Topic 4 - Capital gains tax Flashcards
What is a capital gain?
Simply is proceeds - loss = gain
What constitutes a chargeable disposal for Capital Gains Tax (CGT)? 3
A chargeable disposal includes the sale of an asset, gift of an asset (proceeds=MV), or loss/destruction of an asset.
What are the types of chargeable assets under CGT? 2
Chargeable assets include all capital assets unless specifically exempt.
Who are considered chargeable persons under CGT? 3
Chargeable persons include individuals, partners, and companies. Companies do not pay CGT on gains they pay CT.
Which assets are exempt from CGT? 7
– Cash
– Motor cars (including vintage and classic cars)
– Most wasting chattels
– Chattels which are not wasting chattels if cost and proceeds ≤£6,000
– Gilt-edged securities (such as Exchequer Stock or Treasury Stock)
– National Savings Certificates and premium bonds
– Shares and investments held in an Individual Savings Account (ISA)
How is a chargeable gain or allowable loss computed?
Chargeable gain is calculated as: Gross disposal consideration - Less incidental costs of disposal = Net disposal consideration - Less allowable costs = Chargeable gain/Allowable loss.
What is included in the disposal consideration for CGT purposes?
Disposal consideration includes the gross sales proceeds. If not sold at arms length (e.g., gift), market value is used. Incidental costs such as legal fees, selling, and advertising costs are included.
What are allowable costs for CGT purposes?
Acquisition cost; Incidental costs of acquisition; Enhancement expenditure.
What is included in the acquisition cost for CGT purposes? 3
Acquisition cost includes: Purchase price if bought, Market value if gifted, Probate value (MV at date of death) if acquired on donor’s death.
What is enhancement expenditure in CGT calculations? (Multiple Choice)
Enhancement expenditure includes: Extensions, Planning permission and architects’ fees for extensions.
Which costs are considered incidental costs of disposal under CGT?
Incidental costs of disposal include legal fees, surveyors’ or valuers’ fees, and stamp duty land tax.
When is the date of disposal for CGT purposes?
The disposal date is the date when the contract is made. If the contract is conditional, the disposal date is when all conditions are satisfied.
What is the Annual Exempt Amount (AEA) for CGT in 2024/25?
The Annual Exempt Amount for CGT in 2024/25 is £3,000.
How is the Annual Exempt Amount (AEA) applied to chargeable gains?
The AEA is deducted from chargeable gains to determine taxable gains. It is a ‘use it or lose it’ allowance.
How are individuals taxed on their taxable gains?
Individuals are taxed on their taxable gains each tax year.
What is the CGT rate for higher/additional rate taxpayers? IN TAX TABLES
Gains for higher/additional rate taxpayers are taxed at 20%.
What is the CGT rate for basic rate taxpayers? IN TAX TABLES
Gains up to the unused basic rate band are taxed at 10%, and any remaining gains are taxed at 20%.
What are chattels in the context of Capital Gains Tax (CGT)?
Chattels are tangible moveable property that can be classified as either wasting or non-wasting.
What are wasting chattels?
Wasting chattels have a life of 50 years or less, such as caravans and racehorses.
What are non-wasting chattels?
Non-wasting chattels have a life of more than 50 years, such as antiques and jewellery.
Are wasting chattels exempt from CGT?
Yes, wasting chattels are generally exempt from CGT unless capital allowances have been claimed, in which case they are treated as non-wasting chattels.
How is CGT calculated on non-wasting chattels with a cost and proceeds of ≤ £6,000? NOT ON TAX TABLES
If cost and proceeds are both ≤ £6,000, the disposal is exempt from CGT.
What is the CGT treatment for non-wasting chattels if proceeds exceed > £6,000 but cost is ≤ £6,000? HIGHLY EXAMINABLE AND NOT ON TAX TABLES
If proceeds exceed > £6,000 but cost is ≤ £6,000, the chargeable gain is restricted to 5/3 (GrossProceeds -£6,000).
What is the CGT treatment for non-wasting chattels if costs exceed > £6,000 but proceeds is ≤ £6,000? NOT ON TAX TABLES
Deemed gross proceeds = £6,000
What is the CGT treatment for non-wasting chattels if both cost and proceeds exceed > £6,000? NOT ON TAX TABLES
If both cost and proceeds exceed > £6,000, normal CGT rules apply.
What are sets of non-wasting chattels?
Sets of non-wasting chattels are similar or complementary items that are worth more together than separately, such as a set of books or a pair of paintings.
What is a part disposal in the context of non-wasting chattels?
A part disposal occurs when only part of a set of non-wasting chattels is disposed of rather than the entire set.
How is the cost of a part disposal of a non-wasting chattel calculated?
The cost of the part disposal is calculated as: Cost √ó A / (A + B), where A is the gross proceeds of the part disposal and B is the current market value of the rest of the set retained.
What is the formula for allocating the cost of a part disposal?
Cost x A / (A + B), where A is the gross proceeds of the part disposal, and B is the current market value of the rest of the set retained.
What happens to the remainder of the original cost after a part disposal?
The remainder of the original cost is carried forward as the cost of the rest of the set retained for future disposals.
How does the £6,000 threshold apply to part disposals of non-wasting chattels? NOT IN TAX TABLES
The £6,000 threshold must be compared to both the proceeds and the apportioned part of the cost.
When do special rules apply for part disposals of non-wasting chattels?
Special rules apply if two or more part disposals are made to: The same person; Persons acting in concert; Connected persons.
How should part disposal gains or losses be calculated when special rules apply?
Calculate the part disposal gains or losses separately first, then combine the proceeds and costs together before testing for special rules.
How is the £6,000 threshold tested for multiple part disposals?
The proceeds and costs from all part disposals must be combined and compared to the £6,000 threshold to determine if a special rule applies.
What should be done if marginal relief or the loss rule applies to multiple part disposals?
If marginal relief or the loss rule applies, calculate the total gain or loss as if only one disposal occurred, then apportion between the disposals based on disposal proceeds.
