Lecture 3: Capital Gains Tax Reliefs Flashcards
What qualifies for principal private residence relief?
Residence + 1/2 hectare of land.
Only one PPR per married couple/civil partnership.
What is the gain exempted for principal private residence relief?
Total gain * (period of occupation/total period of ownership)
What periods of absence are deemed to be periods of occupation?
- Final 18 months of ownership
- Any period of up to 3 years (away for any reason).
- Any period of absence living abroad because of employment overseas.
- Any period of up to 4 years living elsewhere in the uK due to employment.
In order for 2-4 to apply, the dwelling must have been the individual’s only or main residence both before and after periods of absence.
Months are used.
What is the lettings exemption (in relation to PPR)?
Lowest of:
- Gain after PPR exemption
- PPR exemption
- £40,000
What are the rules for rollover relief for business assets?
If a taxpayer disposes of an asset used for trade purposes, and in the:
- 12 months before - 36 months after
disposal, “reinvests” the proceeds in another asset used for trade purposes, and both assets are either:
- land and buildings
- fixed plant and machinery
- goodwill (not ltd companies)
the taxpayer may ROLLOVER the gain on the old asset into the cost of the new asset.
i.e. postpone the tax on the gain by reducing the cost of the new asset by the gain of the old asset.
Rollover is only available to the extent that the whole sales proceeds are reinvested.
If no part of the gain is reinvested, no rollover is available.
How do you calculate rollover relief when not all of the proceeds are reinvested?
Work out the gain.
Work out the proceeds not being reinvested.
Subtract non-invested proceeds from gain to workout the rollover.
Proceeds that were not reinvested are immediately chargeable.
If you keep more than the gain, there is no rollover.
What happens if a replacement asset is a depreciating asset (expected useful life less than 60 years)?
The gain on the old asset is “held over” until the earliest of:
- The disposal of the replacement asset.
- The date the replacement asset ceases to be used in the trade.
- 10 years after the acquisition of the replacement asset.
THEN the original gain becomes chargeable.
How are gains arising on gifts of business assets treated?
May be rolled over into the base cost of the donee.
When a gift is made, deemed proceeds in the CGT computation is market value of the asset on the date of the gift.
SO first do normal CGT calculation.
If assets is subsequently sold by the donee, the deemed cost is the market value - the rolled over gain.
What are eligible assets for gift relief?
- Assets used in the donor’s business.
- Shares in an unquoted trading company.
- Shares in the doner’s personal company (5% of the voting rights.
What happens when there is a consideration given for the disposal (gift relief)?
When a consideration is given for the disposal, and that consideration exceeds the original cost of the asset, the amount of the gain rolled over is reduced by the excess of actual proceeds over cost.
The excess between actual proceeds and original cost of the asset is chargeable.
When is entrepreneurs relief available?
Where there is a material disposal of business assets.
In the case where:
1. An individual disposes of the whole or part of a business (share in a partnership) which he/she has owned throughout the period of one year ending with the date of disposal.
2. An individual disposes of assets used in the business at the date of cessation provided that the business was owned by the individual throughout the period of one year ending with the date of disposal AND the assets are disposed of within three years of the cessation date.
- An individual disposes of shares in the individual’s personal company (5% of ordinary share capital/voting rights AND officer or employee).(Limited Company)
Only relevant business assets qualifying for relief under 1 and 2 above. Incl. goodwill, but excl. investments.
How is entrepreneurs relief calculated?
Charging the eligible gains to CGT at a rate of 10%.
What are the limits to entrepreneurs relief?
There is a lifetime limit of £10 million of gains on which relief can be claimed.
Any gains over this will be charged at 10% or 20% (18/28%), depending on whether any balance of basic rate band is available.
Gains eligible for Entrepreneurs’ Relief are deemed to use up the basic rate band before other gains.
The annual exemption and any capital losses can (and should) be used against non-ER gains first.
