Ch 3 - CGT Flashcards
What is the 6 step process to calculate CGT?
1) Establish disposal proceeds
2) Deduct acquisition costs, selling costs & cost of enhancements
3) Deduct current year losses
4) Deduce previous year losses down to annual exempt amount
5) Deduct annual exempt amount
6) Add gain to taxable income to determine CGT rate
What are the CGT rates?
BR 10% (18% res property)
HR/AR 20% (28% res property)
What two things can you do to extend BR tax band? (meaning more capital gains falls into BR tax)
1) Personal pension contributions
2) Gift aid payments
Are trading transactions subject to CGT?
No
Are capital asset disposals subject to CGT?
Yes
What are 5 indicators of a trading transaction?
- Period of ownership
- Quantity purchased
- Motive
- Financing of transaction
- Frequency of transactions
What is ascertainable deferred consideration?
Amount received on disposal is fixed
What is unascertainable deferred consideration?
Amount to be received on disposal is not fixed
What is contingent consideration?
Payable only if certain conditions are met
If an asset was acquired before the 1st April 1982, what acquisition cost is used?
Market value on 31 Mar 1982
Is a transfer of a security for a debt a diposal?
No
Is it a disposal when a beneficiary of a trust becomes absolutely entitled to the trust property?
Yes
When does a disposal in the form of a loss occur?
Asset has been destroyed, either physically or legally
What is used as the date of disposal?
Date the contract for sale becomes binding (can be before seller receives payment)
What CGT are disposals between spouses/civil partners subject to?
None - they are exempt
When the receiving spouse disposes of the transferred asset, which acquisition cost is used?
Original spouse
When the receiving spouse disposes of the transferred asset, who is liable to CGT?
Receiving spouse (not original)
Where spouses dispose of a jointly held asset, how is each spouse taxed?
On their share of the asset
Where spouses dispose of a jointly held property, how is each spouse taxed?
Equal shares, unless otherwise stated
If a disposal is not at arms length, what is used as consideration?
Market value
What kind of disposal is not at arms length?
Between close connection (Family)
or
If the market value > selling price, between unconnected parties (Friends)
What CGT do disposals on death give rise to?
None
What is the difference in valuations for CGT and IHT?
CGT = Asset value IHT = Loss to estate
If disposal is chargeable to inheritance tax, what relief can generally be claimed?
CGT Holdover Relief
What is the annual exempt amount?
£12,300
What are chattels?
Tangible moveable property (ie furniture)
How are wasting assets treated?
Exempt from CGT
What is a wasting asset?
Expected life < 50 years
When is a chattel exempt from CGT? (Value)
< £6000
When is a chattel exempt from CGT for a married couple? (Value)
< £12000
What is a chattels chargeable gain limited to?
(Disposal proceeds - £6000) x 5/3
For a part disposal, how is the acquisition cost apportioned?
(A/(A+B)) x original cost
A = proceeds of part disposal B = market value of part retained
What are some common exemptions from CGT?
- Principal private residence (PPR)
- Private motor vehicles
- National saving certificates and premium bonds
- Government and corporate bonds (owned by individuals)
Can you elect which property is used as your main residence?
Yes
If part of a main property is let and the landlord is in shared occupancy, then what is the lettings relief?
Lowest of:
- £40,000
- Amount of gain because house is main residence
- Gain attributable to the let part of period of letting
When can you not use an exemption on a property?
Purchased wholly with intent to make gain
If a disposal leads to an income tax charge, how does this affect CGT calculations?
Deducted from disposal proceeds
What order should losses be deducted?
1) Current year (even if uses annual exemption)
2) Previous years (down to annual exempt amount)
Can unused annual exemption be carried forward?
No
How is the exempt proportion of occupation of a property calculated?
Total gain x (period of occupation/total period of ownership)
When are periods of absence ignored?
- Delay up to a year between buying property and living in
- Any period before Apr 1982
- Last 9 months of ownership
- Employed elsewhere in UK (if preceded and followed)
- Working abroad (if preceded and followed)
- Job related accommodation (with intention to return)
How much land can a main residence include?
Half a hectare (5000 sq m)
If holdover relief was claimed on a gift, what acquisition cost is used?
Donors
If the individual created the asset, what can be deducted?
Any expenditure incurred to create
Can purchase and sale costs be deducted?
Yes
Can enhancement costs be deducted?
Yes
Can expenses that are claimed against income be deducted?
No
Losses must be claimed (not used) within how many years?
4 years
When is Business Asset Disposal Relief claimed?
When an individual disposes of part or all of business
How much does Business Asset Disposal Relief cover?
First £1,000,000
If Business Asset Disposal Relief is claimed, what are the gains taxed at?
10% (first £1,000,000 only)
What conditions must be met for Business Asset Disposal Relief to be claimed on disposal of shares in business?
Employees/directors must have 5% shareholding entitling them to 5% of voting rights PLUS
- 5% of firm’s distributable profits and assets or
- 5% of proceeds on disposal of firm’s ordinary shared
How long must assets be held to claim Business Asset Disposal Relief?
2 years
When is Holdover Relief claimed?
On disposal by way of gift
What are the two main categories for Holdover Relief?
1) Transfers chargeable to IHT
2) Disposals of trading assets
If holdover relief is claimed, how does this affect CGT payable?
No CGT payable at time of gift
donee is deemed to have acquired the assets at the donor’s base cost, rather than value at time of gift
What is Investor’s Relief?
Extension of Business Asset Disposal Relief to include external investors in unlisted trading companies
What is the Investors Relief rate?
10%
How much does Investors Relief cover?
£10,000,000 limit
What are the conditions for Investors Relief?
- Shares newly issued
- Issued post 16 Mar 2016
- Held for 3 years commencing 6 Apr 2016
How does reinvestment into EIS shares affect the chargeable gain?
Gain on original disposal is deferred until disposal of EIS shares
How does reinvestment into SEIS shares affect the chargeable gain?
50% of reinvested capital gains exempt providing they also qualify for income tax relief
What is Business Rollover Relief?
Can claim relief if sell assets used in the business and buy other assets for the business
What is the SEIS relief restricted to?
£100,000 of gains reinvested
How does reinvestment into EIS shares affect subsequent gains on EIS shares?
Exempt if held for 3 years
What is Incorporation Rollover Relief?
Relief available when unincorporated business is transferred to a limited company in exchange for new shares in that company
How does Incorporation Rollover Relief affect the gain?
Effectively defers gain until shares are disposed of (by deducting gain from issue price of shares thus lowering base cost)
How do you pay CGT?
Gain reported to HMRC via self assessment
Payable by 31/01 following end of tax year*
*residential property sales - payment due within 30 days of completion for not exempt properties
What is a no gain/no loss transfer?
A disposal between spouses/civil partners
