Chargeable gains

Question 1

When is entreprenuers’ relief available?

Answer 1

When the person selling shares in the company is an ‘entreprenuer’. This is defined as:

• controlling 5% of the company
• having worked for the company for at least the last 2 years
• the company must not have been dormant in the last 2 years

Question 2

What is gift relief?

What is the limit on the amount that can be deferred?

Answer 2

Gift relief is relief against capital gains when gifting an asset below market value.
The amount that can be deferred is limited to chargeable business assets/chargeable assets (CBA/CA)

Question 3

For entreprenuers’ relief, by when must you make a claim, and by when must a claim for disapplication be made?
(assume TY19/20, so tax is paid by 31/01/2021).

Answer 3

ER claim must be made by 31/01/2022 (1 year after tax paid)

Claim for disapplication must be made by 21/01/2023 (2 years after)

Question 4

Is goodwill allowed for Entreprenuers’ relief?

Answer 4

No

Question 5

What is the lifetime limit for entreprenuers’ relief

Answer 5

£10m, per person, per lifetime

Question 6

What is incorporation relief?

Answer 6

incorporation relief is tax relief on the gain you make when you transfer a sole trade to a limited company.
Relief is available on the percentage of the payment you receive that is cash

Question 7

What is the difference between roll-over, and hold-over relief?

Answer 7

rollover = non-depreciating asset (land)
holdover = vs a depreciating asset (there is a time limit on this; you can only defer payment for 10 years or until the second asset is sold)

Question 8

When must a claim for gift relief be made in TY19/20

Answer 8

A joint claim by both the doner and the donee must be made by 5th April 2024 (Exactly 4 years after the end of the tax year)

Question 9

When making a claim for gift relief after the gift of shares. What do you omit from CBA and CA (in the CBA/CA calc.)

Answer 9

CBA excludes cars, NCA, and investments

CA excludes cars and NCA, but includes investments.

Question 10

How is chargeable gain paid between partners in a partnership

Answer 10

The gain will be apportioned to partners in line with their capital share ratio

Question 11

How does a sole trader/partner let HMRC know that they have made a chargeable gain?

Answer 11

This is acknowledged in their self-assessment return.

This needs to be submitted, and paid, on 31st January following the year end.

Question 12

When does holdover/rollover relief need to be claimed?

Answer 12

Needs to be claimed 4 years after the later of:

a) the sale of asset 1
b) the purchase of asset 2

Question 13

How do you deal with stamp duty on a lease where there is:

a) a lease premium, and
b) NPV of rent to be paid in the future

Answer 13

The lease premium is charged at the same rate as a building would be charged (so varies depending on the country)
The NPV of rent has its own column at the bottom of the supplementary materials.

Question 14

What is letting relief when talking about PPR?

Answer 14

On top of PPR relief, there is an additional tax deduction relating to the period when the property was rented.
The relief is the lower of:
a) £40,000
b) PPR relief taken
c) gain which relates to the time when the property was rented out

Question 15

PPR is usually allowed to be used on properties with up to 0.5 hectares of land. When would you be able to use it on a property with more than 0.5 hectares of land?

Answer 15

When the ‘additional land is required for the reasonable enjoyment of the dwelling house’

Question 16

What are the tax options when you sell shares back to the company (e.g. Jim sells his shares back to WMcD)

Answer 16

1. Capital treatment:
   = (proceeds - cost) * capital gains tax rate
2. Normal treatment:
   The payment is regarded a dividend payment (pay out of retained earnings). We also dispose of the shares at their nominal value (this would probably result in a capital loss as we have probably paid more than nominal value for the shares)