Chapter 3 - Capital Gains Tax Flashcards
What counts as a disposal for CGT purposes?
Transfer of ownership or derivation of a capital sum
How do transfers between spouses impact on what CGT may be payable?
Transfers between spouses do not count as disposals for CGT purposes.
However once the asset is eventually disposed of the disposal value will be what the original owner acquired it at, not what it was transferred at.
How is CGT calculated on death?
There is no CGT on death
What is a transaction that is not at “arms length” referring to?
For disposals not made at “arms length” then the market value can be used.
These may be transactions between connected parties where the full sale value is not paid.
For example A father sells his banking shares to his son for £50,000, they are actually worth £100,000. As this transaction is not at “arms length” then the market value would be used for CGT purposes
Why is it important to establish if something is a result of trading or a capital gain?
1 is subject to income tax and the other is subject to CGT
What is the CGT annual exemption for 17/18 and explain how it works
£11,300
An individual can make gains up to this amount each year before any CGT is applied. The excess over £11,300 is chargeable to CGT
What are the current rates of CGT applying to individuals?
10% on any gains falling in the basic rate band
20% on any gains falling in the higher rate band
How do gains on 2nd properties differ to any other capital gain?
The amount charged is higher.
For 2nd properties the charge is as follows;
18% on any gains falling in the basic rate band
28% on any gains falling in the higher rate band
Explain briefly how the chattels exemption works
Gains on chattels are completely exempt if disposal proceeds are under £6,000.
Over £6,000 then the gain can not exceed 5/3rds of the value over £6,000.
A ring costing £2,000 is sold for £10,000. The chargeable gain should be £8,000 but the gain can not exceed 5/3rds of the excess over £6,000.
Therefore £10,000 - £6,000 x 5/3 = £6,666.66 gain.
Name 3 things that are exempt from CGT
Any 3 of the following;
- Main private residence
- Private car
- Gambling winnings
- Medals for valour
- Directly held gilts corporate bonds
- Debts repaid to original creditor
- NS&I
- Compensation
- VCT shares
- EIS shares
What is the formula to calculate any absences of residence when working out a gain on a property?
Total gain x period of occupation/Total period of ownership
When calculating a gain on a property that has been used as the main residency at some point the last how many months are ignored in establishing periods of absence?
18 months
How much is the letting exemption?
This is the lesser of £40,000 or the amount of the gain that is exempt due to the seller living at the property
