Shares securities and CGT reliefs

Question 1

What are the share matching rules?

Answer 1

Same day
Next 30 days
Share pool (weighted average cost calculation)

Question 2

What are the conditions for a disposal of shares to be treated as a small part disposal?

Answer 2

Proceeds from the part disposal need to be lower than £3000 or 5% of the market value of the asset.

Question 3

What are the rules for private residence relief?

Answer 3

Last 9 months is deemed occupation (provided individual has lived in house at some point)

For deemed occupation to be considered the individual has to have actual occupation before and after the deemed occupation.

Deemed occupation: Up to 3 years for any reason, any period employed abroad and up to 4 years working elsewhere (employed or self employed)

Question 4

What is letting relief?

Answer 4

Lowest of PRR gain
40K
Letting gain

For letting relief to apply, individual needs to share occupancy with tenant.

Letting gain is the proportion of the house that is taxable while the house is being let out.

Question 5

Which disposals qualify for business asset disposal relief?

Answer 5

Sole trader business (must be going concern)
Partnership interest (must be going concern)
Furnished holiday letting
Shares in a trading company which is the individuals personal company and the individual is a director or employee of the company.
Personal company is where you own 5% of shares.

Relief is only available on the disposal of business assets.

Question 6

How does BADR still apply if a business has ceased trading?

Answer 6

The business must have been owned for 2 years prior to cessation and the disposal must be within 3 years after cessation.

Question 7

What is the circumstance where goodwill will qualify for BADR?

Answer 7

Goodwill will qualify for BADR if it is sold to an unconnected third party, but if the business is incorporated then it will not qualify for BADR.

Question 8

What are the special rules for Enterprise Management Incentive shares when it comes to BADR?

Answer 8

There is no requirement to hold 5% of the shares of the company and the ownership period is calculated from the date of grant.

Question 9

What is an associated disposal with regards to BADR?

Answer 9

If an individual sells shares in a company and qualifies for BADR, if they also sells assets from that company such as buildings etc. Then the gain on the building will also qualify for BADR.

Question 10

What is investors relief?

Answer 10

Investors relief applies when an individual disposes of new ordinary shares in an unlisted company which have been subscribed for by the individual making the disposal.

The shares must also be issued on or after 17 March 2016 and held continuously for 3 years from the later of the 6 April 2016 and the date of the issue of shares until the date of disposal.

The individual disposing of the shares should not be an individual or an employee.

Investors relief shares are taxed at 10% and the lifetime limit is £10mn.

Question 11

What is the acronym that is used to remember investors relief?

Answer 11

Subscribed for new ordinary shares
Trading company
Unlisted company
Not working for company
Three years

Question 12

What is gift relief?

Answer 12

This is where an individual gifts qualifying assets undervalue.

Qualifying assets are business assets that are used in the donors trade.

Qualifying assets can also be shares in trading companies. If they are shares in an unquoted company then any % of shares is ok and if they are quoted shares then the donor must own more than 5%.

Joint claim needs to be made by donor and recipient within 4 years after tax year of gift.

The gain is deferred by reducing the base cost of the asset to the recipient. i.e. the recipient gets a larger gain when they dispose of the asset in the future.

The donor is taxed immediately on the excess of the actual proceeds over cost e.g. sell for 100k but cost 80k, so tax 20k difference immediately.

Gift relief can only be applied to chargeable business assets e.g. CBA/CA * gain.

Question 13

What is rollover relief?

Answer 13

Rollover relief applies to an individual and a company.
This is where a business sells a qualifying asset and reinvests the proceeds from the disposal to buy another qualifying asset.

Both the new and the old asset have to be used in your trade.

What are examples of qualifying assets: land and buildings, fixed plant and machinery and goodwill (only for individuals)

The reinvestment needs to be made within 12 months before the disposal or 36 months after the disposal.

If the proceeds are reinvested into a non depreciating asset then the proportion that is reinvested can be used to reduce the base cost of the new asset.

If the proceeds are reinvested into a depreciating asset i.e. fixed plant and machinery then we freeze the gain until the earliest of 3 scenarios: disposal of new asset, new asset ceases to be used in trade and 10 years from acquisition of new asset.

Rollover relief claim needs to be made from the later of 4 years of the tax year that the old asset was disposed of and the new asset was purchased.

