Lecture 2: Capital Gains Tax, Shares and Securities, Matching Rules Flashcards
How to calculate Capital Gains Tax
Proceeds (Cost) -------- Gain/loss Add other gains/losses from the year. (Annual exemption.) (Losses b/f) ----------- Charegeable CGT Charge at 10%/20% Residential Property 18%/28%
What do you need to do when there is a sale of shares?
Have to match the ones we are selling (proceeds) to what we have bought (costs).
Have to get an average of the two to get costs.
Use the matching rules.
How are disposals of shares by individuals matched by acquisitions? (what order)
- Shares acquired on the same day.
- Shares acquired in the following 30 days (selling before you buy)
- Shares in the s.104 holding - shares not matched above (an average of anything else)
What is a bonus issue?
When a company issues free shares to shareholders.
New shares are deemed to have been acquired on the same date as the holding to which they relate.
What is a rights issue that is taken up in full?
When a company issues new shares but they are paid for by shareholders, kind of bargain.
New shares are deemed to have been acquired on the same date as the holding to which they relate.
How do you calculate share cost when there has been a bonus issue?
Add on the amount of shares that the bonus issue adds to each date, calculate new total.
Then match sales to purchases.
How do you calculate share cost when there has been a rights issue?
Add on the amount of shares purchased to each date and the corresponding cost of the new shares.
Calculate the new total.
What is a sale of rights?
A part disposal of the original shares held.
How do you calculate deemed cost in a sale of rights?
Deemed cost = Original Cost of shares * (Proceeds from sale of rights/(Proceeds from sale of rights + market value of shares on 1st dealing day after issue))
A/A+B
When are proceeds deduced from the original cost of shares in a sale of rights?
If costs are £3,000 or less, or the deemed cost fraction is less than 5%.
How do you calculate a sale of rights?
First work out the deemed cost and then subtract from proceeds from sale of rights.
If fraction is less than 5%, then subtract sale of rights proceeds from original cost of shares.
How to calculate capital distributions (e.g. on liquidation)?
Treatment is similar to a sale of rights.
A capital distribution is treated as a part disposal of the share capital.
If proceeds are £3,000 or less, or the distribution is 5% or less of the value of the shares before the distribution, the
distribution is instead deducted from the original cost of the shares, unless this is to the taxpayer’s disadvantage.
How are takeover exchanges dealt with?
New shares are deemed to have been acquired on the same date and for the same cost as the original holding.
If cash forms part of the exchange, there is a part disposal.
if cash is £3,000 or less than 5% of the total consideration (cash and shares), the cash received may be treated as a small capital distribution.
