1
Q
For a capital gains tax liability to arise, what must happen?
A
a chargeable person must make a chargeable disposal, typically a sale of a chargeable asset but there may be other situations in which a disposal occurs.
2
Q
2 chargeable persons
A
-individuals (uk resident, includes all disposals regardless of location. Non-UK not examinable)
-companies (pay corporation tax rather than capital gains tax)
3
Q
chargeable disposal
A
chargeable person gives up/transfers ownership of a chargeable asset
Typically sold or gifted, whole or part of an asset
Loss or destruction of an asset
Exchange of an asset
4
Q
What do chargeable disposals not include?
A
Death - subject to will
Gift to charities
5
Q
chargeable asset
A
All assets are chargeable assets unless they fall under exemption
6
Q
list of exempt assets (11)
A
cash
exchange gains/losses of foreign currency
main residence
cars
gilt edged securities and qualifying corporate bonds
NS&I certificates/premium bonds
prizes/betting winnings
ISAs
trading inventory
receivables
certain types of chattels
7
Q
what is a gilt?
A
gov’t issued loan
8
Q
what’s a corporate bond?
A
debenture or more specifically a loan note
9
Q
what is a chattel?
A
tangible movable property - free standing
Shares are not chattels
10
Q
what 3 things are classed as allowable expenditure and deducted from the proceeds?
A
cost of acquisition
incidental costs of acquisition
additional enhancement expenditure
11
Q
Can you deduct allowable selling costs from proceeds?
A
Yes
12
Q
When something is inherited - what cost is used?
A
cost at the point of inheritance (not original cost)
13
Q
Tax rate for residential property? (2nd home or investment property let out)
A
18%/24% dependant on nil rate band
14
Q
Usual tax rates?
A
10%/20% dependant on nil rate band
15
Q
AEA amount?
A
3k
16
Q
When are brought forward capital losses deducted?
A
After the AEA
17
Q
When does CGT usually need to be paid?
A
31st Jan following the end of the tax year
18
Q
Tax planning for residential properties;
A
deal with residential property first due to higher rates of tax
consider delaying to next tax year to delay payment by 1 year
consider breaking down the disposals into different parts
18
Q
When does CGT need to be paid for residential properties?
A
Within 60 days of completion including the submission of the return
Exempt if given to charity
19
Q
CGT: Spouse - why is there no loss or gain?
A
considered to be transferred at ‘cost’ which is in turn the same cost as the proceeds
20
Q
CGT: Spouse - conditions?
A
automatic, mandatory
must be living together - cannot be separated
21
Q
CGT: Spouse - tax planning?
A
consider moving asset to spouse if they have capital losses brought forward or if not a higher rate tax payer
22
Q
Part disposal formula
A
Cost x A/B
A= market value of part disposed
B= market value of remaining part
before deduction of selling cost
23
Q
Part disposal - enhancement
A
use formula unless specific to part being sold/retained (all or nothing)
24
What is a wasting chattel?
predictable life of less then 50 years
even if predictable life changes - still a wasting chattel
e.g. mechanical nature or biological - boat, clock, watches, animals
25
Why is it important to identify wasting chattels?
they are exempt from CGT
26
Examples of non wasting chattels
antiques, jewellery
27
4 possible scenarios for non-wasting chattels. Scenario 1 - less than £6k cost and proceeds
Classed as exempt
28
4 possible scenarios for non-wasting chattels. Scenario 2 - more than 6k cost and proceeds
Calculate normal gain or loss
29
4 possible scenarios for non-wasting chattels. Scenario 3 - cost below 6k but proceeds above
Normal gain but restrict to 5/3 (gross proceeds - 6k)
30
4 possible scenarios for non-wasting chattels. Scenario 4 - cost above 6k but proceeds below
Replace proceeds with 6k as figure
31
Plant and machinery - same as non wasting chattels except for? and why?
