Chargeable gains for individuals and trustees Flashcards
CGT: Period
CGT applies to taxable gains in a tax year
CGT: First step
Ascertain whether:
- A chargeable person has made a
- Chargeable disposal of a
- Chargeable asset
CGT: Chargeable persons
- Individuals
- Business partners
- Trustees
- Companies (who pay corporation tax on their chargeable gains, not CGT)
CGT; Specifically exempt persons
Charities
Registered pension schemes
CGT: Chargeable disposals
The sale of the whole or part of the asset
The gift of the whole or part of the asset
The loss or destruction of part of the asset
Appropriations to trading stock (deemed to take place at market value
CGT: Exempt disposals
Gifts to charities, art galleries, museums and similar
Death is not a disposal for CGT purposes, so no CGT applies on death
CGT: The date of disposal
The date when the contract (unconditional) for sale is made
CGT: Chargeable assets
All assets except those specifically exempt.
Include both tangible (land, furniture, works of art) and intangible (goodwill, shares, leases)
CGT: Exempt assets
- legal tender (ie cash)
- motor cars (including vintage or classic cars)
- most wasting chattels
- chattels which are not wasting if acquisition & gross proceeds do not exceed £6,000
- Gilt edged securities (such as exchequer stock or treasury stock)
- National savings certificates and premium bonds
Shares and investments held in an Individual Savings Account (ISA) - Qualifying corporate bonds (QCB)
CGT: Computing a gain or a loss
Disposal proceeds x
Less incidental costs of disposal (x)
——-
Net disposal proceeds x
Less allowable costs (x)
——
Chargeable gain / allowable loss (x)
=====
CGT: Disposal consideration
if commercial transaction at ARMS LENGTH the disposal consideration is the gross sale proceeds
If not at arms length (eg gifted) the disposal consideration is generally the market value of the asset
Incidental costs of disposal can be deducted.
CGT: Allowable costs
- acquisition cost of the asset
- incidental costs
- enhancement expenditure
CGT Annual exempt amount
11,700. If not used, it is wasted and cannot be used in another tax year.
Computing capital gains tax
Individuals taxed on gains separately from income but rate is calculated as if the gains were the top slice of the taxpayer’s income.
CGT for most assets falling within basic rate band 10%
CGT for most assets falling within higher rate band 20%
CGT: What are chattels?
A chattel is an item of tangible moveable property
A chattel is a wasting chattel if it has a predictable life at the date of disposal not exceeding 50 years
Examples include caravans, boats and computers and animals. Plant and machinery are always treated as having a useful life of less than 50 years.
A non wasting chattel is one with a predictable life at the date of disposal of more than 50 years.
Examples include antiques, jewellery and works of art.
CGT: Wasting chattels
Wasting chattels are usually exempt from CGT so there will be no chargeable gain or allowable loss on disposal.
However if the asset has been used solely in a business and the owner has or could have claimed capital allowances on the asset it will be treated as a non wasting chattel.
CGT: Non-wasting chattels purchased at less than £6,000 and sold at less than £6,000
Exempt
CGT: Part disposals
The cost for calculation of the gain or loss is
Cost x A
—–
A+B
where A is the market value of the part disposal and B is the market value of the part that is retained.
Basically cost x A as a percentage of the whole
Rates of CGT: residential property
Taxable gains on residential property are taxed at 18% and 28% instead of 10 and 20%
An individual should deduct capital losses and the annual exempt amount in a way that minimises CGT liability
CGT: Non wasting chattels purchased for less than £6,000 sold for more than £6,000
5/3 selling price - £6,000
CGT: Non wasting chattels purchased for more than £6,000 sold for less than £6,000
Restrict loss - deemed proceeds £6,000
CGT: Non wasting chattels purchased for more than £6,000 sold for more than £6,000
normal CGT
CGT: Relief for trading losses
An individual may make a claim for trading loss relief under s.64 ITA 2007 against general income in the tax year of the loss and / or the previous year.
In addition he may then extend the claim for any unrelieved part of the trading loss to be set against his chargeable gains for the tax year of the loss and or previous year
A claim must be made against general income for a tax year before any remaining loss can be offset against gains arising in that same year
LOWER OF
- the unrelieved trading loss (the relevant amount)
- the current year gains less current year losses and capital losses brought forward (the maximum amount)
CGT: Taxation of spouses / civil partners
In general taxed separately as two individual taxpayers. Each has her own annual exempt amount. Losses cannot be shared between spouses / civil partners
CGT: Disposals between spouses / civil partners
Disposals in a tax year between spouses / civil partners who are living together in that tax year are on a no gain / no loss basis
CGT: Subsequent disposal to a third party
The deemed acquisition cost of the acquiring spouse / civil partner is equal to the deemed disposal proceeds for the disposing spouse.
On a subsequent disposal to a third party the gain is simply proceeds (or market value for non arms length) less the deemed acquisition cost
CGT: Tax planning for spouses / civil partners
Spouses can organise their capital disposals to ensure that as a couple they
- make use of both spouses annual exempt amounts
- make use of any unrelieved capital losses
- make use of any remaining basic rate band
CGT: Connected persons
Spouse / civil partner
Relatives and their spouses
spouse’s relatives and their spouses
Business partners and their spouses and relatives
*relatives = brothers, sisters, ancestors and direct descendants
CGT: disposals to connected persons
A disposal by an individual to a person connected with her is always at market value at the date of the disposal
CGT: Losses and connected persons
A loss incurred on a disposal to a connected person can only be set off against gains made on disposals to the same connected person in the same year or in future years.
CGT: Share matching rules
1) any acquisitions made on the same day as the date of the disposal
2) any acquisitions within the following 30 days
3) any shares in the s.104 pool which consists of all shares acquired prior to the date of disposal
CGT: Gifts of quoted shares
NB DIFFERENT RULE FOR IHT
When quoted shares are gifted there are special rules to determine the market value of the shares at the date of the gift.
Essentially the average between the higher quoted price and the lower quoted price. (Lower quoted price + half of the difference between the higher and lower quoted price.)
