Seminar 8

Question 1

CGT = ?

Answer 1

capital gains tax

Question 2

when does CGT arise?

Answer 2

on the disposal of a capital asset

if the asset has increased in value since its acquisition, there will be a chargeable gain

if the asset has decreased in value since its acquisition, there will be an allowable loss

Question 3

when does CGT apply?

Answer 3

to taxable gains in the tax year

06/04-05/04

Question 4

who are chargeable persons?

Answer 4

• individuals resident in the UK
• business partners
• personal representatives of a deceased person

Question 5

what are chargeable disposals?

Answer 5

partial or total sale of an asset (other than inventory)

the gift of all/part of an asset

the loss/destruction of an asset - receipt of insurance proceeds

inherited assets of deceased person at probate value

Question 6

probate value = ?

Answer 6

market value at the date of death

Question 7

what are chargeable assets?

Answer 7

all assets are chargeable except:
- cash
- motor cars
- gilt-edged securities
- shares/investments in ISAs
- wasting chattels & chattels sold for 6,000 or less
- national savings certificates & premium bonds

Question 8

what is the CGT computation to work out CGT liability?

Answer 8

disposal value
(less) incidental costs of disposal

(less) cost of asset
(less) incidental costs of acquisition
(less) enhancement expenditure

= chargeable gain/allowable loss

Question 9

if asset is sold in commercial transaction…

Answer 9

disposal consideration is the gross proceeds

Question 10

if asset is gifted…

Answer 10

the disposal consideration is the market value

Question 11

incidental costs of disposal include…?

Answer 11

legal fees, estate agents and auctioneers’ fees and advertising costs

Question 12

acquisition cost of the asset is…

Answer 12

the purchase price if the asset was bought, market value if the asset was gifted, probate value if it was inherited on death

Question 13

incidental costs of acquisition include…?

Answer 13

legal fees, surveyor’s/valuer’s fees, stamp duty etc

Question 14

enhancement expenditure includes…?

Answer 14

capital costs of additions and improvements to the asset

must be reflected in the value of the asset at the date of disposal

e.g., extensions, architect fees for extension etc)

Question 15

for what period is a chargeable person liable to pay CGT?

Answer 15

CGT liability is based on the chargeable disposals made during the tax year

Question 16

are capital gains/allowable losses on each asset calculated collectively or separately?

Answer 16

separately

Question 17

net gains = ?

Answer 17

total gains - total losses

Question 18

what is the annual exemption for CGT?

Answer 18

12,300

CGT is payable on the excess of net gains over the annual exemption for the year

Question 19

at what rate is CGT?

Answer 19

generally taxed at 10% or 20% depending on the amount of individuals taxable income (after PA has been deducted)

10% up to 37,700 (BRB)

20% thereafter

goes up to 18% and 28% in the case of residential property gains

Question 20

residential property = ?

Answer 20

houses, flats, cottages etc.

places of residence

Question 21

taxpayers aren’t required to fill in the CGT part of the tax return if…?

Answer 21

total disposal proceeds don’t exceed 49,200

AND

total gains for the year don’t exceed annual exemption of 12,300

Question 22

when is CGT payable?

Answer 22

31st January following the end of the tax year

e.g., 31 Jan 2024 for 22/23 tax year

any CGT due on disposal of residential property is payable within 60 days of completion

Question 23

what is a chattel?

Answer 23

an item of tangible, movable property

Question 24

wasting chattel = ?

Answer 24

has a predictable life of less than 50 years

e.g., caravans, boats, PCs

Question 25

non-wasting chattel = ?

Answer 25

has a predictable life of longer than 50 years

e.g., antiques, jewellery, works of art

Question 26

plant & machinery is always treated as…?

Answer 26

as thought its useful life is less than 50 years (wasting chattel)

Question 27

are wasting chattels exempt from CGT?

Answer 27

yes

no chargeable gain/allowable loss on disposal of wasting chattel

Question 28

if an asset has been used solely in a business and the owner haas claimed capital allowances on it, how is it treated?

Answer 28

treated as non-wasting chattel

Question 29

non-wasting chattels are chargeable to CGT

what rules are they subject to?

Answer 29

when there’s a chargeable gain:
- if disposed for 6,000 or less & acquired for 6,000 or less, any gain is exempt & any loss is allowable
- if disposed of for 6,000 or more & acquired for 6,000 or less, there’s a marginal relief for the gain

Question 30

how are marginal gains calculated for gains where the asset was acquired for less than 6,000?

Answer 30

5/3 x (gross proceeds less 6,000)

Question 31

what are the non wasting chattels rules for allowable losses?

Answer 31

if a non-wasting chattel is disposed of and proceeds exceed 6,000, the allowable loss is calculated in the normal way

if proceeds are 6,000 or less but it was acquired for 6,000 or more, the allowable loss is restricted and calculated as if disposal proceeds were exactly 6,000

Question 32

what is a ‘set’?

Answer 32

chattels form a ‘set’ when there are individual items that are similar (e.g., a pair of paintings)

Question 33

what is it called when a sale is made out of a set of chattels?

Answer 33

a part disposal

Question 34

how is the cost of a part disposal calculated?

Answer 34

cost x (a/a+b)

a = gross proceeds
b = current market value of the part retained