Chapter 20 - Capital gains (Special rules)

Question 1

What are the three special rules for transfers between spouses or civil partners?

Answer 1

• No gain or loss on the transfer
• Actual proceeds are ignored
• Transferor is deemed to dispose of the asset at its acquisition cost

Question 2

What is the tax planning opportunity spouses can use in relation to annual exemptions?

Answer 2

One can transfer an asset over to the spouse who has not yet used up their annual exemption so it is not wasted.

Question 3

What is the tax planning opportunity spouses can use in relation to basic rate band?

Answer 3

Transfer the assets to the lower earner so that they are taxed at the lower rate.

Question 4

What is the tax planning opportunity spouses can use in relation to Capital losses?

Answer 4

Transfer the assets to the spouse with the capital losses to reduce tax.

Question 5

What is the tax planning opportunity people can use in relation to timing of disposal?

Answer 5

You can delay the disposal to next year to get your new annual exemption, basic band and the payment for CHT will be delayed.

Question 6

What is the tax planning opportunity people can use in relation to income generating assets?

Answer 6

Transfer income generating assets to the lower earner so that their income is taxed at a lower level.

Question 7

How is allowable cost calculated?

Answer 7

Cost x A / (A + B)

A= Sale proceeds of part disposal
B= Market value of the remainder at the time of the part disposal

Question 8

What is the expected life of a wasting chattel?

Answer 8

Not exceeding 50 years

Question 9

What is the expected life of a non-wasting chattel?

Answer 9

More than 50 years

Question 10

Is the income for a wasting chattel exempt?

Answer 10

Yes

Not for Plant and machinery

Question 11

What are the income rules for Non-wasting chattels?

Answer 11

Exempt if SP and cost < 6K

Chargeable if SP and cost > 6K

Question 12

What are the rules for plant and machinery?

Answer 12

Plant and machinery

1. Sold at a gain – normal gain calculation
2. Sold at a loss – No gain no loss

Question 13

Non wasting chattels rule when

Cost £6000 or less
SP £6000 or less

Answer 13

Exempt

Question 14

Non wasting chattels rule when

Cost more than £6000
SP £6000 or less

Answer 14

Allowable loss but proceeds are deemed = £6000

Question 15

Non wasting chattels rule when

Cost £6000 or less
SP more than £6000

Answer 15

Tax lower of

• Normal calc (SP-Cost)
• 5/3 x (Gross proceeds -£6000)

Question 16

Non wasting chattels rule when

Cost more than £6000
SP more than £6000

Answer 16

Normal computation (SP-Cost)