Chapter 12 - Corporate Capital Gains

Question 1

Intro

Answer 1

A company pays corp tax on capital gains arising on the disposal of a chargeable asset. Similar calc to inidividuals, except companies can claim indexation allowance and companies do not at an AE or ER

Question 2

Note

Answer 2

Cars aren’t chargeable assets

Question 3

Calculation

Answer 3

Proceeds less selling costs.
Deduct acquisition cost.
Deduct incidental costs of acquisition
Deduct enhancement expenditure
This gives unindexed gain
Then subtract indexation allowance
Gives indexed gain

Question 4

Indexation Allowance

Answer 4

Indexation factor is the movement in the RPI between date of acquisition and date of sale (up to 31 Dec 2017). Indexation factor:
(RPI @ sale or 31/12/17 - RPI @ acq) / RPI @acq
Round to 3dp always.

Question 5

Enhancement Expenditure

Answer 5

Added to the base cost, might need to be indexed separately if the enhancement occurs at a different date to acquisition (up to 31.12.17).

Question 6

Capital Losses

Answer 6

Computed in same way as gains. Indexation CANNOT create or increase a capital loss. It can only reduce a gain to zero

Question 7

Rollover Relief

Answer 7

Where a co sells one qualifying asset and buys another qualifying asset(s), the gain on the sale of asset 1 can be deducted from the base cost of asset 2 upon making an election. Asset 2 must be bought between one year before and three years after the disposal of Asset 1

Question 8

Rollover Relief Election

Answer 8

Only applied when the co is selling assets used for purposes of trade. Apportion where only some of the use is for trade.

Question 9

Eligible Rollover Assets

Answer 9

Land and buildings

Fixed plant and machinery, ie bolted to the floor

Question 10

Rollover Claim

Answer 10

Must be made within 4 years of he end of the AP of the disposal of asset 1 or purchase of asset 2 (whichever is later)

Question 11

Rollover Relief - Proceeds Not Fully Invested

Answer 11

If proceeds are not fully reinvested, a gain equal to the cash retained is left and is chargeable

Question 12

Rollover Relief - Depreciating Assets

Answer 12

Depreciation asset has a useful life not exceeding 60 years. Plant and machinery is always a depreciating asset.
A lease of not more than 60 years on land and buildings is also a depreciating asset.

Question 13

Rollover Relief - Depreciating Assets cont.

Answer 13

If the asset purchased is a replacement, and a depreciating asset, relief is given by freezing the gain on the old asset.
The frozen gain will then crystallise on the earliest of:
- sale of the depreciating asset
- ceasing to use the depreciating asset for trade
- 10 years from acquisition of the depreciating asset

Question 14

Shares

Answer 14

Use share matching rules to group the shares:
1) co is deemed to have sold any shares acquired the same day
2) deemed to have sold shares acquired in the previous 9 days in FIFO basis. No indexation allowed
3) deemed to have sold shares acquired from 1.4.1982 to 9 days before the sale (s.104 pool)
Once the shares are matched, calculate the gain for each match.

Question 15

S.104 Pool

Answer 15

If there’s multiple acquisitions in s.104 pool, each share in that pool will be treated as having a base cost equal to the average cost of the shares int he pool at the date of sale

Question 16

S.104 Indexation

Answer 16

1/4/1982 - 31/3/1985: index each acq and include in the pool
1/4/1986 - 31/12/2017: indexation calculated on pool as a whole and is NOT rounded to 3dp.
From 1/1/2018 : no indexation