Ch 12: CGT reliefs

Question 1

What is the criteria for rollover relief (3 items)?

Answer 1

1. Reinvested within 12 months before, 36 months after disposal
2. Use in trade
3. PPE qualifies - land + buildings, fixed plant + machinery, leases

Question 2

How many CGT loss reliefs are there and what are they?

Answer 2

There are 8 CGT reliefs:

Eliminates the gain:

1. Principal private residence (PPR)
2. SEIS reinvestment relief

Reduces the CGT %

3. Entrepreneurs relief
4. Investors relief

Defers the gain

5. Rollover relief
6. Gift relief
7. Incorporation relief
8. EIS reinvestment relief

Question 3

What are the steps to CGT with reliefs?

Answer 3

1. Calculate the gain
2. Consider the relief
3. Deduct loss relief
4. Deduct AEA
5. Calculate CGT
6. Calculate the base cost of asset as necessary

Question 4

When does PPR apply?

Answer 4

Sale of any main residence with grounds of up to 1/2 hectare is exempt from CGT
*if lived in the house for whole period of ownership = exempt

Question 5

PPR - what part of the gain is exempt if there was part occupation?

Answer 5

Gain x period of occupation (actual + deemed)/ total period of ownership

Question 6

What is considered ‘deemed’ occupation (4 things)?

Answer 6

• last 18 months of ownership (must have occupied the entire house at some point in the past)
• Up to 3 years for any reason (must have lived in the house BEFORE and AFTER absence)
• Up to 4 years when the employee was required to work elsewhere in the UK (must have lived in the house BEFORE absence)
• Any period when the employee required to work outside the UK (must have lived in the house BEFORE absence)

Question 7

What happens to PPR if an individual owns more than one property?

Answer 7

They must elect for one to be their main residence within 2 years of commencing occupation of the second property

Question 8

What happens to PPR for married couples?

Answer 8

They can only have one main residence between them

Question 9

What happens to PPR if part of the residence is used for business?

Answer 9

You can’t use deemed occupation rules where the PPR is partly occupied and partly used for business or let out - you don’t get PPR on the business part

Question 10

Who is letting relief available to?

Answer 10

Available to the owner of the main residence in addition to PPR

Question 11

What value is used for letting relief?

Answer 11

It is the LOWER of:

• gain in let period = gain x month rented/ total months owned
• gain exempt under PPR rules
• £40,000

Question 12

What happens to PPR with tax years of non occupation?

Answer 12

These years reduce the amount of PPR relief available and therefore increase the taxable gain on the disposal of the property

Question 13

When can tax years of non occupation arise?

Answer 13

Can only arise for taxpayer with a property in a country other than that in which they or their spouse tax resident

Question 14

What are the conditions for PPR to apply post 5 April 2019 to tax years of non occupation?

Answer 14

• They were resident in that country during the tax year

- They stayed in property overnight > 90 days in the tax year

Question 15

How is rollover relief given for reinvestments in NON-depreciating assets?

Answer 15

Deduct the deferred gain from base cost of replacement asset

Question 16

How is rollover relief given for reinvestments in depreciating assets?

Answer 16

Calc of rollover relief is the same as non-depreciating asset, but the gain is frozen and only chargeable at the earliest of:

• 10 years from date of purchase
• Date replacement asset ceases to be used in trade
• Disposal of new asset

Question 17

What happens to rollover relief if there is non-business use of the asset?

Answer 17

It is reduced if either the original or replacement asset is partly non-business use - time apportion for time used in business or apply the business %
*Do 2 gains calcs - business & non-business

Question 18

When is gift relief available?

Answer 18

On the gift of certain assets from one UK resident person to another

Question 19

What qualifies for gift relief (4 things)?

Answer 19

• chargeable assets used in a business
• shares in trading company (need a minimum of 5% holding if quoted)
• Any asset with immediate IHT charge
• Any asset transfer which qualifies for BPR and APR

Question 20

How much is the gift relief under normal situations?

Answer 20

• If no cash received then all gains deferred

- If cash is received = proceeds - allowable cost = gain less gift relief = amount to tax now

Question 21

What cost figure do you use for gift relief if there was a gift or a sale at under value?

Answer 21

Gift - use original cost

Sale @ under value - use amount paid

Question 22

What is the gain calculation restriction for gifting shares (giving away shares)?

Answer 22

Gain x chargeable business assets/ chargeable assets (found in SoFP)

• chargeable assets includes any asset that if sold would be subject to CGT
• chargeable business assets exclude non-business assets like paintings, vases, investments

Question 23

What qualifies for entrepreneurs relief?

Answer 23

An ownership period of > 2 years on qualifying asset disposals

Question 24

What is a qualifying asset disposal for entrepreneurs relief (4 things)?

Answer 24

• the whole or substantial part of an unincorporated business
• assets of an unincorporated business sold < 3years after cessation of trade
• shares in a trading company where you are an employee and have > 5% (or they are EMI shares)
• associated disposals where selling >5% of shares in the business at the same time

Question 25

What qualifies for investors relief (3 things)?

Answer 25

• new shares issued on/after 17 March 2016 and held for > 3 years
• unquoted trading company
• investor has not worked for the company

Question 26

How does incorporation relief work?

Answer 26

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

Question 27

How much is the incorporation relief if ONLY share consideration?

Answer 27

All gains are deferred

Question 28

How much is the incorporation relief if some other consideration (cash/debt)?

Answer 28

Gain deferred = value of share consideration/ value of total consideration x net gain

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