Scenario 4 - cost above 6k but proceeds below
No credit given as capital allowances regime already covers this
32
Loss/destruction of an asset?
insurance money = proceeds
(could be nil and which results in a capital loss)
or replacement of business asset relief
33
If all proceeds are use to repair a damaged asset?
make a claim to not do a part disposal calc
Instead, proceeds rec'd are deducted from allowable cost
No proceeds - no capital gain consequences
34
some shares and securities are exempt from CGT; (3)
gilt edged securities
qualifying corporate bonds (debentures/loan notes -denominated in sterling, pays interest at commercial rate, not convertible into shares in future, acquired after 13/09/1984)
ISAs
35
Quoted (plc company) and unquoted (ltd) are chargeable under what condition?
disposal made on non arms length basis e.g. gift
treat asset as being sold for market value
this becomes the proceeds in the gains computation
36
What value will be given for unquoted (ltd) shares?
value will be given as it's agreed with HMRC
37
What value will be given for quoted (plc) shares?
mid price of highest and lowest prices of the day - published on stock exchange official daily list
38
How do you calculate price for quoted (plc) shares?
(higher add lowest) divide by 2
39
What are the matching rules for shares? in order of priority
same day as disposal
next 30 days after disposal (more than one use FIFO)
pool (all prior shares, need to calc value)
40
How does a bonus issue affect CGT?
add extra shares into pool
at no cost
41
How does a rights issue affect CGT?
add extra shares into pool
at cost
42
Reorganisation?
single company issuing shares to existing shareholders in proportion to their current share holdings. No cash and therefore tax neutral for shareholders.
43
Takeover?
when one company acquires the shares in another company either in exchanges for shares itself, cash or a mixture of both
44
Steps for reorganisation/takeover?
set up share pool
remove disposal
calc gain (apportion original cost between OS&PS)
45
2 personal reliefs for CGT
PRR (Private residence relief)
Letting relief
46
4 business reliefs for CGT
Rollover/replacement of business asset relief
gift holdover relief
BADR
investors relief
47
out of the 4 business reliefs for CGT which reduce the tax rate paid?
BADR (dependant on BRB available)
Investors relief (not subject to BRB)
48
out of the 4 business reliefs for CGT which defer the tax to be paid?
Rollover/replacement of business asset relief
gift holdover relief
49
PRR (private residence relief) - summary
calc 'owned' and 'deemed occupation' periods
last 9 months are always classed as occupied
3yr, OS, 4yrUK. Occupation before and after
if more than 1 property - can elect which is main residence for PRR
elect within 2 years of acquisition of 2nd home
have to be living in both for election to be an option, cannot rent out
50
PRR (private residence relief) - 3yr
3yr = periods of up to 3 years (can be broken down into multiple shorter periods) absence for any reason (conditional)
51
PRR (private residence relief) - 4yrUK
4yrUK = period of up to 4 years absence while working in the UK (conditional) - this can be employment and self employment
52
PRR (private residence relief) - OS
OS = any period spent living overseas due to employment circumstances (conditional)
53
PRR (private residence relief) - occupation before and after
have to have periods of actual occupation before and after each of these (doesn't have to be immediate)
if overseas & UK prevents returning, this relaxes rules to have period of occupation after
54
Letting relief - summary
Rent out part of the property while still living in it, reduces CGT
Use same owned, deemed occupation as for PRR
55
Letting relief - lowest of
40k
PRR given
Gain relating to the let period (which is still in charge after PRR) (PRR * rented/chargeable)
56
PRR (private residence relief) - business use
not available for any part of property used for business
if that part of property has only ever been use for business, 9 month exemption will not apply
however if used for non business purpose in past, can exempt 9 months regardless of what the use is at that time
57
BADR - qualifying assets
available on disposals of shares if;
-5% ownership of trading company
-employee of company (regardless of whether part or fulltime)
-both conditions have been met up to 2 years prior to disposal
Also available for below assets if held for 2 years;
-net gain on disposal of unincorp trading business e.g sole trader business (SINGLE ASSET wouldn't qualify)
-assets of business within 3 years of ceasing to trade
58
BADR - limit & rate
1mil taxed at 10% subject to BRB
59
BADR - calc
use seperate column for assets that qualify for BADR due to diff rate
AEA & losses deduct from non BADR
BADR use remaining BRB (Basic rate band)
60
BADR - time limit for claim
claimed within 12 months of 31 jan of year following tax year end in which the disposal was made
