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ACCA ATX: Advanced Tax > CGT Reliefs > Flashcards

CGT Reliefs Flashcards

1
Q

For how many months before disposal is deemed occupation for PPR relief?

A

18 months

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2
Q

What 3 things constitute deemed occupation?

A
  1. For upto three years for any reason
  2. If the owner is required to work abroad by their employer.
  3. For upto four years if required to work elsewhere in UK by employer or if self employed and forced to work away from home.
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3
Q

What is the main condition for deemed occupation to apply?

A

Deemed occupation can only apply if preceded and followed by genuine occupation at some point.

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4
Q

How much of a garden in included in PPR relief?

A

Upto half a hectare

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5
Q

How is PPR relief taken if the owner owns more than one residence?

A

They can choose which property to use as their main residence and as such take PPR relief on that property.

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6
Q

How do you calculate PPR relief?

A

Gain exempt = Gain x (no. months occupation/no. months of ownership)

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7
Q

How is the amount of letting relief calculated?

A

Taking the LOWER of:

  1. £40,000
  2. The gain arising in the letting period not covered by PPR relief.
  3. PPR relief already given.
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8
Q

On what disposals can an individual claim entrepreneurs relief?

A
  1. Whole or Part of Qualifying Businesses
    Sole Trader, Partnership Interest, FHL’s
  2. Shares
    Five Percent, Twelve Months, Trading Co, Worker
    (Eee or director)
  3. Shares in EMI Scheme
    No minimum ownership percentage - ownership starts from date of grant.
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9
Q

For how long must a business/shares have been owned before disposal in order for Entrepreneurs relief to apply?

A

At least 12 months before disposal.

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10
Q

In what form must the whole or part of the business be transferred when disposed of?

A

Transfer of Going Concern

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11
Q

What are the conditions for ER if the business is ceasing to trade?

A

Must have been owned for 12 months prior to disposal and disposed within three years after cessation.

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12
Q

How is ER given?

A

Gains eligible for ER are only taxed at 10%.

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13
Q

If ER gains are available as well as non-ER gains, what is the most tax-efficient way to use this?

A 
Offset losses and annual exemption against:
Residential Gains (18%, 28%), Non Residential Gains (20%), Entrepreneurs Relief (10%)
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14
Q

True or False: ER is automatic

A

False. ER must be claimed for by 31 Jan following the tax year of sale.

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15
Q

What are the associated disposals that qualify for entrepreneurs relief?

A
  1. Whole or part of a partnership business

2. Shares in a qualifying company

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16
Q

What is associated disposal?

A

Where an individual disposes of a separate asset that has been used in the partnership where they are a partner or in the company’s trade.

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17
Q

Is ER relief available on commercial rent?

A

No. However, if rent received is less than MV then ER relief is proportionately withdrawn.

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18
Q

What is investors relief?

A

10% tax rate on their gain on disposal of qualifying shares in an unquoted trading company.

  • not officer or employer
  • shares need to be held as three years
  • won’t be in disposals until 2019/20
19
Q

How are proceeds deemed under gift relief?

A

Proceeds at deemed at market value when the disposal is gifted.

20
Q

How do we identify when gift relief is available?

A

If a disposal is made by gift or sale at less than market value.

21
Q

How is gift relief claimed?

A
  • Normal gifting needs to have a joint claim made by the donor and donee (as the donee will be paying tax on a larger gain so need to certify their agreement)(
  • Gifts to a trust do not need joint claim.
22
Q

What other taxes can be implicated by gift relief?

A

IHT on gifts,

ER may be claimed after gift relief if the ER conditions are satisfied.

23
Q

What are the conditions for gift relief to apply?

A

1) disposal must be made to a UK resident or a trust

2) must be a qualifying asset

24
Q

What are qualifying assets for gift relief to hold?

