Chapter 3 - Capital gains tax (CGT)

Question 1

Ben died in August, leaving a shareholding in a private company to his son Adam. The shareholding was valued on Ben’s death for inheritance tax purposes. If Adam subsequently sells the shares, the acquisition cost for capital gains tax purposes will be the:

Select one:

a. value placed on the shares for IHT purposes.
b. original purchase cost of the shares.
c. market value of the shares the day before his death.
d. market value of the shares at the time of acquisition.

Answer 1

a. value placed on the shares for IHT purposes.

chapter reference 3B

Question 2

When an asset is sold, the date of the disposal for capital gains tax purposes is the date that the:

Select one:

a. sale was agreed.
b. contract for sale becomes binding.
c. money physically changed hands.
d. transaction physically occurred.

Answer 2

b. contract for sale becomes binding.

chapter reference 3A1

Question 3

Fred, a higher-rate taxpayer, died in June having used none of his capital gains tax [CGT] annual exempt amount for the current tax year. How much CGT, if any, would be payable by his estate on the £15,000 gains made on his shareholdings at the time of his death?

Select one:

a. £456.
b. £540.
c. Nil.
d. £756.

Answer 3

c. Nil.

chapter reference 3A3

Question 4

Lisa and Craig, who are married, transferred the couple’s holiday cottage into Lisa’s sole name when they separated earlier this month. What rate of capital gains tax, if any, would be paid at the time of the transfer on any gain on the cottage whilst it was in Craig’s name?

Select one:

a. 18%.
b. 28%.
c. 20%.
d. There will be no capital gains tax payable.

Answer 4

d. There will be no capital gains tax payable.

chapter reference 3A2

Question 5

Howard, an additional-rate taxpayer, owns unit trust investments. In August 2021 he makes a loss of £12,000, and then in December 2021 he makes a gain of £35,000. No other gains or losses were made in 2021/22 and he has no losses available to carry forward from earlier years. What is the highest amount of capital gains tax that Howard will have to pay in 2021/22?

Select one:

a. £2,996.
b. £4,540.
c. £2,140.
d. £6,356.

Answer 5

c. £2,140.

chapter reference 3D

Question 6

If Cheng sells shares in his business to make cash gifts to his children, he would potentially be liable to:

Select one:

a. inheritance tax only.
b. capital gains tax and inheritance tax.
c. capital gains tax only.
d. capital gains tax and income tax.

Answer 6

b. capital gains tax and inheritance tax.

chapter reference 3B3

Question 7

Steve, a higher-rate taxpayer, made a loss ten years ago on his investments of £30,000, which he carried forward. In 2021/22 he made gains of £15,000 on his investments. What is his capital gains tax liability for 2021/22 and the amount of loss he can carry forward?

Select one:

a. £540 capital gains tax liability and £30,000 loss carried forward.
b. Nil capital gains tax liability and £15,000 loss carried forward.
c. £540 capital gains tax liability and £27,300 loss carried forward.
d. Nil capital gains tax liability and £27,300 loss carried forward.

Answer 7

d. Nil capital gains tax liability and £27,300 loss carried forward.

chapter reference 3D4

Question 8

In June, Sandra gifted a share portfolio valued at £200,000 into a discretionary trust for her daughter Emily. This was her first lifetime gift. The gain on the portfolio at the date of disposal was £40,000. Holdover relief:

Select one:

a. can be claimed and the acquisition cost to the trust is £160,000.
b. cannot be claimed because the chargeable lifetime transfer is less than the nil rate band.
c. can be claimed and the acquisition cost to the trust is £200,000.
d. cannot be claimed because the gift is a potentially exempt transfer.

Answer 8

a. can be claimed and the acquisition cost to the trust is £160,000.

chapter reference 3F2

Question 9

Brenda has made the following gains in the 2021/22 tax year: £18,000 in her ISA, £15,000 on the sale of an investment trust, £7,000 on the sale of her car and £3,000 on the sale of her UK Government gilts. If she has no losses or reliefs available, how much of her gains will be subject to capital gains tax?

Select one:

a. £9,700.
b. £5,700.
c. £8,700.
d. £2,700.

Correct, chapter reference 3C4

Answer 9

d. £2,700.

Correct, chapter reference 3C4

Question 10

For capital gains tax purposes, an example of a capital disposal rather than a trading transaction would be:

Select one:

a. a transaction undertaken with the motive of realising a profit.
b. the sale of an asset within a short time of its acquisition.
c. a forced sale to raise cash for an emergency.
d. where work is carried out on the asset to make it more marketable.

