IHT and CGT Flashcards
Brandon has always been UK resident and domiciled. During 2021/22 he disposed of the following assets:
Gift of shares in Pogo plc to his son Jaime•
On 22 June 2021 Brandon gave 10,000 shares in Pogo plc, an investment company listed on the London Stock Exchange, to Jaime. At that date the shares were quoted at 220-228p, with marked bargains of 218p, 225p and 232p.
In May 2005 Brandon had purchased 16,000 shares in Pogo plc for £4,080. There was a 1 for 4 rights issue at £1.23 per share in August 2010. The company has a total of 50 million issued shares.
Sale of a painting•
In October 2021 Brandon sold a painting for £58,000. The painting had been a gift from his wife Melissa in March 2012, when it was valued at £25,000. Melissa originally purchased the painting for £9,500 in August 2007. The painting has been on display in Brandon’s London office.
Sale of shares in Snow SA•
In February 2022 Brandon sold his shares in Snow SA, an investment company listed in Astaporia, a country outside the EU. The chargeable gain on disposal is £16,350. The tax payable in Astaporia on the disposal is £2,840.
During 2021/22 Brandon had employment income of £30,270 and dividend income of £200.
Calculate Branson’s capital gains tax payable for 2021/2022
CGT payable:
UK assets: Overseas asset
Shares to son W1 17,900
Painting W3 48,500
Overseas shares: 16,350
Less AEA (UK) (12,300)
Taxable gains: 54,100 16,530
W1
Shares to son:
Sale proceeds 10,000 x (2.20+2.28)/2 22,400
Less cost W2 (4,500)
———–
17,900
W2
Share pool: Number Cost
May 2005 - purchase 16,000 4,080
August 2010 - 1-for-4
£1.23 x 16,000/4 4,000 4,920
———– ————-
20,000 9,000
June 2021 disposal (10,000) (4,500)
10,000 4,500
W3
Painting:
Sale proceeds 58,000 - Less cost (original cost to wife (NGNL transfer in 2012) (9,500) = 48,500
Tax calculation:
Taxable income = (£30,270 + £200 – £12,570) = £17,900
Remaining BRB (£37,700 – £17,900) = £19,800 × 10% 1,980
(£54,100 – £19,800) = £34,300 × 20% 6,860
UK: 6,860 + 1,980 = 8,840
Overseas: £16,350 × 20% –––––– 3,270
Total: 12,110
Less DTR
Lower of:
UK tax on overseas gains £3,270
Overseas tax £2,840
(2,840)
———-
CGT payable 9,270
February 2020
A 15% shareholding in Baelish Ltd, an unquoted investment company to his son Stanley. Prior to the gift Theo owned 6,000 shares in Baelish Ltd and Margery owned the remaining 4,000 shares. At the time of the gift the shares were valued as follows:
Holding £ per share
0 – 50% 15
51 – 74% 30
75 – 90% 41
91 – 100% 50
In August 2020 Theo inherited his aunt’s entire death estate worth £580,000. His aunt had made no previous lifetime transfers.
On Theo’s death he left his entire estate of £3.6 million, including the family home worth £800,000, to his sons
Pre-transfer holding (100%)
6,000 × £50 300,000
Post-transfer holding (85%)
4,500 × £41 (184,500)
——————
Diminution in value 115,500
Without related property the pre and post transfer valuations of £30 and £15 are less than the valuations with related property (£50 and £41) hence the correct valuation is £115,500
Walter sold his house in London on 1 February 2022 for £1.5 million. He had purchased it for £240,000 on 1 February 1987, a few years before his marriage to Marie.
Walter lived in the house for the whole of his 35 years of ownership except for the following two periods:
10 years from 1 February 1999 when his employer required him to work in Newcastle, 270 miles away from his home. During this time the house was let out.
The last two years of ownership, when Walter and Marie went to live with their daughter Carmen.
