random & reliefs Flashcards
The amount of trading losses allowed against other income
Higher of 25% of total income or £50,000
Badges of trade (sofirm fast)
Subject Matter
Ownership period
Frequency
Improvements
Reasons for sale
Motive
Finance
Acquisition
Similar
Transactions
(CGT) Incorporation relief
- Transfer of an unincorporated business to a company for shares
- All assets (except cash) must be transferred.
- Some consideration must be in shares
Operation of relief
If only share consideraion -> 100% of the gains are deferred
If some other consideration (cash or debt), then gain = [value of shares/total considerations] x net gain
Relief deducted from base cost of shares
(CGT) Gift Holdover relief
- Gift or undervalue sale
- Assets used in business or personal co. (> 5% shares)
-share in trading co. (need >5% if quoted)
Operation of the relief
- if proceeds > original cost, proceeds - original cost chargeable now
-relief deducted from base cost
- if gifting shares in a co containing non-business assets, the relief is restricted to Gain x Chargeable busniess assets/Chargeable assets.
(CGT) Rollover relief
Qualifying disposals (2), Operation of relief (5)
- Assets used in business (L&B, fixed P&M, GW)
- Reinvested 12m before - 36m after
Operation of relief
- Chargeable now = lower of (proceeds not reinvested, original gain)
- Relief deducted from base cost of replacement
- Reinvest in depreciating asset (UEL < 60 years) fain frozen, unfreezer after 10 years
- if partial bus use of old asset, split into 2 gains. RoR only avail on business asset
- if partial business use of new asset, on the business % of the cost qualifies as reinvestment.
(CGT) BADR
- All or part of business or partnership
- Assets of your business following cessation (sold <3 years)
- shares in trading co. (≥5% + employee)
- Associated disposal, if you charge e.g. 40% of market rent, only 60% of gain qualifies for BADR)
Operation of relief
- Qualifying asset must be held for ≥ 2 years
- 10% CGT on first £1m lifetime qualifying disposals
- Can’t use on transfer of goodwill to a close company of which you own ≥5% of the shares
- If associated disposal, if you charge e.g. 40% of market rent, only 60% of gain qualifies for BADR
Investors relief
- 10% rate also applies to shares in unlisted trading companies
- Shares must be held ≥ 3 years, holder not an employee, lifetime limit of £10m.
PPR
- Gain x period of occupation/total period of ownership
- Deemed occupation v criteria
- Last 9 months of ownership = must have occupied entire house at some point
- Up to 3 years for any reason = must have occupied house at some point
- Up to 4 years when working elsewhere in UK = must have occupied house at some point (but no need to reoccupy after absence if work prevents you from doing so)
- Any period where employee required to work outside the UK = must have occupied house at some point (but no need to reoccupy after absence if work prevents you from doing so)
Investment relief: EIS relief
- Must own < 30% of the shares
- must not be an employee of the company
- Can claim relief at 30% - can only reduce IT to nil
- Max £300k
- Dividends recieved from EIS subject to normal rates
- If sold within 3 years, relief given needs to be paid back
Investment relief: SEIS
- Must own < 30% of the shares
- Must not be an employee of SEIS company
- can claim 50% of the relief
- If sold within 3 years the IT relief is withdrawn
- Max £50k.
Venture Capital Trust (VCT) Relief:
Purpose: Encourages investment in small, high-risk companies.
Eligibility: Individual investors.
Tax Relief: Income tax relief up to 30%, capped at £200,000.
Applied in the tax year of investment.
Dividend Tax: Dividends from VCTs usually tax-free.
Holding Period: Minimum 5 years for income tax relief.
Qualifying Companies: Invests in small, unquoted companies or AIM-listed ones, engaged in a qualifying trade.
Limits: Annual investment limit of £200,000.
Risks: High-risk due to focus on smaller companies.
Matters to consider before acting as advisers
(1) Proof of ID
(2) Threat to funamental principles (Professional behaviour, professional competence, Integrity, Objectivity and Confidentiality)
(3) Contact previous accountants after seeking permission
Share Scheme: Company Share Option Plan (CSOP)
Purpose:
* Grants share options with tax advantages to employees.
Eligibility:
* Employees must work at least 25 hours per week (or 75% of working time) for the company.
Conditions:
* Options must be granted at market value.
* Gains on exercise may qualify for favorable tax treatment.
Share Scheme: Share Incentive Plan (SIP):
Purpose:
* Allows employees to acquire and hold shares in the company.
Eligibility:
* Generally available to all employees.
Conditions:
* Shares are held in a trust for a specified period.
* Employees can receive tax advantages on dividends and gains.
Share Scheme: Save As You Earn (SAYE) Scheme:
Purpose:
* Allows employees to save towards the purchase of shares in the future.
Eligibility:
* Generally available to all employees.
Conditions:
* Fixed savings period (usually three or five years).
* Employees can choose to buy shares at a predetermined option price.
IT: Agricultural Property Relief (APR):
Purpose:
* Reduces the value of qualifying agricultural property for inheritance tax purposes.
Eligibility:
* Applies to agricultural property or pasture.
Conditions:
* Property must be owned and occupied for agricultural purposes.
* Relief may also apply to certain woodland and buildings.