Question 14

What is the formula for letting relief?

Answer 14

Letting relief is the lower of £40k, PRR and the letting gain.

It is calculated by dividing the amount of occupancy which relates to the letting period by the total occupancy multiplied by the gain of the house.

Question 15

What is the benefit of incorporation relief?

Answer 15

Incorporation relief allows the net gains to be deferred into the base of any shares received as consideration from the company. E.g. higher gain of the future sale of the shares.

SBA’s are not added to the gain like in other scenarios when dealing with incorporation.

Question 16

Why would an individual elect to not to claim incorporation relief?

Answer 16

An individual would elect to not claim incorporation relief if the gain on incorporation can be offset by their annual exempt amount.

Another reason could be that the disposal qualifies for BADR, which is at the lower CGT rate of 10%

The election must be made within 2 years following the 31 January following the end of the tax year.

Question 17

What are the conditions for incorporation relief?

Answer 17

All assets transferred to company
Transfer as a going concern
Consideration wholly or partly in shares

Incorporation relief is a deferral relief.

Gain deferred = Gain * MV of shares received/ MV of total consideration

Question 18

What are the benefits of an EIS investment?

Answer 18

Tax reducer
If shares are held for 3 years then gain on disposal of shares becomes exempt.
If an individual disposes of any chargeable asset at invest in EIS shares then the gain on the asset can be deferred.

Maximum amount that can be deferred is the lower of the: Gain and the amount invested in EIS shares.

Question 19

What is the deadline for claiming EIS reinvestment relief?

Answer 19

The deadline for claiming EIS reinvestment relief is 5 years from the 31st January following the end of the tax year that the EIS shares were issued.

Question 20

When will the EIS DEFERRAL become chargeable?

Answer 20

EIS shares disposed of by investor
EIS shares disposed of by spouse/civil partner
Investor becomes NON UK resident within 3 years of share issue
Investor spouse becomes NON UK resident within 3 years issue
EIS shares cease to become eligible

Question 21

What is SEIS reinvestment relief?

Answer 21

SEIS reinvestment relief is an EXEMPTION.
Shares need to be subscribed for in the same tax year as disposal.
The maximum exemption is the lower of:
50% of the gain matched with the amount invested in SEIS shares.
OR
An amount specified in the claim (if you want a lower amount)

Question 22

Under what circumstances will SEIS reinvestment relief be withdrawn?

Answer 22

SEIS shares are disposed of within 3 years of acquisition.

If shares are not disposed of at an arms length transaction.

Question 23

When making chargeable disposals what should we look out for with regards to the timing of the disposals?

Answer 23

Tax rates in different years i.e. try to make disposals when individual is a basic rate tax payer.

Using losses and AEA i.e. make disposals in years where we have capital losses and the full AEA so that we can reduce the CGT liability.

Make use of available reliefs e.g. BADR and investors relief

Question 24

What are the rules for offsetting capital losses when it comes to the CGT computation?

Answer 24

Current year losses must be offset before AEA and BF capital losses.

In this order:
Current year capital losses
AEA
BF capital losses

Question 25

How are losses in death treated with regards to CGT?

Answer 25

Losses in excess of gain can be carried back and offset against previous 3 years on a LIFO basis.

Question 26

What are the conditions for a small part disposal of land?

Answer 26

If a small part disposal is made then the part disposal can be ignored.

Instead proceeds are deducted from the cost giving a reduced cost for later disposals:

Claim must be made 1 year after the January after the end of the tax year.

Aggregate proceeds from sales of all land and buildings must not exceed 20k.

Proceeds cannot exceed 20% of the market value of land prior to disposal.

Question 27

What is the difference between gifting an asset and inheriting an asset with regards to the cost that you use in the CGT computation?

Answer 27

When you receive an asset as gift then you use the cost as the cost BUT if you inherit the asset then you use the market value of the asset.

Question 28

What happens if an asset is lost or destroyed?

Answer 28

Disposal counts as the day when compensation monies are received.

If compensation money is reinvested into a replacement asset, then rollover relief applies.

Rollover relief is a deferral relief.

If all insurance proceeds from asset are reinvested into replacement asset then any gain can be used to reduce the base cost.

Any amount of the insurance proceeds that are not reinvested are taxed immediately.