Seminar 8 Flashcards
CGT = ?
capital gains tax
when does CGT arise?
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
when does CGT apply?
to taxable gains in the tax year
06/04-05/04
who are chargeable persons?
- individuals resident in the UK
- business partners
- personal representatives of a deceased person
what are chargeable disposals?
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
probate value = ?
market value at the date of death
what are chargeable assets?
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
what is the CGT computation to work out CGT liability?
disposal value
(less) incidental costs of disposal
(less) cost of asset
(less) incidental costs of acquisition
(less) enhancement expenditure
= chargeable gain/allowable loss
if asset is sold in commercial transaction…
disposal consideration is the gross proceeds
if asset is gifted…
the disposal consideration is the market value
incidental costs of disposal include…?
legal fees, estate agents and auctioneers’ fees and advertising costs
acquisition cost of the asset is…
the purchase price if the asset was bought, market value if the asset was gifted, probate value if it was inherited on death
incidental costs of acquisition include…?
legal fees, surveyor’s/valuer’s fees, stamp duty etc
enhancement expenditure includes…?
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)
for what period is a chargeable person liable to pay CGT?
CGT liability is based on the chargeable disposals made during the tax year
are capital gains/allowable losses on each asset calculated collectively or separately?
separately
net gains = ?
total gains - total losses
what is the annual exemption for CGT?
12,300
CGT is payable on the excess of net gains over the annual exemption for the year
at what rate is CGT?
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
residential property = ?
houses, flats, cottages etc.
places of residence
taxpayers aren’t required to fill in the CGT part of the tax return if…?
total disposal proceeds don’t exceed 49,200
AND
total gains for the year don’t exceed annual exemption of 12,300
when is CGT payable?
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
what is a chattel?
an item of tangible, movable property
wasting chattel = ?
has a predictable life of less than 50 years
e.g., caravans, boats, PCs
non-wasting chattel = ?
has a predictable life of longer than 50 years
e.g., antiques, jewellery, works of art
plant & machinery is always treated as…?
as thought its useful life is less than 50 years (wasting chattel)
are wasting chattels exempt from CGT?
yes
no chargeable gain/allowable loss on disposal of wasting chattel
if an asset has been used solely in a business and the owner haas claimed capital allowances on it, how is it treated?
treated as non-wasting chattel
non-wasting chattels are chargeable to CGT
what rules are they subject to?
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
how are marginal gains calculated for gains where the asset was acquired for less than 6,000?
5/3 x (gross proceeds less 6,000)
what are the non wasting chattels rules for allowable losses?
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
what is a ‘set’?
chattels form a ‘set’ when there are individual items that are similar (e.g., a pair of paintings)
what is it called when a sale is made out of a set of chattels?
a part disposal
how is the cost of a part disposal calculated?
cost x (a/a+b)
a = gross proceeds
b = current market value of the part retained
