Osborne 8 Capital Gains Tax for Individuals

Question 1

Connected persons

Answer 1

Connected persons are defined as:

• siblings, lineal ancestors and descendants of the taxpayer and the ancestors/descendants spouses, i.e. brothers and sisters , brothers and sisters-in-law, parents, grandparents, children, sons and daughters-in-law, grandchildren. (Uncles, aunts, nephews, nieces and cousins are therefore not connected persons for this purpose)
• above relatives of spouse, i.e. parents-in-law, brothers and sisters-in-law and stepchildren;
• spouses of the relatives of the spouse!!
• husband and wife who separated in a previous tax year and who are not yet divorced (TCGA 1992 s. 286(2)). Once they are divorced they are no longer connected persons by virtue of having been married, but may be connected if one of the other conditions applies;
• business partners (TCGA s.286(4));
• spouses of business partners;
• relatives of business partners.

Question 2

Basis of assessment for CGT (individuals)

Answer 2

Chargeable gains less Capital losses that occur during the Tax Year … (not the basis period of the business)

Question 3

Definition of disposal & types of asset that are exempt/chargeable under CT/CGT

Answer 3

Same

Question 4

Transfer to spouse

Answer 4

This works by treating the disposal proceeds as the amount needed to generate zero gain/loss (cost)

Question 5

Transfer to spouse

Answer 5

This works by treating the disposal proceeds as the amount needed to generate zero gain/loss (ie.cost)

Question 6

** Losses CGT **

Current year rules?

C/F rules?

(There is no CB option)
Remember rule for losses to connected person

Answer 6

CY:
MUST set against CY gains - CANNOT save AEA

MUST set off ASAP - CAN save AEA

(NB This is in contrast to offsetting ST TRADING losses against CGT … which you can do as an optional extension when (if you chose to) you C/B against Total Income… In this case you CAN’t save AEA

Question 7

rollover relief

difference companies / individuals?

Answer 7

Individuals can use for GOODWILL

Question 8

Matching rules for Companies & Individuals?
(Full rules)

Use wording ‘Balance of purchase’ (x-x) if you are adding only some shares to the pool because some have been matched.

Answer 8

Individuals:

1. Same day
2. In 30 days after
3. Pool

Companies

1. Same day
2. In 9 days before
3. Pool

Question 9

When a ST sells business this is the parts:

1. Think about closing rules basis periods for calculating Trading Profits
2. Capital allowances - Plant and machinery disposed of for less than cost would be dealt with through CA pools
   (I think this would also cover P&M sold more than cost ?.. ie it would have generated a charge?)
3. this leaves other chargeable assets eg. Buildings & goodwill . These are dealt with individually (nb if goodwill is not priced it is the balancing figure priced assets/proceeds

Answer 9

.

Question 10

Business Asset Disposal Relief (Entrepreneurs relief)

Applies to individuals who dispose of:
(3) types (3) conditions

Answer 10

Conditions must have been met for 2 years.
(earlier of date of disposal / date of cessation if applicable)

• All or part of a Trading business.
  Must have been owned by the ST making the claim.
  Or owned by P’ship of which claimant was a member.
  Disposal must be whole biz or a distinct part.
• Assets of an Individual’s or Partnership business that has now ceased.
  Must have been owned by the ST making the claim.
  Or owned by P’ship of which claimant was a member.
  Cessation must not be more than 3 years B4 disposal.
• Shares in a ‘personal trading company ltd’
  Claimant must have held >= 5% of Ordinary Shares.
  Company must normally have been a trading company.
  Claimant must have been an officer or employee.

Question 11

DISPOSAL of a BUSINESS by an individual
(gains … BAD relief):

1. Allocate Sale proceeds to individual assets on BS.
   This gives you Proceeds for each item.
   (No indexation allowance)
2. Work out gain on each individually
3. Work out total and tax 10% (if in LT Limit of £1M)

NB:
1. Gains use up basic rate band (that non-biz gains would therefore lose out on any 10% band and be more likely to be taxed at 20%)

It seems you do still deduct the AEA …. and if you have a Non-qualifying disposal (antique vase) …
You can apply the AEA to the Vase but then you tax the BAD item first (using up any remaining 10% band which you lose the benefit of as the BAD asset would only be 10% anyway) … and then the remaining gain on the vase … probably at 20% unless your BAD item was very small..

