Chapter 9 - Capital gains tax

Question 1

Q: What is the scope of Capital Gains Tax (CGT)?

Answer 1

A: CGT is charged on gains from chargeable disposals of chargeable assets by chargeable persons.

Question 2

Q: Who are chargeable persons for CGT?

Answer 2

A: Individuals and companies (companies pay corporation tax on gains).

Question 3

Q: Who is exempt from CGT?

Answer 3

A: Charities.

Question 4

Q: What are chargeable assets?

Answer 4

A: All assets unless specifically exempted.

Question 5

Q: Name some exempt assets for CGT.

Answer 5

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.

Question 6

Q: What are chargeable disposals?

Answer 6

A: Sale, gift, exchange, or loss/destruction of an asset.

Question 7

Q: What are non-chargeable disposals?

Answer 7

A: Disposals to charities, on death, or between spouses/civil partners.

Question 8

Q: When is the date of disposal for a contract under CGT?

Answer 8

A: The date the contract is made or when conditions of a conditional contract are met.

Question 9

Q: What is the basic formula for calculating CGT?

Answer 9

A: Chargeable gains from assets − Annual Exempt Amount (AEA) = Taxable gains.

Question 10

Q: What is the Annual Exempt Amount (AEA) for 2023/24?

Answer 10

A: £6,000.

Question 11

Q: Can unused AEA be carried forward or backward?

Answer 11

A: No, unused AEA cannot be carried forward or backward.

Question 12

Q: What are the CGT rates for basic rate and higher/additional rate taxpayers?

Answer 12

A: Basic Rate: 10% (within unused BRB), 20% on excess.
Higher/Additional Rate: 20%.

Question 13

Q: When must CGT be declared and paid?

Answer 13

A: By 31 January following the tax year (e.g., 31 January 2025 for 2023/24).

Question 14

Q: What are the steps to calculate the gain/loss on the disposal of a single asset?

Answer 14

A: Disposal consideration − Allowable costs = Chargeable gain/allowable loss.

Question 15

Q: What are allowable costs under CGT?

Answer 15

A: Acquisition cost, enhancement expenditure, and incidental costs of acquisition.

Question 16

Q: How is acquisition cost determined for inherited or gifted assets?

Answer 16

A: Inherited: Probate value (market value at death).
Gifted: Market value at the date of the gift.

Question 17

Q: What are chattels?

Answer 17

A: Tangible movable property (e.g., pictures, furniture).

Question 18

Q: What is the CGT treatment for wasting chattels?

Answer 18

A: Exempt from CGT (expected life ≤ 50 years).

Question 19

Q: What is the CGT treatment for non-wasting chattels?

Answer 19

A: Taxable with special rules (expected life > 50 years).

Question 20

Q: What happens if gross proceeds and costs are both ≤ £6,000 for non-wasting chattels?

Answer 20

A: Fully exempt from CGT.

Question 21

Q: How is marginal relief applied to gains from non-wasting chattels?

Answer 21

A: Restricted gain = 5/3 × (TotalProceeds−£6,000)

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Question 22

Q: How are costs allocated when only part of a set of non-wasting chattels is sold?

Answer 22

A: Cost of Part Disposed = Total Cost × 𝐴/𝐴+𝐵, where:

A = Market value of part disposed, and
B = Market value of part retained.

Question 23

Q: What are connected persons in the context of non-wasting chattels?

Answer 23

A: Individuals related to or associated with the seller (e.g., family members).

Question 24

Q: What is the CGT treatment when gross proceeds and cost are both > £6,000 for non-wasting chattels?

Answer 24

A: Taxable as normal, calculating the chargeable gain or allowable loss using standard rules.

Question 25

Q: What happens when gross proceeds are ≤ £6,000 but cost is > £6,000 for non-wasting chattels?

Answer 25

A: Loss is restricted because gross proceeds are deemed to be £6,000.
Adjusted loss formula: Cost − £6,000 (if costs exceed proceeds).

Question 26

Q: What is the CGT treatment when gross proceeds are > £6,000 but cost is ≤ £6,000 for non-wasting chattels?

Answer 26

A: Marginal gain is restricted to the lower of:

1. Normal gain (Proceeds − Cost − Allowable expenses).
2. 5/3 × (GrossProceeds−£6,000)