Walter’s only other capital disposal in 2021/22 was a sale of antique furniture, which realised a gain of £38,000. Walter’s taxable income for 2021/22 was £225,000.
Calculate the capital gains tax payable on Walter’s disposals in 2021/22 and state when it would be due to be paid
Tax at 20%:
Antique furniture: 38,000.
38,000 x 20% = 7,600
Tax at 28%:
House in London 153,000. Deduct AEA from here.
153,000 x 28% - 12,300 = 39,396
Total liability = 7,600 + 39,396 = 46,996
Sale proceeds 1,500,000
Less cost (240,000)
1,260,000
Less PRR (W2) £1.26m × 30.75/35 (1,107,000)
——
153,000
Letting relief is not available as Walter did not share occupation with his tenant.
Feb 1987–Feb 1999 occupied = 12 exempt
Feb 1999–Feb 2003 employed elsewhere in UK= 4 exempt
Feb 2003–Feb 2006 three years any reason = 3 exempt
Feb 2006–Feb 2009 not occupied = 3 taxable
Feb 2009–Feb 2020 occupied = 11 exempt
Feb 2020–Feb 2022 last 9 months exempt = 1.25 taxable, 0.75 exempt
Total 35 years = 4.25 taxable, 30.75 exempt
The gain on the disposal of the house in London is a residential property gain and Walter will have had to make a payment on account of the CGT due within 30 days of completion.
The payment on account would have been £39,396 (£140,700 × 28%) and would have been due 3 March 2022.
The remaining £7,600 (the balance for the year) would be due to be paid by 31 January 2023.
It will therefore be outstanding at Walter’s death. This will be deducted from the death estate.
Annually since 2013 – school fees•
Payment of school fees for his grandchild. The fees are currently £30,000 pa. Walter had £150,000 of disposable income each year.
Explain why the payment of school fees by Walter is exempt for inheritance tax purposes
The lifetime payment of school fees by Walter is exempt as it is ‘normal expenditure out of income’.
It is treated as such because:
- it is paid out of his income.
- he is left with sufficient income to maintain his usual lifestyle since he has surplus income of £150,000 pa.
- it is part of a regular pattern of giving as it has been happening since 2013
Walter gave Carmen 2,000 of his shares in Froing Ltd, an unquoted investment company. Prior to the gift Walter owned 6,000 shares in Froing Ltd and Marie owned the remaining 4,000 shares.
The agreed share valuations at October 2018 were:
Number of shares £ per share
2,000 12
4,000 18
6,000 24
8,000 48
10,000 60
NO LIFETIME TAX PAID
Value shares at the higher of the related and unrelated values. The related values (including Marie) are clearly the higher figures and so have been used in the diminution in value calculation.
Value before transfer – 100% related property
6,000 × £60 360,000
Value after transfer – 80% related property
4,000 × £48 (192,000)
———-
168,000
Michelle inherited various assets in 2017 when her aunt died. During 2021/22 she disposed of two of these assets:
Gift of a painting to her brother, Royce
The painting had a probate value of £20,000 in 2017. However, in June 2021, when Michelle gave it to Royce, it had a market value of only £13,000.
Gift of land to her daughter, Lacey•
The land had probate value of £67,000 when Michelle inherited it in 2017. Michelle gave it to Lacey as a 40 th birthday present in September 2021, when it had a market value of £123,000.
In January 2022 Michelle sold her entire 4% shareholding in Armstrong Ltd, an unlisted trading
company, for £90,490. Michelle had subscribed for the shares in May 2017 £29,250.
Michelle had a capital loss brought forward at 6 April 2021 of £9,600. Her taxable income for 2021/22 was £30,500.
Michelle intends to use losses and exemptions to keep her total capital gains tax liability as low as possible.
Michelle has been told by a friend that in certain circumstances it is possible to pay capital gains tax in instalments. She intends to do this where possible.
Calculate the capital gains tax payable on Michelle’s disposals in 2021/22. Show the gain(a) or loss on each asset.
