Ch 11: Capital Gains Tax

Question 1

What is a chargeable disposal (2 items)?

Answer 1

• A sale of whole or part of an asset
• A gift of whole or part of an asset, MV = Proceeds
• CGT of gifting at death = none

Question 2

List 4 exempt disposals under CGT

Answer 2

Gifts to charities, art galleries, museums

Transfer of an asset upon an individuals death (will be covered by IHT)

Question 3

List 7 exempt assets under CGT

Answer 3

• Cars
• wasting chattels (greyhounds, racehorse, wines)
• non-wasting chattels (jewellery, antiques, paintings) bought and sold for less than £6000
• Government bonds - interest is subject to income tax
• Qualifying Corporate Bonds
• National saving certificates
• ISAs

Question 4

What happens to plant and machinery sold at a loss?

Answer 4

No allowable loss for CGT as CAs already given

Question 5

What happens to plant and machinery sold at a profit?

Answer 5

Use the non-wasting chattel rules (exempt if bought and sold for < £6k)

Question 6

How do you calculate net chargeable gains?

Answer 6

Disposal proceeds
less: cost
= net disposal proceeds
less: allowable costs
= chargeable gains/ (allowable loss)

Question 7

What is the calculation for part disposals?

Answer 7

Cost x A/A+B
A = MV of the part disposed (gross proceeds)
B = MV of the part that is retained (will be given in the exam)

Question 8

What happens to the disposal of a small part of land?

Answer 8

No disposal immediately if:
If land sale (proceeds) is <20% of MV AND
Gross proceeds < £20k AND
Aggregate sales of land and building in the year < £20,000

Question 9

What happens with transfers between spouses/civil partners?

Answer 9

Transfers are at no gain/loss so just use the original cost in gain computations

Question 10

Who is a connected person?

Answer 10

Connected persons are direct relatives and companies they control >50%

Question 11

What happens to losses arising on a disposal to a connected person?

Answer 11

Any loss arising on a disposal to a connected person is ring fenced and can only be used against gains on disposals to the same person

Question 12

What do you need to use to find the proceeds for gifts of quoted shares for CGT?

Answer 12

Use the 1/2 up value - the lower quoted price + 1/2 (higher quoted price - lower quoted price)
*CGT ONLY

Question 13

How do you calculate CGT?

Answer 13

Chargeable gains in tax year x
Capital losses in tax year (x)
= Net chargeable gains
Annual exempt amount (x)

b/f capital losses (x)
= Taxable gains
CGT @ 10%/20%
(18%/28% for residential property)

Question 14

What order would you offset any capital losses?

Answer 14

1st: against residential property
2nd: normal
3rd: entrepreneurs

Question 15

What happens to capital losses in the year of death?

Answer 15

Carry excess losses back three years on a LIFO basis

• losses carried back to the years before death are offset vs. taxable gains
• HMRC will repay CGT paid for those earlier years
• But any tax repaid will be added to the DEATH estate for IHT

Question 16

What do you do with capital gains in a partnership?

Answer 16

Calculate the gain as a whole, the apportion amongst the partners using their profit sharing ratio

Question 17

What are the 3 special gains calcs and how are they treated for CGT?

Answer 17

1. Destruction or loss of a chargeable asset - treated as a sale with proceeds deemed to be the compensation received
2. Negligible value claims - when any asset falls close to zero; ‘sell’ to yourself to create a capital loss
3. Disposal of a lease

Question 18

How are disposals of a lease treated for CGT?

Answer 18

1. Disposal of a long lease (>50 years)
   Normal gains calc: proceeds less cost (premium paid when acquiring the lease)
2. Disposal of a short lease (<50 years)
   = depreciating assets, seller is deemed to have used up a proportion of the cost of the lease
   Depreciated cost = original cost x (years left to run; small)/ (years @ purchase; big)

Question 19

What is the cost of a wasting asset?

Answer 19

Cost is depreciated on a straight line basis