Taxation Topic 3 - Capital Gains Tax Flashcards
What relevant legislation includes information on CGT
Taxation of Chargeable Gains Act 1992.
When are individuals liable to CGT
Individuals are liable to CGT on profits made on disposal or realisation of assets (turning assets to cash/liquidation) if they are resident in the UK during that tax year
What is the current annual CGT exemption
£12,300
Principal types of disposals are..
- Sale of an asset
- Gift of an asset
- Destruction of an asset (physical damage i.e. fire, theft etc. or legal ‘destruction i.e. stocks fall to a negligible value)
- Sale of any right in an asset
Other situations that MAY be classed as disposal…
- Sum received as compensation for damage or injury of assets
- Sum received under insurance policy for damage, loss or injury of assets
- Sum received from surrender rights of a policy
- A beneficiary under a trust becomes entitled to settled property against the trustees
When someone sells an asset, the date of sale is determined to be the..
date that a contract is in force, rather than the date any transactions of money/assets is made.
What is deferred consideration
where a payment for a disposal of asset might not be paid all at once/when the sale occurs. For example when a business is sold and there are 2 payments (the second payment is subject to the performance of future profits.
In the case of deferred consideration, what are the 3 outcomes
- As the second payment cannot be determined, the market value of the second payment must be used.
- If the second payment is received and it is higher than the market value supposed it would be, it is classed as a second disposal and a second CGT calculation takes place.
- If the second disposal results in a loss, then the owner can elect for it to be treated as a loss for the year of the original disposal
What is meant by deemed disposal
When assets are passed upon death, they are classed as a ‘deemed disposal’ (no CGT is due but a record is kept where the change of ownerships is recorded along with the current market price of the product, so then should the receiver dispose in the future, a fair calculation for CGT can be made).
Who cannot use CGT exemption
most trustees who get a reduced amount, and people who are not UK domiciled and claim remittance basis
main products exempt from CGT
- Private motor vehicles
- Chattels which are tangible, movable property under £6,000 (Tangible moveable property is deemed to be exempt where it is a wasting asset. For example a yacht that has a life expectancy of 20 years)
- Gifts to the nation of natural/historical interest
- Foreign currency for personal expenditure
- Gilts
- Qualifying corporate bonds (sterling bonds issued by companies)
- NS&I Savings Certificates and Save As You Earn schemes
- Premium bonds winnings and lottery winnings
If an owner has more than one home, what are the requirements to electing a primary residence
- A property that is fully let out cannot be a primary residence
- Election must be made within 2 years of the second home being bought, but this election can change
If a person has not occupied a property all of the time, only part of the value is subject to CGT. These are typically ignored periods of absence:
- A delay of up to a year between acquiring the property and actually moving in
- The last 9 months of ownership
- Any period before 1982
- Any period living in job-related accommodation with the intent to move back into the residence
Steps in calculating the gain and tax payable for CGT
- Determine the disposal proceeds (actual sale price or market value).
- Deduct the cost of purchasing the asset.
- Deduct any costs incurred in arranging the purchase and sale and any enhancement costs.
- Set off any capital losses.
- Deduct the annual exempt amount.
- Calculate the tax.
What price is used for an asset sold on commercial basis
Sale price
