CGT C&C wider reading

Question 1

Expenditure

What is incidental expenditure?

Answer 1

Incidental costs are those incurred on either the purchase or sale of an asset.

Must be one of four categories:
- 1) Professional services charges - surveryor/accountant etc
- 2) conveyance costs and stamp duty or stamp duty land tax
- 3) advertising for a seller
- 4) valuation costs to show a gain.

Question 2

When is market value used for a consideration? (3)

Answer 2

You use the market value at time of disposal when it’s open to manipulation:
- Gifts
-connected persons
- Undervalue considerations

In cases where the market value rule applies, the acquisition cost for the person who acquires the asset is the same as the disposal consideration used in the CG computation for the person who disposes of the asset.

Question 3

Expenditure

What is enhancement expenditure?
Examples?

Answer 3

Any capital expenditure wholly and exclusively incurred on the asset for the purpose of enhancing the value of an asset. IF:
-Expenditure is still reflected in the state or nature of the asset at the time of disposal

Examples:
- Installing windows
- architect fees
- planning permission
- construction costs
- Defending the owner’s title to or rights over the asset (got sued)

Question 4

What is CGT? (3)
Examples? (3)

Answer 4

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

Question 5

Expenditure

What is Acquisition costs
What to remeber?

Answer 5

Cost to acquire the asset
Consider rebasing Finance Act 2008 and 31 march 1982 - new MV

Question 6

What’s the CGT working out formula (4)

Answer 6

• what you receive for it (disposal consideration)

LESSS

• allowable disposal expenses (incidental costs)
  *
  LESS
• what you paid for it (Acquisition costs)

LESS

• the cost of certain improvements to it.
  (Enhancement)

= Chargebale Gains (normally charged at 20%) - Consider the AEA!

Question 7

What is the Annual Exempt Allowance?
Is this for IT and CT?

What’s the CGT rates

Answer 7

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)

Question 8

AEA Restrictions (3)

Answer 8

• 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

Question 9

Who is a “Chargeable Person”
Who is not a “chargeable person”

Answer 9

‘chargeable persons’ means people or entities who may be liable to pay capital gains tax (CGT) if they make a chargeable gain

Includes:
Individuals
Partnership
Companies
Beneficial ownership
Trust
Personal representatives

NOT:
non-resident
Non-domicile

See Residency

Question 10

What is a “Chargeable Occassion”?
Examples?

Answer 10

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

Question 11

What is not a disposalable occassion (5)

Answer 11

• 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.

Question 12

What is “consideration” for CGT?

Answer 12

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.

Question 13

What are connected people in TCG 1992

Answer 13

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.

Question 14

General

What are the differences between calculating:
- an allowable capital gain and
- an allowaable capital loss

Answer 14

Losses on the disposal of chargeable assets are calculated in exactly the same way as gains.

An individual’s allowable losses are set against chargeable gains to arrive at the overall liability for CGT for a tax year.

Question 15

How to let HMRC know a Capital loss has occurred?
When does HMRC “Agree”?

Answer 15

SA return or, if they are not required to complete a return, by writing to HMRC.

The time-limit for notifying losses is 4 years from the end of the tax year when the asset was disposed of.

2) At end of enquiry or the enquiry window closes.

(before 1 April 2010 the time limit was 5 years from 31 January)
If not within time limits we would then “agree” or open “discovery”

Question 16

Can you choose to use AEA first before expenses

Answer 16

No you cannot partially claim losses and offset the rest. This might create a loss position that can be carried forward

Example
Donald’s CG computation for the year 2018/19 is as follows. The AEA for the year is £11,700.
Gain on sale of painting £25,000
Loss on sale of development land (£20,000)
Loss on sale of uncut diamond (£9,000)
Gain on sale of shares £7,800
Total chargeable gains £32,800
Less total allowable losses (£29,000)
Net gains chargeable to CGT £3,800
This means that, of his £11,700 AEA, he only uses £3,800, which completely covers his net gains.
He cannot choose to set off only £21,100 of his losses (to bring the net gains down to £11,700 which would then be covered by the AEA) and carry the remainder forward.

Question 17

Clogged Losses

What are clogged losses? (1)
What happens to the losses? (2)
What amount is used as consideration amount?
Any restrictions?

Answer 17

1) A loss made on a disposal to a connected person.