Assuming that Michelle pays in instalments where possible, calculate the capital gains tax for 2021/22 payable by 31 January 2023. Explain when the remaining capital gains tax will be payable
Investors’ relief: Tax at 10%
Shares (W3) 61,240
61,240 x 10% = 6,124
Non-IR:
Painting to brother (W1) -
Land to daughter (W2) 56,000
Less annual exempt amount (12,300)
Less losses brought forward (9,600)
Taxable gains 34,100
CGT liability
£61,240 × 10% 6,124
£34,100 × 20% 6,820
——–
12,944
W1: Gift of painting to brother:
Sale proceeds (MV) 13,000
Less cost (Probate value) (20,000)
——–
(7,000)
Loss on disposal to a connected person, no relief until gain with the same connected person
W2: Gift of land to daughter
Sale proceeds (MV) 123,000
Less cost (Probate value) (67,000)
———-
56,000
W3: Sale of shares
Sale proceeds 90,490
Less cost (29,250)
————–
61,240
The Armstrong Ltd shares were subscribed for and are shares in a limited company which have been held for 3 years in a company that Michelle does not work for. They therefore qualify for investors’ relief.
Payment by 31 January 2023:
CGT shares 6,124
CGT on land £6,820 × 1/10 682
—–
6,806
The remaining CGT on the land is paid in nine further equal annual instalments of £682 by 31 January each year and is paid with interest.
September 2017
Shares worth £500,000 in Dangle Ltd, an unquoted trading company to his nephew, Mark. In September 2017 Dangle Ltd had total assets valued at £1.8 million, including shares in one of its suppliers valued at £126,000. Sean purchased the Dangle Ltd shares 20 years ago.
December 2018
Shares worth £2,500,000 in Fushia plc into the Berry family discretionary trust. Sean had owned a 51% stake in Fushia plc, a listed trading company, for the past six years. The trustees agreed to pay the inheritance tax due on the gift into trust.
Sept 2017:
Transfer: 500,000
BPR (465,000)
——
35,000
Working: £500,000 × (£1,800,000 – £126,000)/£1,800,000 = 465,000
December 2018:
50% of transfer value.
Available at 50% in shares in a quoted trading company in which the individual has voting control; and, land, buildings or plant and machinery owned by the individual and used in their partnership or a company that they control
Shweta lives in Newcastle and is both UK resident and domiciled. During 2021/22 Shweta sold the following assets:
- On 31 October 2021 she sold her entire 22% holding of £1 shares in ABC Ltd, an unquoted trading company, for £46,000 to Gowri, her daughter. Shweta subscribed for the shares at par in October 2004 when she began working full-time for ABC Ltd. At the time of the sale ABC Ltd shares were valued at £64 per share. ABC Ltd has 10,000 issued shares.
- On 30 November 2021 she sold an antique table for £68,000 which cost £13,000 in November 2005
- On 31 December 2021 she sold a house for £750,000. The house cost £300,000 on 1 January 2003. In October 2007 Shweta built an extension to the house which cost £75,000. The extension was destroyed by a fire on 31 December 2013 and was never rebuilt. Shweta lived in the house until the fire, but it has been empty since then.
- On 31 January 2022 she sold a painting for £22,000. Shweta inherited the painting in January 2017 from her mother. The probate value was £36,000. Shweta’s mother originally paid £17,000 for the painting.