61
Investors relief - limit & rate
10mil at 10% not subject to BRB
62
Investors relief - conditions
-subscribed for as new shares
-unlisted trading company
-issued on/after 17th March 2016
-held for 3 years or more from 6th April 2016 end before disposal
-must not be an employee of company
63
Rollover relief - qualifying business assets
both old and new assets must be;
-goodwill (for unincorp businesses only)
-land and buildings
-fixed plant and machinery
64
Rollover relief - time period of acquiring replacement asset
1 year prior or within 3 years after disposal date
65
Rollover relief - partial reinvestment of proceeds, chargeable gain is now the lower of;
chargeable gain is now the lower of;
-amount of proceeds reinvested
-the full gain
66
Rollover relief - depreciating assets
expected life of less than 60 years
normal rollover not allowed but gain can still be deferred
Fixed asset and machinery and leases for land and buildings (60yrs) always consider to be depreciating asset
67
Rollover relief - gain deferred against depreciating asset crystalises on
the earlier of;
-disposal of depreciating asset
-ten years from the date of acquisition
-the date the depreciating asset ceases to be used in trade
68
Gift relief - conditions
-outright gift or sale at undervalue
-of a qualifying asset
-by an individual
-to another UK resident individual, trust or company
69
Gift relief - qualifying assets
-assets used in the trade of the donor or the donors personal company
-unquoted trading shares/securities
-quoted shares/securities of donors personal company
70
Gift relief - donor's personal company
own 5% voting rights but does not have to work their like BADR
71
Gift relief - claim
both donor and donee must jointly make claim within 4 years of the end of the tax year in which the gift was made
72
Gift relief - tax planning
small amounts would be covered by AEA
rates of tax BRB
capital losses
partial claims not possible
73
Gift relief - assets not fully used for trading purposes
cost x cba/ca
cba = chargeable business assets
ca = chargeable assets
use market values
investments would be CA but not CBA
74
How do cash pensions affect BRB?
37,700 + (cash pension * 100/80)
75
Negligible value claims
-claim required
-dispose of asset and reacquire both at negligible value
-deemed disposal can be backdated by 2 years
76
CGT on death - gains
No gains
Inherit at probate value (what is used in inheritance tax = mv at time of death)
Tax on any gains prior to death need to be paid.
77
CGT on death - losses
Capital losses can be carried back up to 3 years on a LIFO basis after AEA
Could lead to repayment of capital gains tax
Would be another asset in IHT calc of person who died
78
CGT on death - ISAs
ISAs can be transferred to surviving spouse - maintains tax-free status
Spouse's ISA allowance is increased by adding the transfer value
Applies irrespective of whether transfer occurs
79
CGT - Transfer of assets into trusts - on death of settlor
no chargeable gain or loss
trustees acquire the asset at probate value
80
CGT - Transfer of assets into trusts - during lifetime of settlor
a chargeable gain for settlor based on market value
gain can be deferred using gift holdover relief
81
CGT - Spouse - income yielding assets
transfer to part with lowest income to take advantage of lower rates of income tax
82
CGT - Spouse - jointly owned assets
income split 50:50
unless ownership is not equal, can elect to split according to actual ownership
higher ownership percentage should be transferred to partner who is paying the lowest rate of income tax
83
CGT - Spouse - joint bank accounts and dividends
interest from bank accounts is always split 50:50 regardless of ownership
dividends from shares in close companies are always split according to ownership
84
CGT - Connected persons
parents, parents in law
partner
brother/sisters and brother/sister in law and their partner
own children + partners children
previous wife/husband?
business partner + their partner + relatives
company they control (control > 50% ordinary share capital)
85
CGT - Disposal to a connected persons
proceeds = market value
restricts the use of losses to the gains of the same connected party that the loss arose from
86
CGT - Small part disposals of land
elect to avoid calculation
avoids immediate gain
proceeds rec'd get deducted from the cost going forward
deferral of tax and could lead to greater gain in future
both of the below needs to be satisfied;
-proceeds <20% of market value before disposal occurs
-total proceeds from land disposal <£20k in tax year
87
CGT - Assignment of leases
disposal = assignment
disposal proceeds = premium > 50 years
premium - cost of lease = gain
50years of less. HMRC wouldn't permit credit. Use formula
cost*% for duration of lease on disposal/% for duration of lease on acquisition
88
CGT - Assignment of leases - how to calc if lease if between 2 years?
