Chapter 9 Capital gains tax Flashcards
1.1 Capital losses.
Deduct current year capital losses from current year capital gains. You must offset as much as possible, so you cannot preserve the AEA. Any excess can be carried forward. Losses brought forward are set against the first available future capital gains. They can be offset after the annual exempt amount.
1.2 Relief for trading losses (261B)
Extension claim to s64. Offset trading losses against trading losses against capital gains in the current tax year or prior tax year. This is an optional claim, so an election is needed. You can elect to offset loss in any order. The election must be made within 12 months from 31 January following the end of the tax year.
1.3 Share loss relief.
Losses on disposal of shares in qualifying trading company can be used against capital gains in the usual way or offset against net income in the current year and/or prior year. There is no requirement for a claim against gains first for such losses. Qualifying shares are:
- Shares on which EIS income tax relief can be claimed, or
- Shares that the individual subscribed for in an UK resident unquoted trading company.
2.1 Married couples
Assets transferred between married couples are no gain no loss transfers. The transferor is deemed to dispose the asset at its acquisition cost. They only apply if the partners are living together. The rules can be used to minimise capital gains tax and IT liabilities. By utilising both AEA, utilisation of unrelieved capital losses and utilisation of both basic rate bands.
3.1 Connected persons.
Two people are connected if they are: spouses, relatives (sibling, ancestors and direct descendants), spouses of relatives, relatives of spouse and their spouses, business partners and their spouses and relatives and in addition a settlor of a trust is connected to the trustees of the trust.
3.2 Disposal to a connected person
Proceeds is deemed to be at MV at the date of disposal. Where a capital loss is made on disposal to a connected person, that loss can only be relieved against disposals to the same person.
4.1 Deferred consideration
This applies to both individuals and companies where some of the consideration for the sale of an asset is dependent on a future event.
If there is no contingency and the payment is simply made in instalments, then there is a single gains calculation where total proceeds are included.
If the contingency results in a fixed amount being paid, then there is a single gains calculation where total proceeds receivable are included. If the contingency is not met, then the computation may be amended.
4.2 Unknown future consideration
If the future consideration is contingent and the amount cannot be determined, there are two disposals. At the time of the sale is it proceeds adding the present value of chose in action less cost. Then at the time future consideration is received proceeds less PV of chose in action is the gain.
For individuals if a capital loss arises it can be carried back against the original gain. BADR is never available on the second gain, even when available for the first disposal.