Answer 10

c. a forced sale to raise cash for an emergency.

chapter reference 3C1

Question 11

Jason made a gain of £12,000 in June 2021, on which he will pay capital gains tax [CGT] at 18%. He made a further gain of £6,000 in October 2021, on which he will pay CGT of 10%. This means that:

Select one:

a. his income has increased significantly.
b. one of the assets was in joint names.
c. he disposed of assets in the UK and abroad.
d. he disposed of a buy-to-let property and other assets.

Answer 11

d. he disposed of a buy-to-let property and other assets.

chapter reference 3E

Question 12

If Anya sells a second home to her son James for the same price as she paid for it in an attempt to avoid capital gains tax [CGT], what would be the position?

Select one:

a. This is an effective tax planning tool and should result in a significant reduction in CGT for both Anya and James.
b. This is an effective tax planning tool, provided the sale price is within 20% of the market value.
c. James will acquire the property at Anya’s purchase price so will pay CGT on disposal at Anya’s rate of CGT.
d. The market value of the house will be used as consideration for CGT purposes, as the disposal is not a sale made on a fully commercial basis.

Correct, chapter reference 3B1

Answer 12

d. The market value of the house will be used as consideration for CGT purposes, as the disposal is not a sale made on a fully commercial basis.

Correct, chapter reference 3B1

Question 13

A couple have recently sold a jointly owned house making a gain of £100,000. They have both utilised their capital gains tax [CGT] annual exempt amount for the current tax year and have no losses, other exemptions or reliefs available to utilise. If the property had been let out for the entire period of ownership, how much of the gain, if any, will be subject to CGT?

Select one:

a. £15,000.
b. £85,000.
c. None of it.
d. £100,000.

Answer 13

d. £100,000.

Correct, chapter reference 3C5

Question 14

Amir, a higher-rate taxpayer, made a capital gain of £40,000 following the sale of a second property in August 2021. He has no other gains or losses to take into account. How much will Amir’s capital gains tax liability be and when must it be paid?

Select one:

a. £7,756 by 31 January 2022.
b. £7,756 and within 30 days from exchange of contract.
c. £7,756 and a payment on account must be made within 30 days from the completion date.
d. £3,878 on 31 January 2022 and £3,878 on 31 July 2022.

Answer 14

c. £7,756 and a payment on account must be made within 30 days from the completion date.

chapter reference 3H

Question 15

Fred and Helen own a second property in joint names as tenants in common with 60% and 40% shares respectively. When the property is sold:

Select one:

a. any gains made will be taxed at the tax rate of the higher earner.
b. Fred will declare 60% of the gain and Helen 40% of the gain but these can both be reduced by their individual annual exempt amounts.
c. the gain is divided equally between them, and then they can each deduct their individual annual exempt amounts.
d. Fred can only use 60% of any carried forward losses he has available.

Answer 15

b. Fred will declare 60% of the gain and Helen 40% of the gain but these can both be reduced by their individual annual exempt amounts.

Correct, chapter reference 3A2

Question 16

Tom and Amy are civil partners who currently have two properties, but have just moved in with each other on a permanent basis. What would be the position regarding capital gains tax [CGT]?

Select one:

a. They would be able to claim that 50% of each property is exempt from CGT.
b. They are not able to transfer the CGT main residence exemption from one property to another, so it will be lost on the one that is vacated.
c. They can both continue to claim that their properties are CGT exempt.
d. They will have to make an election on which property is their main home and have two years to do so.

Answer 16

d. They will have to make an election on which property is their main home and have two years to do so.

Correct, chapter reference 3C5B

Question 17

Gerald is the sole trustee of an interest in possession trust and disposes of some shares in 2021/22, realising a taxable gain of £10,000. At what rate will capital gains tax be payable?

Select one:

a. 28%.
b. 45%.
c. 20%.
d. 18%.

Answer 17

c. 20%.

Correct, chapter reference 3I4

Question 18

Richard, who is a higher-rate taxpayer, sold one of his buy-to-let properties in July 2021, realising a gain of £24,000. He has carried forward losses of £10,000 and has not realised any other gains in the current tax year. How much capital gains tax would be payable in respect of his gain?

Select one:

a. £476.
b. £1,770.
c. £340.
d. £3,276.

Answer 18

a. £476.

chapter reference 3D4

Question 19

In what circumstances can a loss be claimed for capital gains tax purposes even though the asset in question has not been disposed of?

