Taxation Capital gains Tax Flashcards
Who is liable to CGT?
- Individuals who made a net gain on certain types of disposable assets in that tax year.
- Non-residents who make gain on UK property
- companies via the corporate tax system
What are some principal types of disposals?
- sale of an asset
- gift of an asset
- destruction of an asset
- sale of any right of an asset
- capital sum of insurance policies
When is the date of disposal determined?
When the contract becomes legally binding
Will a disposal by one spouse to the other in a given tax year give rise to chargeable gain?
if not, what are the conditions that need to be met?
No, this is know as a no gain /no loss transfer
1. living together or have been in that tax year
2.formal divorce agreement (no time limit)
3.seperating spouses have 3 years of this exemption
If you sell your main residence will you be subject to CGT?
The disposal of an individual’s main residence will generally receive Private Residence Relief (PRR) and so any gain will not be subject to CGT.
However, part may be taxable if it has not been the seller’s main residence throughout the period of ownership and in some other circumstances
when would the main residence exemption not be available?
- when the intention is to make profit
Twenty years ago, Mary bought a house in Liverpool for £110,000 with legal costs of £350 and stamp duty of £1,100. Two years later, she spent £5,600 building an extension. She sold the house in the current tax year for £243,700. The estate agent fees were £3,750 and legal costs were £1,250. Mary has not used the house as her main residence.
What is her net gain?
The net gain is calculated as follows.
Disposal proceeds £243,700
Less acquisition costs £110,000
Enhancement costs £5,600
Legal cost of acquisition £350
Stamp duty £1,100
Estate agent fees £3,750
Legal cost of sale £1,250
Total deductions (£122,050)
Net gain £121,650
Mary made a net gain of £121,650 on the sale of a house in Liverpool, the CGT she would pay is calculated as follows (assuming she has no other taxable gains or income, an annual exempt amount of £3,000, and a basic‑rate tax threshold of £37,700 and that CGT rates for non‑exempt residential properties are 18 per cent for gains falling within the basic rate and 28 per cent for gains at the higher or additional rate)
Net gain from sale £121,650
Less the annual exempt amount £3,000
Taxable gain £118,650
CGT payable £37,700 x 18% = £6,786
£80,950 x 28% = £22,666
£29,452
list the types of relief a gain can qualify for
- business roll‑over relief;
- hold‑over relief;
- reinvestment relief;
- business asset disposal relief
- investors’ relief
List the occasions when a disposal occurs
- Sale of an asset (be it a whole sale or part sale).
- Gift of an asset (be it whole or part).
- Destruction of an asset (be it whole or part).
- Sale of any right in an asset, or money received to forfeit any right.
- A capital sum received as compensation for damage or injury to assets.
- A capital sum received under an insurance policy for damage, injury or loss of assets.
- A capital sum received from surrender rights of an insurance policy.
- A beneficiary under a trust becomes absolutely entitled to settled property against the trustees
Explain the meaning of deferred and contingent consideration
There are occasions when the payment for an asset might not be immediately forthcoming at the point of sale
-As the value of a second payment cannot be determined at the time of the sale, the market value of the right to receive the secondary payment if the contingency is met must be used.
- Once that payment is received, there is deemed to be another disposal for any excess amount over the market value already brought into tax, and a further calculation for CGT purposes must be completed.
-If the second disposal results in a loss the owner can elect for it to be treated as a loss for the year of the original disposal
What are some considerations that need to be made when owning two homes?
- determine which should be treated as the main residence#
- property is fully let it cannot be their residence and therefore
cannot be chosen as the main residence.
-must elect their main residence within two years of the acquisition of the second residence.
-HMRC can decide which is their main residence
based on facts such as how long they spend at each house
-married couples can only claim the main residence exemption for one property at a time
Asif purchased shares 10 years ago for £20,000 and paid a broker £125 for setting up the deal. He sold the shares in the current tax year for £50,000, with a final broker’s fee of £200. He had a capital loss of £2,000 to bring forward, in relation to another share transaction. What is his CGT liability?
Assume Asif is a basic‑rate taxpayer and remains so after this transaction, a CGT annual exempt amount of £3,000 and that CGT is at 10 per cent. (Show all your workings.)
Disposal price £50,000
Less disposal costs £200
Less acquisition costs £125
Less acquisition price £20,000
Less capital loss brought forward £2,000
Net gain £27,675
Less annual exempt amount £3,000
Taxable gain £24,675 x 10%
Tax payable £2,467.50