Difference between % divided by 12 and then times by the months
89
CGT - Assignment of leases - what to do about option for early termination of lease?
take earliest possible date to determine length of lease
90
CGT - Sale of nil rights paid (individual decides to sell the right to buy extra shares). Proceeds are small?
no capital gain arises
small is defined as the greater of;
-5% of value of shares on which rights are offerred
-3k
91
CGT - Sale of nil rights paid (individual decides to sell the right to buy extra shares). Proceeds are NOT small?
do a part disposal
A/(A+B)
A= proceeds from sale of rights
B= market value of shares retained
92
What reason would there be to disapply share exchange relief?
if old shares would've qualified for BADR or could've been covered by AEA
93
What is the disapplication of share exchange relief?
disapply automatic rules and crystalise gain on old shares at the point of takeover. Cost of new shares become their MV at the date of reorganisation
94
CGT - Takeovers involving QCBs and interaction with BADR
Can make an election not to postpone (defer) the gain until sold otherwise lose BADR
relating to QCB specifically and choose to charge immediately
significant advantage in securing 10% rate of tax rather than 20% in future
95
CGT - Liquidation of a company (money or no money)
If not bust and have money to distribute
if before formal liquidation - treat as normal dividends
if after formal liquidation - treat as disposal of shares (i.e. CGT)
if no money, dispose of for no proceeds
and have capital loss
96
CGT - Liquidation of a company (capital loss)
-original subscriber of shares
-treat as trading rather than capital loss
-shares are in an unquoted trading company
-disposal must be a results of ;
-arms length transaction or,
-shares of negligible value or,
-company being wound up
97
CGT - Liquidation of a company (capital loss) - what is the benefit of treating it as a trading loss rather than a capital loss?
it can be relieved against total income in current year and/or the prior year
98
Stamp duty
payable by purchaser
pay at rate of 0.5%
round to nearest £5
not payable if consideration if less than £1k
99
Stamp duty reserve tax
payable by purchaser
pay at rate of 0.5%
round to nearest penny
100
Transactions exempt from SD & SD reserve tax?
-issue of new shares/securities
-gifts
-transfers on divorce
-variations of will
-takeovers and reconstructions
-intra-group (75%) transfers
101
Securities exempt from SD & SD reserve tax?
-government stocks
-unit trusts
-company loan stock
102
CGT - Restriction of BADR in respect of goodwill
>5% shareholder close company unless shares to unconnected party within 28 days
103
CGT - Associated disposals
full market rent - no BADR
reduced rent - reduced BADR
e.g. 60% of market rate of rent, only 40% of BADR available
104
PRR tax planning
rates of tax
2nd home - elect the one that is likely to have the largest gain
last 9 months - bought 2nd home and moved in? double relief if elect 2nd property
business use
interaction of BAD/PRR unlikely
deemed period of occupation - must return to property for 3 years - Exempts losses as well as gains!
105
Interaction of rollover with BADR and planning points
Interaction of BADR - Partial reinvestment, Not shares
Replacement eligible for BADR? No = Don't claim rollover, charge gain and claim BADR
rollover is deferral but BADR is lower rate of tax
time limit, 1 year prior and 3 years after from disposal date
rollover is all or nothing, cannot pick and choose
small gain covered by losses/AEA then why bother deferring
106
Gift holdover relief – planning points
small gains covered by AEA
BADR - donor qualifies but not donee. Use BADR now as lower rate of tax rather than deferral
all or nothing
overpay to achieve particular figure - want gain to be covered by AEA/capital losses
actual proceeds = original cost + losses + AEA
107
Gift relief - emigration of donee
if emigrates within 6 years following receipt of gift then it becomes chargeable on the date of emigration
unless;
-individual leaves UK
-to take up full time employment overseas
-and becomes resident in UK again within 3 years still owing the asset
108
Incorporation relief
sole trader transfers business into company and receives shares as payment for the transfer
gains charged on incorporation can be deferred against the shares
109
EIS - enterprise investment scheme
invest in shares of small trading companies, defer gains on any asset until EIS shares are sold
110
SEIS - seed enterprise investment scheme
invest in shares of small start-up trading companies, exempt up to 50% of gain arising
Advanced Tax
flashcards
Decks in class (11)
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