The loss relief that is available is heavily restricted Market value is used as the consideration

Only exception is rules relating to selttements for educational purposes

Can’t have these losses. These losses can only be used against other gains/losses from the same connected party

When there is a disposal to a connected person, you use market value as the consideration.

Question 18

Are losses given before or after AEA?

Answer 18

Losses are given before the AEA (the threshold up to which an individual is not liable to pay CGT on net chargeable gains).

Question 19

Part Disposal

Part-Disposal:
1) What is it?
2) What are some examples?

Answer 19

2) Examples include:
- Sale of part of a piece of land
- Grant of lease by the owner of the freehold (eg. Flat)
- Capital sum derived from an asset, such as compensation received for damage to an asset

“Disposal of asset” also includes part-disposal in CGT

Example
Peter has a property which comprises a shop with a flat above. He decides to grant a long lease on the flat.
This is considered a part disposal. Peter has disposed of part of his interest in the land but has retained the freehold.

Question 20

Part Dispsal

Part-Disposal Expenses: What are the 3 categories for costs?
Formulas?

Answer 20

1. Expenditure relating to the asset as a whole - Apportionment required
2. Expenditure relating solely to the part that has been retained - Not allowable
3. Expenditure relating solely to the part of the asset that has been disposed of - Allowable

Formula for apportionment:
A = Disposal consideration,
B = market value for remained

Expenditure x A/(A+B) = allowable expenditure

Apportionment formula looks complicate, but in essence you find an apportionment between the value of the part of the asset sold, and value of the part of the asset kept. Find the percentage, then apportion the expense

EG. Expenses is £500 and apportionment required
£75,000 part asset sold (sale value of part-asset sold)
£25,000 part asset retained (market Value)
= split of 75% expense
£500*0.75 =£375 allowable. £125 retained.

Question 21

Chatteks

What are Chattels? (3)
when are they chargeable to CG’s?** (see review)**

Answer 21

1) Assets which are forms of property which are both tangible and movable

* tangible (something physical that can be touched)
and
* **movable **(something that can be moved from place to place).

2) Gains/loses arising on the disposal of chattels that are wasting assets are not normally liable to CGT

iS IT A MACHINE? - ALL PLANT AND MACHINEY ARE WASTING ASSETS AND THEREFORE CHATTELS

The treatment of chattels for CG purposes generally differs from that of other assets

‘Chattels’ might sound old-fashioned but it is a word that is still in use, and for legal purposes it has a very specific meaning.

Excludes intangible assets and non-movable - Eg. Property or intellectual property

Question 22

1) what do Chattels include? (3)
2) What do Chattels exclude? (3)
3) Why wouldn’t a washing machine be liable to CG/CL? (2)

Answer 22

1) Includes: Everything a person owns which are physical and capable of being moved
2) Excludes: Land, building, Intellectual Property (can’t be moved)
3) most disposals involving chattels are covered by either: * the exemption for certain wasting assets, or the chattels exemption.

Clearly, as chattels are forms of property they are assets for CG purposes, however, most disposals involving chattels are covered by either:
* the exemption for certain wasting assets
* the chattels exemption.

Question 23

What are wasting assets? (1)
Examples? (4)
What to always consider in wasting assets?

Answer 23

1) Assets that has a predictable life of 50 years or less - predictable life means “useful”
2) Horses, washing machines, televisions and computers, plant and machinery
3) Always consider the assets FUNCTION.

Chattels are often (but not always) wasting assets. A teapot would be a wasting asset, however if an antique teapot then whis would not; you have to look at the FUNCTION. Note however, an antique clock would be classed as a machie asn

All animals are treated as wasting assets, even valuable animals like racehorses. Because a racehorse is a chattel and a wasting asset, neither a chargeable gain nor an allowable loss will arise on a disposal by its owner.

Question 24

What is the Chattel Exemption
When to apply?

Answer 24

1) A special rule when you sell a chattel
2) S262 TCGA92
3) Applied when NOT a wasting asset, or wasting asset used in a trade and attracted CA’s
4) If >£3000 (£6,000) and make a gain then this consideration is exempt and there is no CG charge.

NOTE - this also applies to losses and needsd to be looked at again. Chattel exemption is useful so that losses cannot be created by applying a £6,0000

Question 25

1) What’s the CGT rate for Residential Properties?
2) What’s the usual rate for jewellery?

