Who pays CGT?
Individuals
Inc sole traders and partners
What is CGT paid on?
Gains made by the sale of assets that are not exempted
How is a capital gain calculated?
Sale price at fair market value - costs of acquiring the item (inc improvements) = profit/gain
Are non-residents chargeable to CGT?
Generally no, even if they have assets in the UK
UNLESS sale of land - then subject to CGT
When are residents chargeable to CGT?
On the disposal of any asset regardless of where the asset was situated
What assets are exempt from CGT?
Wasting chattels - Moveable property with life of less than 50 yrs
Non-wasting chattels sold for less than £6000
Exempted disposals - transfer of property upon death, transfer between spouses, transfer to charity
What is a non-wasting chattel? Are they chargeable to CGT?
A thing with a useful life of more than 50 years ex//jewellery or antiques
Chargeable to CGT if disposed of for more than £6000
How will the CGT owed by the receipient spouse under the exemption be calculated?
The spouse will be deemed to have acquired the asset at the same cost of the donor spouse
So when then sold on again it will be: price sold for - original price of acquisition = gain
When is CGT usually payable? Exception
31st jan following year after gain was made
Disposals of uk res property - CGT must be reported and paid to HMRC within 30 days of completion
How are the proceeds of sale determined for CGT?
If transfer is made to someone closely related to the seller - current market value will be used instead (as proceeds of sale may be lower than usually expected as for family)
Subtract out any legal fees, estate agent fees, ad costs when determining proceeds of sale
How are the acquisition costs determined for CGT? Rationale?
Add any costs related to the enhancement of the asset
Add any cost incurred for preserving, establishing or defending title to the asset
Add costs associated with the original acquisition ie. SDLT, commission etc
Reduce the gain made by the actual difference in all costs associated
What are the steps after calculating the value of the capital gain?
Determining if any reliefs are available to reduce gain further
Annual exempt amount
What capital gain reliefs are available?
PRR - private residences relief exempts a gain that arises on a property that the individual has used as their home FULL EXEMPTION
BADR - business asset disposal relief for gains on the sale or gift of certain business assets 10% CGT
Holdover relief - enables business assets are given away without CGT being paid automatically, deferred relief DEFERRED
Incorporation relief - when business or partnership is transferred as a going concern DEFERRED
EIS company - deferral of gain on investment in small company for 1 yr prior or 3 yrs post gain DEFERRED
Who does PRR apply to? What extent?
100% of gain is exempt from CGT if they always occupied during ownership
Otherwise, period of occupation DIVIDED by period of ownership
What is deemed as ownership under PRR?
Any period of absence for up to 3 yrs
Unlimited absence by reason of employment abroad
Working elsewhere up to 4 yrs
Last nine months of ownership
Can apply cumulatively
What assets is BADR available on? What is the main condition?
Sale or gift of:
All/part of a trading business carried on at least 2 years before disposal
Shares in a trading company if owned at least 5% of ordinary voting shares and was an officer/employee at least 2 years before disposal
Assets used in the sole trade/partnership 2 years before disposal
2 year ownership/use before disposal
What is the effect of PRR vs BADR?
PRR - full exemption no CGT payable on that gain
BADR - CGT reduced to 10% with lifetime limit of £1m
What is the extent of the relief under BADR?
CGT reduced to 10%
BUT ONLY up to a lifetime limit of £1m
What is holdover relief? What are the qualifying assets?
Enables an individual to give away certain business assets without paying CGT
Holdover/Gift relief - when the asset is given for nothing in return
Assets used for trade/profession carried on by transferor in their trade or company they held at least 5% shares in
Shares in an unquoted trading company
Shares in the transferors trading company
Assets that qualify for agricultural property relief
What is the effect of holdover relief?
Donee has agreed with donor to pay CGT on their gain and deferred gain of donor when donee sells asset
Defers the gain for when the donee sells the asset
Based on the donor gifting the asset - agreement that donee will suffer the CGT burden
How is holdover relief calculated for when the donee eventually sells the asset?
Market value - acquisition cost = donors gain
Donees acquisition cost - donors gain = donees new base cost
CGT owed = sale proceeds - donees new base cost
Ie. The donor’s deferred CGT payment is accounted for by reducing the donees base cost by the gain that the donor made and hasn’t paid for
What is the effect of incorporation relief?
Defers the gain made by the transferor
Gain made by the transferor is subtracted from the transferees acquisition costs
Automatically applies rather than being elected like holdover/gift relief
What is EIS relief and what is the result?
Relief to encourage investment is small companies
Investing in shares in qualifying unquoted trading company
Applies if investment was 1 year prior to a CGT gain or up to 3 yrs after a CGT gain
Deferral of CGT on any gains
Chargeable when EIS shares are sold
