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Principles of Tax > Ch 9 - Capital gains tax > Flashcards

Ch 9 - Capital gains tax Flashcards

1
Q

What is CGT charged on?

A

Gains arising on chargeable disposals of chargeable assets by chargeable persons

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2
Q

Who is included in ‘chargeable persons’

A

Companies

individuals

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3
Q

What is the difference between chargeable persons when looking at CGT?

A

Individuals pay CGT

Companies pay corporation tax on their gains

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4
Q

What do chargeable disposals include?

A

Sale or gift of the whole or part of an asset

Loss or total destruction of an asset

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5
Q

What does chargeable disposals not include?

A
  • Gifts to charities/museums etc
  • Disposals on death
  • Disposals between spouses
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6
Q

What is the date of disposal for disposals under contract?

A
  • When the contract is made

- When the contract is conditional, the date is when all conditions are met

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7
Q

When are assets not chargeable assets?

A

All assets are chargeable unless specifically exempted

In which case, they are outside the scope of CGT

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8
Q

Give some examples of empt assets

A

Cash
Motor cars (including vintage cars)
Gilt edged securities and qualifying corporate bonds
National Savings Certificates (NSC) and premium bonds
Prices and betting winnings
Assets held in Individual Savings Accounts (ISAs)
Certain types of chattels

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9
Q

What is the CGT computation?

A

Chargeable gains for tax year X
Annual empt amount (X)
Taxable gains = X- (X)

Tax liability at 10%/20% X

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10
Q

What is the annual exempt amount?

A

£11,700

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11
Q

When does an individual get the annual exempt amount?

A

For each tax year they get the AEA of £11,700

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12
Q

Can unused AEA be b/f or c/f?

A

No can’t carry forward or backwards

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13
Q

What does the rate of CGT depend on?

A

Individuals taxable income

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14
Q

What are the CGT rates and what do they depend on?

A

Depend on taxable income
Higher/additional = 20%

Basic = 10% for gains using up basic band
then 20% on rest of it

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15
Q

How do individuals give details about their chargeable gains

A

Through the self-assessment system

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16
Q

What is the deadline for submitting SA return and payment of CGT?

A

31 January following the end of the tax year

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17
Q

TYU1: Ahmed has chargeable gains of £33,300 for TY 18/19.
Calc Ahmed’s CGT liability for the TY 18/19 and state the due date for payment
a. Assuming Ahmed has taxable income of £1,370
b. Assuming Ahmed has taxable income of £24,855

A

Chargeable gains for TY = £33,300
Annual exempt amount = £(11,700)
Taxable gains = £21,600

a. CGT liability = £21,600 * 10% = £2,160

All of Ahmed’s taxable gains fall within his unused basic rate band of £33,130 (£34,500 - £1,370)

b. CGT liability 
£9,645 * 10% (W £34,500 - £24,855) = £964
11,955 * 20% = £2,391 
income = £21,600 
Total income = £3,355

Both cases: he must pay CGT liability by 31 Jan 2020

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18
Q

If a question refers to chargeable gain, is this before or after deducting the annual exempt amount?

A

Before deducting AEA

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19
Q

If a question refers to taxable gain, is this before or after deducting the annual exempt amount?

A

After deducting AEA

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20
Q

What is the difference between chargeable gain and taxable gain?

A

Chargeable gain = before annual exempt amount

Taxable gain = after annual exempt amount (£11,700)

21
Q

What is the difference between chargeable gain and taxable gain?

A

Chargeable gain = before annual exempt amount

Taxable gain = after annual exempt amount (£11,700)

22
Q

What is the ‘disposals consideration’ in the disposal of assets pro forma

A

Usually the proceeds received for the assets

Gross proceeds
Less incidental costs of disposal

UNLESS it is a disposal that isn’t at arms length, then you use market value (e.g. gift)

23
Q

When are actual proceeds NOT used for disposals consideration for calculating disposal

A

If it is a disposal that isn’t at arms length, then you use market value (e.g. gift)

24
Q

What are some examples of allowable expenditure

A
  • Acquisition cost of the asset
  • Expenditure on enhancing the value of the asset (capital expenditure) e.g. new extensions, architects fees
  • Incidental costs of acquisition e.g. legal fees, surveyor’s fees, stamp duty
25
Q

TYU2: Betsy sold an asset for £25k in March 19 incurring auctioneers fees of £2k
She had bought the asset in July 1997 for £7.5k incurring legal fees of £250

Calc the chargeable gain on the sale

A

Gross proceeds £25,000
Less incidental costs of disposal £(2,000)
Net disposal consideration = £23,000

Less acquisition cost £(7,500)
Less incidental costs of acquisition £(250)

Chargeable gain = £15,250

26
Q

What is a chattel?

A

Tangible moveable property e.g. picture/table

27
Q

TYU3: Betsy sold an office in March 19 for £500k which she had inherited in May 1982 when the MV was £100k. An extension was built in June 1986 for £30k and in May 1990 she spent £2k repairing the roof.

Calc the chargeable gain on this asset

A

Proceeds = £500,000
Less acquisition cost £(100,000)
Extension £(30,000)

Chargeable gain = £370,000

Note: the expenditure on the roof was a repair so won’t enhance the value of the asset

28
Q

TYU4: Betsys chargeable gains are as below.
Betsy sold an asset for £25k in March 19 incurring auctioneers fees of £2k
She had bought the asset in July 1997 for £7.5k incurring legal fees of £250
AND
Betsy sold an office in March 19 for £500k which she had inherited in May 1982 when the MV was £100k. An extension was built in June 1986 for £30k and in May 1990 she spent £2k repairing the roof.

