Cgt Relief Ch 12

Question 1

The 8 cgt reliefs

Answer 1

1. PRR - exemption
2. Rollover and holdover relief - deferral
3. Gift holdover relief (if claimed given before BADR) - deferral
4. BADR - rate of tax
5. Investors relief - rate of tax
6. Incorporation relief - deferral
7. Enterprise investment scheme (EIS) - deferral
8. Seed enterprise investment scheme (SEIS) - exemption

Question 2

Formula for PRR calc

Answer 2

Gain on disposal x (periods of actual or deemed occupation/ total period of ownership)

Question 3

What counts as deemed occupation

Answer 3

Type of deemed occupation
Last 9 months - must have occupied the entire residence at some point during the ownership period

Upto 3 years of absence for any reason - must have lived in the residence at some point before and after absence

Upto 4 years of absence whilst working elsewhere - must have occupied the residence at some point before absence (but no need to reoccupy after absence if work prevents you from doing it)

Any period when an employee is required to work overseas - must have occupied the residence at some point before absence

Question 4

How does rollover relief work?

Answer 4

1. Disposal of an old asset followed by acq of a new asset
2. Both old and new asset must be used in the trade
3. Reinvestment within 12m before or 36m after disposal

Question 5

What qualifies for ROR

Answer 5

1. Land and buildings
2. Goodwill (individuals only, not companies)
3. Ships, aircraft and hovercraft
4. Fixed plant and fixed machinery

Question 6

Deadline for ROR claim

Answer 6

Relief must be claimed within 4 years of the accounting period (companies) or tax return (individual) of the disposal of the old asset and acq of the new asset

Question 7

Pro forma for ROR?

Answer 7

Proceeds X
cost (X)
Gain X
ROR (X) bal figure
Chargeable gain X W1

W1= amount not reinvested

Base cost = new cost - ROR

Question 8

What is gift holdover relief and how does it work?

Answer 8

Gifts and sales at under value are deemed to have been sold for mv

Relief is available for the gift of certain assets (from one uk resident person to another)

Gifts of a qualifying asset or sale of a qualifying asset at undervalue

Question 9

What qualifies for gift holdover relief?

Answer 9

1. Chargeable assets used in a business
2. Shares in trading company (need a minimum 5% holding if quoted)
3. Any asset with an immediate IHT charge (CLT)
4. Any asset transfer which qualifies for IHT business property relief (BPR) or agricultural property relief (APR)

Question 10

How much is the relief and how is the relief given for gift holdover relief?

Answer 10

How much relief:
1. If no cash received then all gains are deferred
2. Where actual proceeds > allowable cost, then gain chargeable after gift holdover relief=actual proceeds - allowable cost

How is relief given:
Gain deferred is deducted from donee’s base cost

Question 11

Anti avoidance rules and claim deadline for gift holdover relief?

Answer 11

If an individual becomes non resident within 6 years of receiving a gift that was subject to gift holdover relief, then gain held over becomes subject to cgt immediately before his departure from uk

Joint election required within 4 years of the tax year of the disposal

Question 12

How does BADR/investors relief work?

Answer 12

1. Gains elible for relief qualify for a rate of cgt of 10% irrespective of income levels
2. Can offset capital losses and the AEA against non qualifying assets first
3. However qualifying assets are treated as using up any remaining basis rate band in priority to non qualifying assets (so likely to have other gains taxed at 20%)

Question 13

What qualifies for BADR/investors relief?

Answer 13

BADR
1. All/part of an unincorporated business owned >2 years
2. Assets used in a business (carried on for 2 years) where trade ceases and assets sold <3 years
3. Shares in trading co, owned for >=2 years, >5% holding (or EMI shares) and employee/director
4. Associated disposals (owned personally and used in your partnership/personal co) where selling >=5% of share in the business at the same time

Investors relies
1. New shares issued on/after 17th March 2016 & held for >=3 years
2. Unquoted trading co
3. Investor has not worked for company

Question 14

How much is the relief for BADR/investors relief

Answer 14

1. Lifetime limit (£1m for BADR, £10m cor IR) on gains elible for reduced CGT rate at 10%
2. Separate lifetime limit for each relief

Question 15

Claim deadline for BADR/IR

Answer 15

Within 1 year of 31st January after the end of the tax year of disposal

Question 16

What is incorporation relief and how does it work?

Answer 16

1.Incorporations describes an unincorporated business being transferred into a company in exchange for shares and other consideration

Transfer ALL the assets (except cash) of a business as a going concern to a limited company in return for at least some shares

Question 17

What qualifies for incorporation relief and how much relief is available?

Answer 17

On Chargeable assets of the business,

If only share consideration
- All the gains are deferred
If some other consideration (cash/debt)
- gain deferred = (value of share consideration/ value of total consideration) x net gain

Question 18

How is the relief given and is it optional for incorporation relief?

Answer 18

Gain is deferred and is deducted from base cost of shares received

Automatic if conditions satisfied, but can dis-apply

Question 19

What are the 2 conditions for BADR cannot be claimed?

Answer 19

• the business is transferred to a close company (controlled by <=5 shareholders or by any number of director shareholders) , AND
• immediately after the disposal the individual owns at least 5% of the company

Question 20

How are chargeable gains done for CT?

Answer 20

Gains calculated same way as for individuals but:
1. Companies get indexation allowance (IA) for assets acq before Dec 17
2. Companies don’t get AEA
3. Companies pay at CT rate on gains
4. ROR available if criteria is met to gain after deducting IA
5. Separate ROR for intangible assets

Question 21

Formula for indexation allowance

Answer 21

Allowable cost x indexation factor