Answer 25

1) 18/28% - AEA’s are against the property first
2) 20%

You would use your AEA against the property amout first to lower liabilities

Question 26

Part-Disposals

What are the 3 occassions that disposal rules need not apply?

Answer 26

1) Part compensation for damage to an asset to repair/restore assets to original state.
2) Where considerations received for small part disposal of land and does not exceed 20% of market value of the land or 20,000
3) Land sold and is recognisably separate from the rest of the land.

Question 27

Chattel list

Answer 27

is it a chargeable person
Is it a chargeable Occassion?
Is it a chargeable Asset

Is it a Chattel? Is it tangible? Is it moveable?
Is it a machine/Plant?
If a chattel, is it a wasting asset? If so, exempt

Gains/loses arising on the disposal of chattels that are wasting assets are not normally liable to CGT

Question 28

CGT Rates

Answer 28

10
18 - basic rate band
20 - Standard higher rate
28 - higher rate (residential property)

Question 29

Date of Disposal: Why is this important?

Answer 29

Affects:
Deadlines for declaring the disposal
When tax owed is to be paid,
the rate of tax charged
AEA available,
whether or not the gain is indeed chargeable (eg residency).

Question 30

QCB’s - When are they chargeable?

Answer 30

QCBs - chargeable to CT for companies and exempt for individuals.

Question 31

How to consider whether CGT is to be considered? (4)

Answer 31

Priority is:
Chargeable to income tax?
Chargable Person
Chargeable Asset
Chargeable Occassion

Question 32

0) When is there a disposal?
0.5) what does disposal include?
1) When is the date of disposal?

Answer 32

0) There is a disposal of an asset when there is a change in beneficial ownership (as opposed to the legal).
0.5) ‘disposal’ includes sale, exchange or gift OR PART DISPOSAL

1) Date of any contract, or
2) Conditions precedent in the contract are fulfilled.
3) Date the asset is transferred (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.

For CG purposes ‘disposal’ includes sale, exchange or gift. (s1 and s21 TCGA 1992, and CG12700+).

Question 33

Legislation

What is Section 22 TCGA
Examples?

Answer 33

“Disposal where capital sums derived from assets”
- Compensation
- Insurance Claim

Question 34

What is a negligible value claim?
Examples?
legislation?

Answer 34

A “deemed disposal” claim is made without an actual disposal. The claim can be made to offset capital gains by recognising a loss on the asset.

Example:
Share value has plummeted to zero in a new business. You can’t sell them so there is no “disposal”

s24(2) TCGA92

There is no time limit for making a claim. A deemed disposal can be backdated in the claim made by up to 2 years from the beginning of the tax year in which the claim is made if

Question 35

What is the process for calculating Expenditure?
What is allowable expenditure for CGT? (3)
What is the exceptions list? (2)
Legislation?

Answer 35

The sums that can be deducted in the CG computation are given in s38 TCGA 1992. They are
* acquisition costs, including any incidental costs of acquisition
* certain enhancement expenditure
* incidental costs of disposal.

Consider if falls under the exceptions under S39(1) and S39(2) provide:
- Income tax priority test
- Capital test

TIP: for the income tax priority and capital test, imagine that the asset was in use as a fixed asset of a trade carried on by the owner and decide whether the expenditure would have been deducted in computing the income profits of the hypothetical trade.

If it would have been deducted, it cannot be allowed in calculating a chargeable gain or allowable loss on a disposal of the asset.

Question 36

What is the income tax priority?

Answer 36

section 39(1) provides any sum which:
- has been
- or could have been

deducted in computing income or profits is not allowable as a deduction for Capital Gains Tax purposes.

TIP: for the income tax priority and capital test, imagine that the asset was in use as a fixed asset of a trade carried on by the owner and decide whether the expenditure would have been deducted in computing the income profits of the hypothetical trade.

If it would have been deducted, it cannot be allowed in calculating a chargeable gain or allowable loss on a disposal of the asset.

Question 37

Expenses

What are Incidental Costs
Examples (3)

Answer 37

NOT COMPLETE

There are four categories of incidental costs allowable under S38(2) TCGA1992.

• Legal expenses
• Surveyor’s fees
• Estate agent’s charges are allowable as incidental costs.

Question 38

What’s Rebasing?

