Ch 9 - Capital gains tax

Question 1

What is CGT charged on?

Answer 1

Gains arising on chargeable disposals of chargeable assets by chargeable persons

Question 2

Who is included in ‘chargeable persons’

Answer 2

Companies

individuals

Question 3

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

Answer 3

Individuals pay CGT

Companies pay corporation tax on their gains

Question 4

What do chargeable disposals include?

Answer 4

Sale or gift of the whole or part of an asset

Loss or total destruction of an asset

Question 5

What does chargeable disposals not include?

Answer 5

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

Question 6

What is the date of disposal for disposals under contract?

Answer 6

• When the contract is made

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

Question 7

When are assets not chargeable assets?

Answer 7

All assets are chargeable unless specifically exempted

In which case, they are outside the scope of CGT

Question 8

Give some examples of empt assets

Answer 8

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

Question 9

What is the CGT computation?

Answer 9

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

Tax liability at 10%/20% X

Question 10

What is the annual exempt amount?

Answer 10

£11,700

Question 11

When does an individual get the annual exempt amount?

Answer 11

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

Question 12

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

Answer 12

No can’t carry forward or backwards

Question 13

What does the rate of CGT depend on?

Answer 13

Individuals taxable income

Question 14

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

Answer 14

Depend on taxable income
Higher/additional = 20%

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

Question 15

How do individuals give details about their chargeable gains

Answer 15

Through the self-assessment system

Question 16

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

Answer 16

31 January following the end of the tax year

Question 17

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

Answer 17

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

Question 18

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

Answer 18

Before deducting AEA

Question 19

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

Answer 19

After deducting AEA

Question 20

What is the difference between chargeable gain and taxable gain?

Answer 20

Chargeable gain = before annual exempt amount

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

Question 21

What is the difference between chargeable gain and taxable gain?

Answer 21

Chargeable gain = before annual exempt amount

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

Question 22

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

Answer 22

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)

Question 23

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

Answer 23

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

Question 24

What are some examples of allowable expenditure

Answer 24

• 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

Question 25

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

Answer 25

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

Question 26

What is a chattel?

Answer 26

Tangible moveable property e.g. picture/table

Question 27

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

Answer 27

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

Question 28

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

Answer 28

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

Question 29

Are shares chattels?

Answer 29

No, as they are not tangible

Question 30

Describe a wasting chattel

Answer 30

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

Question 31

Describe a non-wasting chattel

Answer 31

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

Question 32

Give some examples of wasting chattel

Answer 32

Examples include caravan, boat, animals, P&M

Question 33

What is the tax treatment for wasting chattels

Answer 33

Exempt from CGT

Question 34

What is the tax treatment for non-wasting chattels

Answer 34

Special rules depending on sales and purchase prices

Question 35

Give some examples of non-wasting chattels

Answer 35

Antiques Jewellry Paintings

Question 36

Give some examples of non-wasting chattels

Answer 36

Antiques Jewellry Paintings

Question 37

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

Answer 37

Vase is non-wasting chattel and is chargeable to CGT

Question 38

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

Answer 38

Land is not movable property and is therefore not a chattel | Disposal is chargeable to CGT

Question 39

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

Answer 39

Parrot is wasting chattel | Therefore exempt from CGT

Question 40

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

Answer 40

Cars are always exempt assets for CGT purposes | Including vintage

Question 41

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

Answer 41

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

Question 42

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

Answer 42

Exempt

Question 43

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

Answer 43

Taxed as normal

Question 44

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

Answer 44

Marginal loss is restricted | Gross proceeds deemed to be £6k

Question 45

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

Answer 45

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

Question 46

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

Answer 46

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

Question 47

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

Answer 47

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) ```

Question 48

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

Answer 48

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

Question 49

``` 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 ```

Answer 49

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)