Select one:

a. When the asset is transferred into a trust.
b. When the value of the asset has fallen.
c. Where the asset is destroyed.
d. When the transfer is between spouses.

Answer 19

c. Where the asset is destroyed.

Correct, chapter reference 3A

Question 20

Ashay has made a number of gains in the 2021/22 tax year: £35,000 on the disposal of his primary UK residence, £20,000 on his share portfolio and £14,000 on the sale of directly held corporate bonds. He is a higher-rate taxpayer and has no losses available to offset. How much capital gains tax will he pay?

Select one:

a. £1,600.
b. £4,340.
c. £1,540.
d. £11,340.

Answer 20

c. £1,540.

chapter reference 3C4

Question 21

Having accumulated a substantial art collection over the years, Steve has recently given a large portion of this to his son. No money changed hands. When, if at all, will Steve be liable for capital gains tax on this?

Select one:

a. At the time of the transfer.
b. When Steve’s son eventually sells it.
c. At the time Steve claims any loss relief on the sale of other assets.
d. He will not be liable for capital gains tax as the transfer is exempt.

Answer 21

a. At the time of the transfer.

chapter reference 3D1

Question 22

Petula sold her car on 12 May 2021 making a gain of £6,000 and sold some shares on 15 June 2021 making a gain of £12,700. Assuming no other assets are disposed of, what is her taxable gain after the capital gains tax annual exempt amount?

Select one:

a. £6,700.
b. £700.
c. £400.
d. £18,700.

Answer 22

c. £400.

chapter reference 3C2/3C4

Question 23

Sharon sold an asset and made a substantial profit. However, the profit was NOT subject to capital gains tax because she sold:

Select one:

a. government bonds.
b. an investment property.
c. company shares listed on the FTSE.
d. a painting.

Answer 23

a. government bonds.

chapter reference 3C4

Question 24

Which disposal for CGT purposes is most likely to be regarded by HMRC to be at arm’s length?

Select one:

a. Fred, who sold £50,000 worth of shares to his son for £38,000.
b. Marion, who gave an antique table worth £12,000 to her daughter.
c. Anna, who sold her mother’s antique engagement ring to her niece for scrap value.
d. Sam, who sold his vintage car worth £40,000 to his best friend Jamil for £37,500 and a week’s stay in Jamil’s villa.

Answer 24

d. Sam, who sold his vintage car worth £40,000 to his best friend Jamil for £37,500 and a week’s stay in Jamil’s villa.

chapter reference 3B1

Question 25

Jason purchased a holiday cottage in Wales in 2001 for £120,000, paying costs of £1,650 in the process. In 2003 he added an extension costing £40,000. He sold the cottage in May 2021 for £220,000, incurring costs of £3,200. His chargeable gain for capital gains tax purposes is:

Select one:

a. £95,150.
b. £60,000.
c. £100,000.
d. £55,150.

Answer 25

d. £55,150.

chapter reference 3D3

Question 26

The valuations of an asset for capital gains tax purposes and for inheritance tax purposes are:

Select one:

a. very rarely the same.
b. not always the same.
c. always the same.
d. never the same.

Answer 26

b. not always the same.

chapter reference 3B3

Question 27

Jonah has sold two of a set of six antique chairs. He sold them for £40,000, but the overall loss to his estate was £60,000. For capital gains tax purposes:

Select one:

a. it is not possible to calculate the gain from the information provided.
b. it is the £40,000 value that is used to calculate any gain.
c. it is the £60,000 value that is used to calculate any gain.
d. it is the difference between the two values that is used to calculate any gain.

Answer 27

b. it is the £40,000 value that is used to calculate any gain.

chapter reference 3B3

Question 28

An immediate capital gains tax liability would definitely NOT arise when Stuart:

Select one:

a. makes a successful claim on his household insurance for accidental destruction of a valuable painting.
b. sells the copyright to his new invention for £25,000 to his friend, Jake.
c. transfers half of his £50,000 unit trust holding to his wife, Lesley.
d. gives his coin collection, worth £40,000, to his son Michael.

Answer 28

c. transfers half of his £50,000 unit trust holding to his wife, Lesley.

Correct, chapter reference 3A

Question 29

Finlay has made a chargeable gain of £35,000 on the sale of some shares after utilising his capital gains tax annual exempt amount. If he has allowable losses from a previous tax year, these:

Select one:

a. can be carried forward, but if it is not used to offset gains made in the same tax year, it can only be used in one other tax year, selected by HMRC.
b. can be carried forward, but only if it is claimed. The loss must then be used within a 6 year period.
c. must be offset first against gains made in the same tax year, but only to the extent that it brings the gain down to the annual exempt amount.
d. must be offset first against gains made in the same tax year, even if this reduces his gain to below the annual exempt amount for that year.

