Ch13: Computing Chargeable Gains

Question 1

For a chargeable gain to arise, there must be:
(1) A Chargeable Person.

Answer 1

INDIVIDUALS = resident in the UK, pay CGT on net chargeable gains.

COMPANIES = Pay CT on net chargeable gains.

Question 2

For a chargeable gain to arise, there must be:
(2) Chargeable Assets

Answer 2

All assets, unless they are exempt.

Question 3

For a chargeable gain to arise, there must be:
(3) Chargeable Disposal

Answer 3

• Sale of assets or part of assets.
• Gift of assets or part of assets.
• Loss or destruction of assets.

Question 4

What are some Allowable Expenditures (ADD BACK) when computing chargeable gains?

Answer 4

• Transfer of Assets on Death.
• Gifts to Charities.

Question 5

True or False -
Cars are exempt from CGT

Answer 5

False - only private use cars are exempt.

Question 6

Are the following exempt from CGT?
- Gilt-Edged Securities
- QCBs
- Premium Bonds

Answer 6

All exempt.

Question 7

Would you add ‘NS&I Certificates’ to the CGT computation?

Answer 7

No, it is exempt.

Question 8

Include ‘Cost of Repairs and Maintenance’ in the CGT computation under Enhancement Expenditure?

Answer 8

No, it will be excluded.

= Deductible = Allowance = Do not add back

Question 9

Allowable Expenditure?
- Cost of Acquisition

Answer 9

Yes

= Deductible = Allowable = Do Not Add Back

Question 10

Exclude ‘Cost of Insurance’ and ‘ Any expenditures that are deductible from trading profits’ in the CGT computation under Enhancement Expenditure?

Answer 10

Yes, they are excluded.

= Deductible = Allowable = Do not add back

Question 11

Include ‘Any expenditures met by public funds (e.g. Council Grants)’ in the CGT computation under Enhancement Expenditure?

Answer 11

No, it will be excluded.

Question 12

Allowable Expenditure?
- Enhancement Expenditure

Answer 12

Yes

Do not add back (= Deductible)

Enhancement Expenditure is Capital Expenditure

Question 13

Disallowable Expenditure?
Incidental Costs during Acquisition

Answer 13

No, it is an allowable expense.

Allowable = Deductible = Do NOT Add Back

Question 14

Allowable or Disallowable - Expenditure Incurred to establish, preserve or defend assets.

Answer 14

Allowable.

Question 15

What is the cost of acquisition when an individual ACQUIRES assets as a GIFT?

Answer 15

MV at the Date of Gift.

Question 16

What is the cost of acquisition when the individual INHERITS an asset on DEATH?

Answer 16

MV at the Date of Death.

Question 17

What is the Annual Exemption Amount when computing Chargeable Gains?
(i.e. Residential Gains / Other Gains)

Answer 17

AEA = £6,000.

Question 18

What are the rates of Tax for CGT?

Answer 18

BRB = 10%
HRB = 20%

Residential Property -
BRB = 18%
HRB = 28%

Question 19

What is the date payable for Residential Properties?

Answer 19

POA must be made to HMRC within 60 days of the disposal.
(E.g. Disposal on 31 July = POA by 29 September).

Question 20

What is the date payable for Other Gains?

Answer 20

31 January AFTER the end of the TY of disposal.
(E.g. Disposal in 23/24 = 31 January 2025).

Question 21

How is the ‘Use of AEA’ considered during CGT Planning?

Answer 21

A gain has already used the AEA in the TY, it may be advisable to delay making another gain until the next TY.

Question 22

How is the ‘Rate of Tax in relation to the individuals taxable income’ considered during CGT Planning?

Answer 22

Gains should be made on the TY in which the individual has the lowest amount of taxable income, particularly where they have part of the BRB unused.

Question 23

How is the ‘Timing of the Payment to CGT’ considered during CGT Planning?

Answer 23

May be better to make a gain early in a TY as this will give the longest gap between receiving proceeds and paying tax.

Question 24

Computation method for CY Losses.

Answer 24

Step 1: Offset CY Losses.
Step 2: Deduct AEA.

Question 25

Computation method for Losses B/F.

Answer 25

Step 1: Deduct AEA.
Step 2: Offset CY Losses.

Question 26

What is the proforma for calculating Part Disposals?

Answer 26

Proceeds of Part Disposal (A)
LESS Selling Costs (X)
EQUALS Gain

LESS [ Original Cost of Whole Asset * (A / A + B) ] (Z)
EQUALS Chargeable Gain (X)

A = MV of the Part Disposed
B = MV of the remainder of Asset (GIVEN)

Question 27

What is the formula to calculate Compensation or Insurance Money?

Answer 27

[ A / A + B ]

where:
A = Compensation Received
B = Unrestored Value of Asset

Question 28

What happens when an asset is completely destroyed?

Answer 28

Full disposal and compensation is wholly charged to CGT.