Ch 9 - Capital gains tax Flashcards
What is CGT charged on?
Gains arising on chargeable disposals of chargeable assets by chargeable persons
Who is included in ‘chargeable persons’
Companies
individuals
What is the difference between chargeable persons when looking at CGT?
Individuals pay CGT
Companies pay corporation tax on their gains
What do chargeable disposals include?
Sale or gift of the whole or part of an asset
Loss or total destruction of an asset
What does chargeable disposals not include?
- Gifts to charities/museums etc
- Disposals on death
- Disposals between spouses
What is the date of disposal for disposals under contract?
- When the contract is made
- When the contract is conditional, the date is when all conditions are met
When are assets not chargeable assets?
All assets are chargeable unless specifically exempted
In which case, they are outside the scope of CGT
Give some examples of empt assets
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
What is the CGT computation?
Chargeable gains for tax year X
Annual empt amount (X)
Taxable gains = X- (X)
Tax liability at 10%/20% X
What is the annual exempt amount?
£11,700
When does an individual get the annual exempt amount?
For each tax year they get the AEA of £11,700
Can unused AEA be b/f or c/f?
No can’t carry forward or backwards
What does the rate of CGT depend on?
Individuals taxable income
What are the CGT rates and what do they depend on?
Depend on taxable income
Higher/additional = 20%
Basic = 10% for gains using up basic band
then 20% on rest of it
How do individuals give details about their chargeable gains
Through the self-assessment system
What is the deadline for submitting SA return and payment of CGT?
31 January following the end of the tax year
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
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
If a question refers to chargeable gain, is this before or after deducting the annual exempt amount?
Before deducting AEA
If a question refers to taxable gain, is this before or after deducting the annual exempt amount?
After deducting AEA
What is the difference between chargeable gain and taxable gain?
Chargeable gain = before annual exempt amount
Taxable gain = after annual exempt amount (£11,700)
What is the difference between chargeable gain and taxable gain?
Chargeable gain = before annual exempt amount
Taxable gain = after annual exempt amount (£11,700)
What is the ‘disposals consideration’ in the disposal of assets pro forma
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)
When are actual proceeds NOT used for disposals consideration for calculating disposal
If it is a disposal that isn’t at arms length, then you use market value (e.g. gift)
What are some examples of allowable expenditure
- 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
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
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
What is a chattel?
Tangible moveable property e.g. picture/table
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
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
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
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
Are shares chattels?
No, as they are not tangible
Describe a wasting chattel
Expected life doesn’t exceed 50 years
Exempt from CGT
Examples include caravan, boat, animals, P&M
Describe a non-wasting chattel
Expected life of more than 50 years Tax treatment = has special rules Examples Antiques Jewellry Paintings
Give some examples of wasting chattel
Examples include caravan, boat, animals, P&M
What is the tax treatment for wasting chattels
Exempt from CGT
What is the tax treatment for non-wasting chattels
Special rules depending on sales and purchase prices
Give some examples of non-wasting chattels
Antiques
Jewellry
Paintings
Give some examples of non-wasting chattels
Antiques
Jewellry
Paintings
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
Vase is non-wasting chattel and is chargeable to CGT
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
Land is not movable property and is therefore not a chattel
Disposal is chargeable to CGT
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
Parrot is wasting chattel
Therefore exempt from CGT
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
Cars are always exempt assets for CGT purposes
Including vintage
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
Qualifying corporate bonds are not chattels but they have their own specific exemption for capital gains purposes
What are the rules for non-wasting chattels that were sold for under £6k and bought for under £6k
Exempt
What are the rules for non-wasting chattels that were sold for over £6k and bought for over £6k
Taxed as normal
What are the rules for non-wasting chattels that were sold for under £6k and bought for over £6k
Marginal loss is restricted
Gross proceeds deemed to be £6k
What are the rules for non-wasting chattels that were sold for over £6k and bought for under £6k
Marginal gain restricted to the lower of
Normal gain
5/3 * (gross proceeds - £6k)
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
Marginal loss
Deemed sales proceeds = 6,000
Less cost £(10,000)
Allowable loss = £(4,000)
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
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)
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
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
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
- 7k - 2k = 5k
but can’t exceed 5/3 * (7k - 6k) = 1,667 - 6k (deemed) - 8k = £(2k)
- Exempt as both under £6k
- £9.5k - £7k = £2,500 gain (taxed as normal as both above £6k)