- Shweta had a capital loss brought forward at 6 April 2021 of £12,000 arising from the disposal of jewellery to her sister. Shweta’s taxable income for 2021/22 is £60,000
Calculate Shweta’s CGT liability for 21/22
Shares to Gowri:
BADR x10% liability = 43,800 x 10% = 4,380
Sale proceeds (MV as connected) = £64 × 2,200 140,800
Less cost (par) = £1 × 2,200 (2,200)
Less gift relief (excess of actual proceeds over original cost) = £138,600 – (£46,000 – £2,200) = (94,800)
——–
43,800
Non-residential:
Antique 55,000
Sale proceeds 68,000
Less cost (13,000)
———-
55,000
Residential:
House
Sale proceeds 750,000
Less cost (300,000)
Less extension – not in existence at time of sale 0
————
450,000
PRR = 141/228 × £450,000 (278,289)
————-
171,711
PRR actual / deemed occupation = 11 years + last 9 months (141 months)
PRR total ownership = 19 years (228 months)
Residential less current year loss and AEA:
CYL:
Sale proceeds 22,000
Less cost (probate value) (36,000)
————–
Loss (14,000)
BADR = 43,800 x 10% = 4,380
Non-residential = 55,000 x 20% = 11,000
Residential 145,411 x 28% = 40,715
(171,111 - 14,000 - 12,300 (AEA)) = 145,411
Loss b/f restricted as to a connected person
Amir died on 6 January 2022. He had always been resident and domiciled in the UK and had never married.
In December 2020 Amir inherited his mother’s entire estate following her death. Her chargeable death estate was £1 million and the inheritance tax payable on this was £270,000.
On Amir’s death he left an estate of £2.5 million. He left £500,000 to a registered charity and the rest to friends.
On death: Income tax payable
IHT @ 36% 720,000
Less QSR = £270,000 × ((1,000,000 – 270,000)/1,000,000) × 80% = (157,680)
————
562,320
Denzel has lived in London and been UK resident for 10 years but remains domiciled in Arendelle, an overseas country.
In December 2021, in relation to UK assets, Denzel:
- realised a chargeable gain of £45,500 on the disposal of a sculpture.
- sold 14,000 shares in EFG plc for £55,000. In December 2010 Denzel purchased 12,000 shares in EFG plc for £1.25 per share.
- In December 2014 he took up his full entitlement of a
1 for 4 rights issue at £2.50 per share. EFG plc is listed on the London Stock Exchange and has 2.5 million issued shares.
- sold a vintage car for £48,000 which he originally purchased for £32,000 in January 2011.
On 1 January 2022 Denzel sold 8 hectares of a 10-hectare plot of land located in Arendelle for
£1.5 million. The proceeds were liable to taxation of 15% in Arendelle. The remaining two hectares were valued at £750,000. The land originally cost £125,000 in January 1990. Denzel remitted £1.1 million of the proceeds to the UK in March 2022. All figures are the sterling equivalent.
For 2021/22 Denzel has UK trading income of £16,770.
Denzel is not automatically entitled to the remittance basis. He has decided not to make a claim for the remittance basis for 2021/22. The UK has no double tax treaty with Arendelle.
Requirements
Calculate Denzel’s capital gains tax liability for 2021/22. Ignore VAT and stamp taxes.
Shares £
Proceeds 55,000
Less cost (21,000)
34,000
Number Cost £ £ Purchase – December 2010 12,000 15,000 Rights issue – December 2014 3,000 7,500
15,000 22,500 Disposal (14,000) (21,000)
1,000 1,500
Land £
Proceeds = 1,500,000
Less cost: £125,000 × (£1,500,000 / (£1,500,000 + £750,000)) = (83,333)
—————
1,416,667
CGT Liability:
Split between UK and foreign columns
UK:
- Sculpture £45,000
- Shares £34,000
- Car = exempt
Less: AEA (12,300)
———-
67,200
Foreign:
Land 1,416,667
———
1,416,667
Gains in BRB = £33,500 @ 10% = 3,350
Taxable UK income = £16,770 – £12,570 4,200
BRB remaining = £37,700 – £4,200 = 33,500
Gains exceeding BRB = £67,200 – £33,500 = £33,700 @ 20% 6,740
6,740 + 3,350 = 10,090
Foreign gains (exceed BRB) @ 20% 283,333
10,090 + 283,333
Total CGT = 293,423
Less DTR: Lower of:
UK tax = £1,416,667 × 20% 283,333
Overseas tax = 15% × £1.5 million 225,000
Less DTR (225,000)
————
68,423
On 1 January 2017 Marwan gifted his entire 60% holding of shares in J plc, a quoted trading company, to his son. Marwan had owned the shares in J plc for many years. On 1 January 2017 Marwan’s shares were valued at £2 million. Marwan’s son still owned the shares at the time of Marwan’s death.
