Chargeable gains for individuals

Question 1

Chargeable gain

Answer 1

Generated if a chargeable person makes a chargeable disposal of a chargeable asset

Question 2

Chargeable persons

Answer 2

Individuals
Business partners
Trustees
Companies which pay corporation tax not capital gains tax on their chargeable gains

Question 3

Exempt persons

Answer 3

Registered charities
Register pension schemes

Question 4

Chargeable disposals

Answer 4

Sale / gift of whole or part of an asset
Receipts of capital sums on surrender of rights over assets
Loss / destruction of the whole or part of an asset
Appropriation of assets as trading stock

Question 5

Exempt disposals

Answer 5

Gifts to charities / galleries / museums
Leaving assets in a will upon death

Question 6

Chargeable assets

Answer 6

Land and buildings
Shares
Goodwill (for individuals)
Works of art (valuable non-wasting chattel)
Leases
Cryptoassets

Question 7

Exempt assets

Answer 7

Cash
Wasting chattel with life < 50 years (not including plant and machinery used in a business)
Non-wasting chattel bought and solder for over £6k
Gilt-edged securities
Qualifying corporate / premium bonds
National Savings Certificates
Shares and investments held in an ISA
Cars

Question 8

Charge on plant and machinery used in a business

Answer 8

If sold at a loss - no allowable loss as capital allowances already given
If sold at a profit - use the non-wasting chattel rules - exempt if bought / sold for under £6k

Question 9

Chargeable gains calculation

Answer 9

Shown for each individual disposal in a tax year
Disposal proceeds (sale proceeds / market value)
- Incidental costs of disposal (fees)
- Allowable costs (acquisition costs / enhancement expenditure)

Question 10

Part disposals

Answer 10

Original cost of the asset needs to be apportioned to determine the allowable cost for the gains computation
Allowable cost for the disposal = cost x (market value of part disposed / market value of total part)

Question 11

Annual exempt amount

Answer 11

£6,000
Deducted from chargeable gains to produce gains liable to CGT (= taxable gains)
Cannot be carried forward if unused

Question 12

Capital losses

Answer 12

Current year capital losses automatically offset against current year chargeable gains, even if this wastes the AEA
Excess capital losses carried forward to be set against future capital gains
Capital losses brought forward are used after the AEA and so will not result in AEA being wasted

Question 13

Rates of capital gains tax

Answer 13

Depends on the asset being disposed of and the level of taxable income
Gains treated as sitting on top of an individual’s income
Gains falling in any remaining BRB taxed at 10% (18% for residential property)
Gains above BRB taxed at higher rate of 20% (28% for residential property)
Trusts only ever pay the higher rates
10% rate for Business Asset Disposal Relief and Investor’s Relief gains

Question 14

Capital Gains Tax calculation steps

Answer 14

Chargeable gains
- Capital losses
- Annual exempt amount
- Capital losses brought forward
= Taxable gain (multiply at rate)

Question 15

Capital Gains Tax computation exams tips

Answer 15

Calculate the chargeable gain or allowable loss on each capital disposal in the tax year
Combine gains and losses into one CGT calculation for the tax year
Use separate columns for any residential property / gains qualifying for Business Asset Disposal / Investors’ Relief
Apply any current year / brought forward capital losses and annual exempt amount in the order of residential property / normal gains / Business Asset Disposal Relief and Investors’ Relief