2. Claim must be made within 12 months of online filing due date for that year. (so within the ‘amendment year)

Answer 11

eg
Premises 350,000 Chargeable
P&M 20,000 Proceeds

Question 12

INVESTORS RELIEF (LT limit £10M)

Similar to BAD relief but aimed at external investors in ‘NEW’ Ordinary shares in UNLISTED/UNQUOTED trading companies. (basically venture capitalists)

So Investor must NOT be Employee (or connected to an employee)

ORDINARY
* Shares must be Ordinary shares in a Trading Co (or holding company of a trading co)

NEW
* Shares must be issued on or after 17/03/16 and subscribed for in exchange for cash.

HELD 3 years
* Shares must be held for 3 Yrs continuously before Disposal

Osborne says similar to BAD relief ..

but doesn’t specifically mention using up 10% band.

Does say Claim must be made within 12 months of online filing due date for that year. (so within the ‘amendment year same as BAD relief claim)

Answer 12

Shares held can be categorised:

Qualifying - Meet all conditions

Potentially qualifying (not yet held 3 years)

Excluded - cannot qualify as don’t meet all conditions.

Need to look at

Date shared issued (must be after 17/03/16)
Date shares purchased (must be 3 years before sale)
Must be NEW ordinary shares (ie buying direct)

Question 13

GIFT RELIEF

FOR Individuals
FOR certain assets including BIZ assets

Delays CGT & transfers liability

• Both parties must agree
• Works by reducing base cost of asset for the donee.
  (base cost = MV less the deferred gain)

Applies to (3)?

Answer 13

1. Assets USED in the donor’s biz or in his PTC.
2. Shares in the donor’s PTC
3. Unquoted shares in other trading companies.

NB. Similar assets to those qualifying for BAD relief..
So possible that where an asset incorporating a gain deferred by Gift Relief is disposed of again, the gain could be subject to BAD relief (the BAD relief ‘sticks’ to the asset?… NO I think it’s because its a biz asset so LIKELY to continue as that with the new owner and qualifies for that reason?… hopefully an exam task would tell you whether or not new owner qualifies)

Question 14

4 Reliefs to remember

Companies only get ROLLOVER

Individuals get 
ROLLOVER
GIFT
BAD
INVESTORS

Answer 14

CGT (remember its which TAX year disposal falls in)

Payable 31/01 following End of relevant tax year.

No POAs on CGT

Record keeping - will need to plan ahead & retain ACQUISITION records so that can make them available for the 5 years after relevant Tax return filing due date… don’t just shred all records older than 5 years!
Valuations for part disposals etc

Records relating to later disposals eg Gift relief, BAD relief …. need to retain until all relevant assets disposed of

Question 15

Tricky Kaplan question about lifetime BAD relief.

Q says previous gain qualifying for BAD relief of £300K.

New qualifying gain 5,500,000

No other disposals EITHER year

Answer 15

I thought this meant that should deduct 12,300 from the previously used £300K leaving 712,300 available

but answer only used 700,000
..I suppose the Q does say ‘Bad RELIEF of £300K
.. so we were given the

anyway answer was to deduct this years 12,300 from the £5.5M qualifying gain
Then tax £700K of that at 10%
Then the rest at 20%

Question 16

Regarding BAD relief condition that person must own at least 5% interest in the company - how to remember the 5%?

Answer 16

My original stake in Aquapower

Remember must also be satisfied for 24m
along with other condition that work for the co

Question 17

Kaplan question I got wrong

Given taxpayers chargeable gain.
Told no other disposals,
Given taxable income (ie under 37,500)

Asked how much chargeable under each rate 10%/20%

Answer 17

I did:
37,500 - 21,500 Taxable income = 16,000
16,000 - 12,300 = 3,700 chargeable at 10%
Rest at 20%

All wrong!!!

Was being asked CHARGEABLE gain.

Should have worked:
Total gain £120,300 - £12,300 = £108,000 taxable gain.

The amount of CHARGEABLE gain at 10% would be:
37,500 - 21,500 = 16,000 @ 10%
108,000 - 16,000 = 92,000 @ 20%

So you don’t somehow Deduct the AEA from the 10% allowance. She gets full remaining lower rate band at the 10% rate

Question 18

Really need to watch out for whether dealing with
Chargeable gain
Taxable gain (after AEA)

Answer 18

.