Shares and Securities - CGT Reliefs Flashcards
Quoted shares that are gifted are valued at
the mid price on the day of gift
What are the matching rules for disposals on individuals?
Same day
Next 30 days
Share pool
If a rights issue is sold..
A part disposal occurs as this is treaterd as a capital distribution.
The cost can be calculated by A/ A+B
A = Proceeds from sale of rights
B = Market value of the shares retained
What is the exception to this?
If the proceeds are less than the higher of 5% or £3000 at the time of the rights issue, no gain arises but the proceeds are deducted from the cost. This treatment is automatic BUT a person may op to do a part disposal to utilise AEA.
Capital distributions (liquidation) are treated in the same way as
the sale of rights but with nil paid
GILTS and QCB are
Exempt for individuals for CGT and therefore ther eis no gain or loss
What is a QCB
Qualifying corporate bond:
A normal commercial loan
In Sterling
Aquired after 13/03/84
Has no provisions of conversion to or redemptiomn in another currency
If there is a reorganisation (change of shares) and the new shares are quoted
the cost of the original shareholding is apportioned between the new shares by reference to their value on the first day of quotation
Define a takeover
When the control of one company transitions to another by the way of a transfer of shares
If a takeover is paper for paper then?
What is paper for paper?
There is no gain or loss and the cost of the old shareholding is apportioned
No paper is when new shares or a mixture of new shares and securities are exchanged for the old shareholding
The aquiring company must request
permission from HMRC so that they’re able to confirm that the agreement is not being done to avoid tax and are for genuine commercial reasons
If there is a cash element to the takeover
Then there will be a disposal for CG purposes.
First the cost needs to be apportioned accross the shareholding and then the cash is treated as the proceeds of the part disposal.
Again, if the cash element is less than 5% of the value of the total holding or £3,000 then no disposal has taken place and the gain will be deducted from the cost in the future at disposal. This treatment is automatic unless the tax payer elects to treat as a part disposal.
If QCB’s are given art a takeover then
The gain is deferred until the QCB’s are sold. Although there is no CG on the QCB itself, there is a CG charge on the deferral of the gain on the shares.
If it turns out that BADR or Investors relief isn’t available on reorganisation or takeover when the shares are eventually disposed of
Then the taxpayer can elect to disapply the takeover rules and claim BADR or investors relief.
Claim must be made by 31st Jan the year after tax return deadline
PRR - Where a married couple live together
Only one property may qualify for relief
What does the PRR cover?
The house along with half a hectare. It can cover more if the house size warrants it, if not, there is a taxable gain on the remaining grounds.
Provided the residence was private at some point there is always a period of
9 months claimable
PPR - Deemed occupation?
Up to 3 years for any reason
Any period where required by employment to work abroad
Up to 4 years for work if required to live elsewhere (employed or self employed).
PRR - Part occupation?
If any part of the residence is not used by the owner for residence purposes then it is taxable
PRR - If someone has more than one residence
They are able to elect which residence is their principal as long as they’ve lived at both at some point.
This must be done within 2 years of living in the second residence.
PRR - what if you’re given work related accomodation?
This is fine, PRR is still available as long as you intend to occupy the residence.
PRR - What is the lettings exemption?
If part he residence is let out, there will be a gain, however, there is an exemption available if it was let out with shared occupancy with the owner and tenant.
The gain that can be covered by this relief is the lowest of:
The gain that has arised
£40,000
PRR already given
What is the interaction of IHT
If giftholdover relief is claimed on business assets or agricultural property and that transfer is or later on becomes chargeable to IHT, the gain is reduced by the IHT paid
What is the general rule for Gift holdover relief?
It is not available to non UK residents unless it is a UK property. The recipient must be a UK resident on disposal.
If the recipient stops being a UK resident in the 6 years post the tax year of the gift, the gain becomes chargeable.
What is gift holdover relief?
Disposals that are a gift or are sold under value are liable to CGT at market value. In certain circumstances the gain can be deferred by up to 4 years of the end of the tax year. Both donor and recipient have to agree.
Gift Holdover relief - What are the conditions for the reliefs of business assets?
Must be to a UK resident
Must be a qualifying asset:
Business asset used in the donors trade
Unquoted shares in a trading company
Quoted shares in a personal trading company (less than 5%)
Gift Holdover relief - What are the restrictions?
If the asset has only been used in the trade for part of the ownership period then the relief must be apportioned
Gift Holdover relief - What if there is no consideration?