Answer 29

d. must be offset first against gains made in the same tax year, even if this reduces his gain to below the annual exempt amount for that year.

chapter reference 3D4

Question 30

Inter-spousal transfers are effective to reduce capital gains tax liability for a couple, provided that the spouses:

Select one:

a. lived together for the whole of the tax year concerned.
b. are subject to income tax at the same rate.
c. have the same surname.
d. lived together for at least part of the tax year concerned.

Answer 30

d. lived together for at least part of the tax year concerned.

chapter reference 3A2

Question 31

Ian has sold an investment property. The sale was agreed on 25 February, the deposit was received on 12 March, the contract was signed on 30 March and the balance of the purchase price was received on 4 April. When did the disposal occur for capital gains tax purposes?

Select one:

a. 25 February.
b. 12 March.
c. 30 March.
d. 4 April.

Answer 31

c. 30 March.

chapter reference 3A1

Question 32

Andrew earns £16,000 per annum and makes a gain on some shares of £15,700 on 1 May 2021 and a loss of £2,000 on some government bonds on 1 July 2021. How much capital gains tax must be paid, and by when?

Select one:

a. £340 must be paid no later than 31 January 2022.
b. £640 must be paid no later than 31 January 2023.
c. £340 must be paid no later than 31 January 2023.
d. £640 must be paid no later than 31 January 2022.

Answer 32

c. £340 must be paid no later than 31 January 2023.

chapter reference 3D/3H

Question 33

Drew is selling his motor spares business to Saul. Drew is to receive a fixed sum of £30,000 now, followed by a further payment in 6 months’ time, the amount of which will depend on future profits. This second payment is known as:

Select one:

a. ascertainable consideration.
b. contingent consideration.
c. disposal at arm’s length.
d. unascertainable consideration.

Answer 33

b. contingent consideration.

chapter reference 3B2

Question 34

Anna, a higher-rate taxpayer, registered a loss on her investments of £20,000 in 2008/09. In 2021/22, she realises a gain of £18,400 which is her only gain or loss for the tax year. What is her capital gains tax liability and what loss relief, if any, can she carry forward?

Select one:

a. £1,540 capital gains tax liability with a £13,900 carry forward loss.
b. Nil capital gains tax liability with a £13,900 carry forward loss.
c. £1,540 capital gains tax liability with a nil carry forward loss.
d. Nil capital gains tax liability with a £1,600 carry forward loss.

Answer 34

b. Nil capital gains tax liability with a £13,900 carry forward loss.

chapter reference 3D/3D4

Question 35

When calculating a capital gains tax liability, which is the first deduction made from the proceeds of the disposal of an asset?

Select one:

a. Costs relating to improvements.
b. Acquisition costs.
c. The capital gains tax annual exempt amount.
d. Allowable capital losses.

Answer 35

b. Acquisition costs.

chapter reference 3D

Question 36

Craig has sold an investment property, making a gain of £35,400. What will be the taxable gain once Craig’s capital gains tax annual exempt amount has been deducted?

Select one:

a. £23,100.
b. £22,900.
c. £23,400.
d. £23,700.

Answer 36

a. £23,100.

chapter reference 3C2

Question 37

Peter agrees to sell his business on 1 November 2021 and signs the contract on 3 January 2022, but only receives the payment on 8 April 2022. The date of disposal for tax purposes is:

Select one:

a. 3 January 2022 when the contract for sale becomes binding.
b. 8 April 2022 when Peter receives the payment.
c. 1 November 2021 when Peter agrees to sell his business.
d. 20 April 2022 when the sale is notified to HMRC.

Answer 37

a. 3 January 2022 when the contract for sale becomes binding.

chapter reference 3A1

Question 38

Paul, a higher-rate taxpayer, has agreed to sell the business he has owned for 20 years, making a gain of £100,000 on 1 November 2021. He signed the contract on 1 December 2021 and has agreed to receive the money in July 2022. Assuming he has no other gains or unused losses to carry forward, how much capital gains tax will be due, and when?

Select one:

a. £17,540 on 31 January 2023.
b. £8,770 on 31 July 2022.
c. £17,540 on 31 July 2023.
d. £8,770 on 31 January 2023.

Answer 38

d. £8,770 on 31 January 2023.

chapter reference 3A1/3E/3H