
Add taxable gain on to taxable income.
Tax due in one payment on 31st Jan following tax year end.

Question 18

Business rollover relief

Answer 18

Business both companies and unicorporated.
Available where business sells assets used in the business to buy other assets for the business.
Defers the gain until new assets are disposed of.
Company/business must be trading.
Assets sold must be used for trading purposes.
Sales price must be reinvested in new assets for use of trade.
New assets must be bought 1 year before old assets sold and up 3 years after assets sold.

Question 19

Rollover relief on incorporation of a business.

Answer 19

Claimed when unincorparated business is transferred to a ltd company in exchange for new shares in that company.
Treat as a disposal at market value, but rollover relief is given by deducting the gain from the issue price of the shares.
Deferring the chargebale gain until the shares are disposed by reducing the base costs of the shares by the amount of the gain.