Chapter 9 - Capital gains tax Flashcards
Q: What is the scope of Capital Gains Tax (CGT)?
A: CGT is charged on gains from chargeable disposals of chargeable assets by chargeable persons.
Q: Who are chargeable persons for CGT?
A: Individuals and companies (companies pay corporation tax on gains).
Q: Who is exempt from CGT?
A: Charities.
Q: What are chargeable assets?
A: All assets unless specifically exempted.
Q: Name some exempt assets for CGT.
A: Cash, motor cars, gilt-edged securities, qualifying corporate bonds, National Savings Certificates, Premium Bonds, prizes, betting winnings, assets held in ISAs, and certain chattels.
Q: What are chargeable disposals?
A: Sale, gift, exchange, or loss/destruction of an asset.
Q: What are non-chargeable disposals?
A: Disposals to charities, on death, or between spouses/civil partners.
Q: When is the date of disposal for a contract under CGT?
A: The date the contract is made or when conditions of a conditional contract are met.
Q: What is the basic formula for calculating CGT?
A: Chargeable gains from assets − Annual Exempt Amount (AEA) = Taxable gains.
Q: What is the Annual Exempt Amount (AEA) for 2023/24?
A: £6,000.
Q: Can unused AEA be carried forward or backward?
A: No, unused AEA cannot be carried forward or backward.
Q: What are the CGT rates for basic rate and higher/additional rate taxpayers?
A: Basic Rate: 10% (within unused BRB), 20% on excess.
Higher/Additional Rate: 20%.
Q: When must CGT be declared and paid?
A: By 31 January following the tax year (e.g., 31 January 2025 for 2023/24).
Q: What are the steps to calculate the gain/loss on the disposal of a single asset?
A: Disposal consideration − Allowable costs = Chargeable gain/allowable loss.
Q: What are allowable costs under CGT?
A: Acquisition cost, enhancement expenditure, and incidental costs of acquisition.
Q: How is acquisition cost determined for inherited or gifted assets?
A: Inherited: Probate value (market value at death).
Gifted: Market value at the date of the gift.
Q: What are chattels?
A: Tangible movable property (e.g., pictures, furniture).
Q: What is the CGT treatment for wasting chattels?
A: Exempt from CGT (expected life ≤ 50 years).
Q: What is the CGT treatment for non-wasting chattels?
A: Taxable with special rules (expected life > 50 years).
Q: What happens if gross proceeds and costs are both ≤ £6,000 for non-wasting chattels?
A: Fully exempt from CGT.
Q: How is marginal relief applied to gains from non-wasting chattels?
A: Restricted gain = 5/3 × (TotalProceeds−£6,000)
Q: How are costs allocated when only part of a set of non-wasting chattels is sold?
A: Cost of Part Disposed = Total Cost × 𝐴/𝐴+𝐵, where:
A = Market value of part disposed, and
B = Market value of part retained.
Q: What are connected persons in the context of non-wasting chattels?
A: Individuals related to or associated with the seller (e.g., family members).
Q: What is the CGT treatment when gross proceeds and cost are both > £6,000 for non-wasting chattels?
A: Taxable as normal, calculating the chargeable gain or allowable loss using standard rules.
Q: What happens when gross proceeds are ≤ £6,000 but cost is > £6,000 for non-wasting chattels?
A: Loss is restricted because gross proceeds are deemed to be £6,000.
Adjusted loss formula: Cost − £6,000 (if costs exceed proceeds).
Q: What is the CGT treatment when gross proceeds are > £6,000 but cost is ≤ £6,000 for non-wasting chattels?
A: Marginal gain is restricted to the lower of:
- Normal gain (Proceeds − Cost − Allowable expenses).
- 5/3 × (GrossProceeds−£6,000)