A
  • Business assets used in the donors trade
  • Agricultural property
  • Unquoted shares in a trading company
  • Quoted shares in a personal trading company
  • Gifts subject to immediate IHT charge (lifetax on CLTs to trusts)
25
Q

If the gift is given for no consideration in exchange, how is the gain treated?

A

It is a deferred gain realised by reducing the base cost of the gifted asset. The recipient then realises a higher gain when they come to sell on the asset.

26
Q

What are the two potential complications of of gift relief that need to be considered?

A
  1. Partial Consideration

2. Gift of Qualifying Shares

27
Q

How should the partial consideration method be followed?

A
  1. Tax exceeds of actual proceeds received over cost immediately.
  2. Roll over the balance into the base cost of the asset.
  3. ER may be available to the gain taxed immediately if the conditions are satisfied.
28
Q

How should a gain of a gift of qualifying shares be treated?

A
  1. Not all of the gain may be eligible for relief where a personal company has greater than 5% investment in net assets.
  2. ER may be available on remaining gain if conditions satisfied.
29
Q

How do we calculate the relief on the gain for qualifying shares?

A

Total Gain x (MVCBA/MVCA)

CA = Chargeable Assets
CBA = Chargeable Business Assets (i.e CA except investments)
30
Q

What are the anti-avoidance rules surrounding gift relief?

A

If the transferee ceases to be resident within six years from the end of the tax year of receiving the gift, the gain held over (deferred) will be assessed on them immediately before they change residence.

31
Q

When is rollover relief given?

A

When the proceeds from the sale of a qualifying asset used in the trade of the taxpayer is reinvested in a replacement qualifying asset used in the trade of the taxpayer.

32
Q

To whom is rollover relief available?

A

To both individuals and companies.

33
Q

What constitutes a qualifying asset for the purpose of rollover relief?

A
  • Land and Buildings
  • Fixed Plant & Machinery
  • Ships, Aircraft, Hovercraft
  • Goodwill (Individuals Only)
34
Q

What are the timing conditions in order for rollover relief to hold?

A

The purchase of the replacement asset must occur within 12 months before or 36 months after the disposal of the original asset.

35
Q

What is taxed now and what is deferred with rollover relief?

A

Any proceeds not reinvested in a qualifying asset are deducted from the gain to be rolled over and taxed immediately.

The deferred gain is realised by reducing the base cost of the replacement asset by the rollover relief as to realise a larger gain upon selling the replacement asset at a later date.

36
Q

Why do we treat depreciating assets differently for rollover relief?

A

There is a risk that the deferred gain on the replacement asset will not be a larger gain (therefore the deferred tax cannot be recovered by HMRC) if the depreciation on the assets reduces the value of the proceeds further than the reduction in the base cost.

37
Q

What is the definition of a depreciating asset for rollover relief purposes?

A

Asset with an expected life of less than 60 years or fixed plant and machinery.

38
Q

How is rollover relief implemented on a depreciating asset?

A

The deferred gain is not deducted from the base cost of the new asset and instead is postponed to the earliest of:

  • disposal of new asset
  • date new asset ceases to be used in the trade
  • 10 years after new asset was acquired
39
Q

What is incorporation relief?

A

Sale of assets from the sole trader to the company which is being incorporated. Incorporation results in chargeable gains or losses from the sale of the chargeable assets.

40
Q

How is incorporation relief given?

A

By reducing the base cost of the any shares that are received as consideration from the company.

41
Q

True or False: Incorporation relief is automatic.

A

True - however you can elect to have incorporation relief not apply.

42
Q

What is the deadline for incorporation relief to be de-elected?

A

Within two years of 31 January following the end of the tax year in which the business was incorporated.

43
Q

What are the three conditions for incorporation relief to be able to apply?

A
  • Must transfer ALL assets to the company (excluding cash)
  • Business must be transferred as a going concern
  • The consideration must be wholly or partly in shares
44
Q

How is incorporation relief calculated?

A

Gain Deferred = Gain x (MV shares received/MV total consideration).

ACCA ATX: Advanced Tax (6 decks)

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