Answer 38

If you dispose of an asset that you have owned continuously since 31 March 1982, your gain or loss will be calculated as if you had bought the asset on 31 March 1982 for its market value at that date. (s35(2) TCGA 1992).

With effect from 6 April 2008 all assets held on 31 March 1982 will be rebased.

This means that if you dispose of an asset that you have owned continuously since 31 March 1982, your gain or loss will be calculated as if you had bought the asset on 31 March 1982 for its market value at that date. (s35(2) TCGA 1992).

Any March 1982 valuation takes account of all pre-March 1982 expenditure and costs, such as cost of acquisition and enhancement expenditure, so there is no further allowance for these. This means that if a March 1982 valuation is used in place of cost there will be no incidental costs of acquisition.
That concludes this learning guide, we will now review the main points.

Question 39

Allowable Expenditure: What are the tests, and what are the 3 types of allowable expenditure?

Answer 39

S39 gives the exceptions (tests)
S38 gives the allowable deductions:
1) Acquisition
2) Enhancement
3) Incidental

Question 40

Capital Test
What’s the purpose?

Answer 40

It ensures only capital expenditure is deductible for capital gains tax purposes.

eg. adding a gate is an enhancement (S38) and is capital. repairing the gate is not.

Stops double-deduction of expenditure for ITSA and ensures only capital expenditure are deductible

TIP:
You have to imagine that the asset was in use as a fixed asset of a trade carried on by the owner and decide whether the expenditure would have been deducted in computing the income profits of the hypothetical trade. If it would have been deducted, it cannot be allowed in calculating a chargeable gain or allowable loss on a disposal of the asset.

Question 41

Who must report within 30 days?

Answer 41

From 6 April 2015, CGT was extended to non-UK resident individuals, trustees and certain companies who dispose of UK residential property. A difference is that they must make a return to HMRC of their gain within 30 days of completion of the disposal even if they have no tax to pay or have made a loss and in most cases CGT is due and payable at the same time.

For UK property disposals by a UK resident that’s not their main home, for example buy-to-let properties or inherited property, made on or after the 6 April 2020, the customer has 30 days after the completion date to report and pay any Capital Gains Tax that may be due on the disposal. They will need to create a ‘Capital Gains Tax on UK Property Account’ before they can report and pay the tax using this service.

Question 42

What to consider about non-residents in CGT
NOT DONE

Answer 42

Non-resident persons who carry on a trade, profession or vocation in the UK through a branch or agency or, in the case of a company, through a permanent establishment, are chargeable to CGT, or in the case of companies to CT, on gains accruing on the disposal of assets situated in the UK if they are used or held
* in or for the purposes of the trade at or before the time when the chargeable gain accrued
* for the purposes of the branch or agency or permanent establishment at or before that time.

Question 43

What is remittance basis? NOT DONE

Answer 43

9.5 To use the remittance basis for your foreign income and foreign gains you must be UK resident and be either:

not domiciled in the UK
for years up to 2012 to 2013, not ordinarily resident in the UK — in this case:
you can use the remittance basis for foreign income
you cannot use it for foreign gains unless you’re also not domiciled in the UK

You cannot use the remittance basis if you’re deemed domiciled under the changes brought in from 6 April 2017.
From 2008/09 UK resident non-domiciled individuals are liable to CGT on gains accruing on disposals of assets situated anywhere in the world unless they successfully make a claim for the remittance basis to apply.

How does the remittance basis work?
9.7 When you’re eligible and choose to use the remittance basis, you will be liable to UK tax on:

all of your UK income and gains as they arise or accrue each year
your foreign income and gains if and when you bring (remit) them to the UK, including any property which derives from those income and gains

Question 44

No gain / no loss - what is it?
Examples?

Answer 44

A number of disposals are treated as if they give rise to neither a gain nor a loss to the transferor, even though they are chargeable occasions.

Any consideration paid or received is ignored. These disposals include

• transfers of assets between spouses and civil partners
• transfers of assets between companies in the same group
• gifts to charities.

Question 45

What can CT do to CG gain/losses?
What can ITSA do to CG gain/losses NOT COMPLETE

Answer 45

• Companies can set losses from trading and UK property businesses against total profits chargeable to corporation tax, such as profits from all sources including chargeable gains. Section 37 and section 62 CTA 2010)