Then the gain is taxe dnow and the base cost is reduced by the market value when the new owner goes to sell.
Gift Holdover relief - What happens when there is a partial consideration?
The excess over the cost is taxed immediatly.
The remaining balance is deducted from the base cost.
BADR may apply to the gain caused immediatly.
Gift Holdover relief - Gifts of qualifying shares
The gain on the gift of shares will not be entirely eligible for relief if the personal company has investments.
The gain eligible for relief is:
Gain x (CBA / CA)
CBA - MV of Chargeable BUSINESS assets less investments
CA - MV of Chargable assets
Again, BADR may be available on the gain
What is rollover relief?
Allows a taxpayer to delay CGT liability as long as proceeds are reinvested
Must be used in the trade.
Only a building can be split to be part trade and part non trade.
Rollover relief - The claim must be made by the later of 4 years from the end of the tax year from:
Selling old asset
Purchasing new asset
Rollover relief - What qualifys as a non depreciating asset?
Land and buildings
Goodwill (individuals only)
Rollover relief - When does the purchase of the new asset have to be?
Up to 12 months before or
36 months after the disposal of the old asset
Rollover relief - What happens when rollover releif is claimed on a non depreciating asset?
The rollover is deducted from the base cost of the new asset
Rollover relief - What is a depreciating asset?
An asset witht he life of less than 60 years
Rollover relief - If the new asset is a depreciating asset then the deferred gain is
Deferred until the earliest of:
Disposal
Date that new asset stops being used
10 years after new asset was purchased.
Rollover relief - Is it possible to rollover the gain from a depreciating asset to a non depreciating asset?
Yes - as long as the gain on the depreciating asset hasn’t chrystalised.
Dispositions made on death - If there is a variation of a will within X years, there will not be a charge to CGT
2 years
The new assets are taken on at probate value
What is incorporation?
When there is the disposal of assets by an unincorporated business to a company. It results in a chargeable gain
What is incorporation relief?
Allows the net gains to be deferred into the base cost of any shares received as consideration for the company.
Incorporation relief - and SBA’s?
There is no effect on SBA’s and the SBA’s claimed to date are not included within the calculation due to the asset being treated as always being owned by the new company.
Incorporation relief - How is it available?
It is automatically available but you can elect for it not to apply.
You would do this IF the net gains would be covered by the AEA and therefore wouldn’t be taxable now but potentially taxable in the future. OR if you could claim BADR now but not on the disposal of the shares
The election must be made within 2 years of the tax return deadline date following the year of incorporation.
Incorporation relief - What are the conditions?
All assets (except cash) must be transferred to the company
Transfer must be a going concern
Consideration being wholly or party in shares
Incorporation relief - What is the amount of relief?
Gain deferred =
Gain x (MV of shares received / MV of total consideration)
BADR may be available on the remaining amount.
EIS Re-invetsment relief - What is it?
If an individual disposes of any chargeable asset and then reinvests in EIS shares, the gain on the asset can be deferred
EIS Re-invetsment relief - When can the hsares be issues to qualify?
Between 1 year before and 3 years after the disposal of the asset.
EIS Re-invetsment relief - What is the maximum deferral?
The lower of:
The amount subscribed for the EIS shares
Amount specified in claim (can be specified to utilise AEA)
EIS Re-invetsment relief - When must the claim be made?
Within 5 years of the tax return deadline of the EIS shares being issued
EIS Re-investment relief - When will the deferred gain become chargeable?
EIS shares disposed of (unless to partner)
Investor becomes non UK resident within 3 years of issue
EIS shares cease to be eligible
SEIS Reinvestment relief - When is it available?
If an individual disposes of a chargeable asset and subscribes for SEIS shares in the same year
SEIS Reinvestment relief - What is the maximum deferral?
The lower of:
50% of the gain matched with the amount invested in SEIS shares
Amount specified in the claim (can be altered to utilise AEA)
SEIS Reinvestment relief - When must the claim be made?
Within 5 years of the investment in SEIS shares
SEISS X the gain
EIS relief X
Exempts
Defers
SEIS Reinvestment relief - Withdrawl or reduced
Is done if shares are sold within 3 years
SEIS Reinvestment relief - If not sold at arms length
Treated as fully taxable in the year that the shares were issued and the gain is equal to the SEIS reinvestment relief given
SEIS Reinvestment relief - If sold at arms length
The amount of SEIS income tax relief withdrawn is restricted to:
50% of the consideration received
The same proportion of CGT will also be restricted.