Calc her capital gains tax liability for TY 18/19 and statement the due date for payment

A

Chargeable gains for TY (£15,250 + £370k) = £385,250
Annual exempt amount £(11,700)
Taxable gains £373,550

CGT liability (payable by 31 jan 2020)
32,100 (34,500 - 2,400 (taxable income below() * 10% = 3,210
341,450 * 20% = £68,290
= 71,500

Taxable income
Net income £14,250
Personal allowance £(11,850)
Taxable income = £2,400

29
Q

Are shares chattels?

A

No, as they are not tangible

30
Q

Describe a wasting chattel

A

Expected life doesn’t exceed 50 years
Exempt from CGT
Examples include caravan, boat, animals, P&M

31
Q

Describe a non-wasting chattel

A 
Expected life of more than 50 years 
Tax treatment = has special rules 
Examples 
Antiques 
Jewellry 
Paintings
32
Q

Give some examples of wasting chattel

A

Examples include caravan, boat, animals, P&M

33
Q

What is the tax treatment for wasting chattels

A

Exempt from CGT

34
Q

What is the tax treatment for non-wasting chattels

A

Special rules depending on sales and purchase prices

35
Q

Give some examples of non-wasting chattels

A

Antiques
Jewellry
Paintings

36
Q

Give some examples of non-wasting chattels

A

Antiques
Jewellry
Paintings

37
Q

State whether the following is or is not chargeable disposals for capital gains purposes

August - sold an antique vase for £10k. Dimitri had paid £8k for the vase in April 2002

A

Vase is non-wasting chattel and is chargeable to CGT

38
Q

State whether the following is or is not chargeable disposals for capital gains purposes

Sept- sold a piece of land for £5k. Dimitri bought in April 2007 for £2k as an investment

A

Land is not movable property and is therefore not a chattel

Disposal is chargeable to CGT

39
Q

State whether the following is or is not chargeable disposals for capital gains purposes

Sold a parrot for £5k, which he had acquired in June 2003 for £4k

A

Parrot is wasting chattel

Therefore exempt from CGT

40
Q

State whether the following is or is not chargeable disposals for capital gains purposes

Sold a vintage car for £25k. Car had cost him £5,500 in June 2001

A

Cars are always exempt assets for CGT purposes

Including vintage

41
Q

State whether the following is or is not chargeable disposals for capital gains purposes

Disposed of some qualifying corporate bonds held in X plc. He had acquired them for cost of £22k in Aug 2010 and disposed of them for £37,700

A

Qualifying corporate bonds are not chattels but they have their own specific exemption for capital gains purposes

42
Q

What are the rules for non-wasting chattels that were sold for under £6k and bought for under £6k

A

Exempt

43
Q

What are the rules for non-wasting chattels that were sold for over £6k and bought for over £6k

A

Taxed as normal

44
Q

What are the rules for non-wasting chattels that were sold for under £6k and bought for over £6k

A

Marginal loss is restricted

Gross proceeds deemed to be £6k

45
Q

What are the rules for non-wasting chattels that were sold for over £6k and bought for under £6k

A

Marginal gain restricted to the lower of
Normal gain
5/3 * (gross proceeds - £6k)

46
Q

TYU6: Hermione sold an antique for £4,000 in Jan 2019
She had originally bought the item in 2003 for £10k

Calc the chargeable gain or allowable loss on disposal

A

Marginal loss
Deemed sales proceeds = 6,000
Less cost £(10,000)
Allowable loss = £(4,000)

47
Q

TYU7: Darcy bought an antique chair for £6,500 in Sept 2002 and sold it for £5,600 in Dec 2018.
She incurred £250 to advertise it for sale

Calc the allowable loss arising on the disposal

A

As proceeds are under £6k and cost was over £6k
Allowable loss is restricted as follows

Gross proceeds (deemed) 6,000 
Less expenses of sale (250) 
Net disposal proceeds £5,750 
Less acquisition cost (6,500) 
Allowable loss = (750)
48
Q

TYU8: Cian sold a sculpture on 1 February 2019 for £10,000. He had acquired it on 1 March 2003 for £900.
Costs of disposal amounted to £300
Calculate the chargeable gain arising on the disposal

A

Proceeds over £6k but cost under £6k so marginal gain

Gross proceeds 10,000 
Less CoS (300) 
Net disposal proceeds 9,700 
Less cost (900) 
Gain 8,800

But gain can’t exceed 5/3 * (10k - 6k) - £6,667

Chargeable gain is the lower of 8,800 and 6,667

therefore 6,667

49
Q 
TYU9: During Jan 2019, Harry sold 4 paintings, which he had acquired in May 2003. 
Details are as follows: 
Calc chargeable gain on each disposal
1. Cost £2k Proceeds £7k
2. Cost £8k Proceeds £4.5k
3. Cost £3k Proceeds £5.5k
4. Cost £7k Proceeds £9.5k
A
  1. 7k - 2k = 5k
    but can’t exceed 5/3 * (7k - 6k) = 1,667
  2. 6k (deemed) - 8k = £(2k)
  3. Exempt as both under £6k
  4. £9.5k - £7k = £2,500 gain (taxed as normal as both above £6k)

Principles of Tax (11 decks)

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