BPR at 50% taken off the value of transfer at the beginning. NO LIFETIME TAX
On 1 January 2021 Marwan gifted 10,000 shares in Z plc, a quoted investment company, to a discretionary trust
At the time of the gift Marwan owned 22,500 of the 50,000 Z plc shares in issue and the shares were valued at:
20% £197,500
25% £250,000
45% £472,500
100% £1,250,000
LIFETIME TAX CHARGED
Diminution in value
Prior to gift = 45% holding 472,500
Post gift = 25% holding (250,000)
———-
222,500
Briefly explain what impact a remittance basis claim would have on Denzel’s UK tax liabilities for 2021/22. Calculations are not required. Resident for more than 7 years.
If Denzel makes a claim for the remittance basis to apply, then:
- as he has been resident for more than 7 years out of the last 9 years, he will be liable to pay a remittance basis charge of £30,000 in addition to the tax due.
- he will lose entitlement to the personal allowance for IT purposes which will increase his income tax liability and reduce the amount of basic rate band available for his gains.
- he will also lose entitlement to the AEA for CGT purposes, which will increase the amount subject to CGT.
- however, only the gains remitted to the UK will then be chargeable rather than the full gain.
- changes DTR.
Simon has always lived in Bristol, England. Simon is resident and domiciled in the UK. In March 2022 he:
- sold a sculpture realising a chargeable gain of £100,000.
- sold a vintage Aston Martin motor car for £250,000 which originally cost £15,000.
- sold two acres of land for £50,000 less auctioneer’s fees of 2.5%. Simon originally purchased 10 acres for £18,000 plus legal costs of £1,500. At the time of the disposal the remaining eight acres had a market value of £43,000.
- sold a flat, 17 Richmond Place, for £250,000. Simon purchased 17 Richmond Place exactly 10 years before the sale for £150,000. Simon paid stamp duty land tax of £1,500 at acquisition. The flat was rented to an unconnected tenant.
- At 6 April 2021 Simon had a capital loss brought forward of £23,150.
- For 2021/22 Simon has employment income of £25,270.
Requirement
Calculate Simon’s capital gains tax liability for 2021/22. Ignore VAT.
Vintage car £
Exempt 0
Part disposal of land
Proceeds less fees = £50,000 × 97.5% 48,750
Less cost £18,000 + £1,500 × [£50,000 / (£50,000 + £43,000)] (10,484)
———
38,266
Residential sale
Proceeds 250,000
Less cost (150,000)
Less SDLT (1,500)
———-
98,500
CGT liability - two columns
Residential property 98,500
Other assets = £100,000 + £38,266 138,266
Less AEA (12,300) (take off residential)
Less b/fwd capital loss (23,150) (take off residential)
———–
Residential: 63,050
Other assets: 138,266
£25,000 @ 18% (W) = £4,500
£38,050 @ 28% = £10,654
£138,266 @ 20% = £27,653
Basic rate band remaining £
Taxable income = £25,270 – £12,570 = 12,700
BRB remaining = £37,700 – £12,700 = 25,000
1,000 shares in Sparks plc, a listed company with 200,000 issued shares. At the time of Graham’s death, the shares were quoted at 410p-418p per share with marked bargains of 407p, 411p and 414p
Sparks plc shares valued at lower of:
410p + ¼ × (418p – 410p) = 412p
407p + 414p / 2 = 410.5p
1,000 × £4.105 = 4,105
Added to the death estate.
