CGT - Disposals - how calc’d, open market value, acquired pre 04/82, what’s not classed as a disposal, disposals can occur when (damages, insurance and rights), spouse, disposal to spouse, death
- calc’d by disposal price - acquisition cost
- sometimes open market value can be substituted for the disposal or acquisition value
- if acquired prior to 04/82, asset cost is deemed to be the market value at 03/82
- transfers as security for a debt (mort) are not disposals
- disposals also occur when sum received as compensation for damage of assets, under insurance policy for damage and for a surrender of rights. A
- disposal by one spouse to another does not give rise to chargeable gain (no gain no loss) - must be living together during that tax year
- disposal to spouse may happen when annual allowance or losses available to offset gains and pay CGT at lower rate.
- CGT not charged on death but bens acquire assets
Disposals not at arms length - occurs when (connected, 2)
Can occur in two main circumstances;
- disposal between close connections (family) and market value is used instead of actual proceeds.
- as above but for friends etc
CGT - deferred consideration - what is it, ascertainable/un
Contingent consideration - what is it and when used
- consideration for sale can be deferred i.e. not payable at sale
- this can be ascertainable (fixed price at later date) or unascertainable (not fixed)
Contingent consideration - where a sale for £x now and £y later if certain conditions are met. Used for sales of business where sale depends on future profits. £y is unascertainable.
Assets subject to CGT & Exemptions - indicators for showing whether or not person is trading;
- subject matter, ownership, transactions, quantity, property, realisation, motive, organisation, financing and method
Various indicators that show to decide whether or not person is trading (if trading not subject to CGT);
- subject matter of the transaction. Trading indicated when asset does not yield income and no enjoyment
- period of ownership
- frequency of similar transactions
- quantity purchased
- trading if work on property to make it more marketable or steps taken to find purchasers
- circumstances for realisation (forced sale does not indicate t)
- Motive (i.e. if sold for profit then yes)
- organisation of activity and how sold
- financing of transaction
- method of acquisition - if acquired by inheritance or gift then likely trading
Chattels & Wasting assets - when are they exempt, if over chargeable gain cannot be… (example £7.8k gain) and wasting asset and CGT
- chattels exempt from CGT if disposal doesn’t exceed £6,000
- if over, chargeable gain cannot exceed five-thirds of £6k
E.g. ((7.8k-6k)*5/3) = £3k chargeable gain - wasting asset free from CGT (does not apply to plant and machinery bought for business purposes where capital allowance has been claimed)
Other CGT exemptions - resi, motor, gov products, valour, currency, debts, gamble, compensation, shares in what, shares up to what value via woodlands, cash backs, charity and share incentive
- private residence, vehicles, NS&I products, gov and corp bonds, medals, foreign currency, debts repaid, gambling, compensation, shares in VCT, EIS & SEIS, shares up to value of £50k via shareholder agreement, woodlands, cash backs for goods and services, disposals to charity and share incentive plans
Private Residence - rules on CGT and part gain taxable when
Absence - doesn’t apply when - delay, 04/82, periods, 9 months, abroad periods (2) and job
- If not settlors main residence, CGT applicable on disposal.
- part of gain taxable if seller not used as main residence = total gain*(period of occupation/total period of ownership)
absence not applied when;
- delay in moving in by a year and can be increased further
- any period pre 04/82
- periods totalling up to three years
- last nine months of ownership provided used as main residence at some time
- periods of 4 years if employed abroad
- any periods if employed abroad followed by living at main residence
- period of living in job related accommodation
Calculation of gain - steps 1-6
Step 1 - disposal of proceeds Step 2 - deduct acquisition cost 3 -deduct costs re arranging sale and purchase 4 - set off any allowable losses 5 - deduct annual CGT allowance 6 - calc tax at appropriate rate
Step 3 includes stockbrokers fees, legal costs, estate agents fees, stamp duty, SDRT. Expenditure for purpose of enhancing value of asset can also be offset (extension for example).
Calc of gain - losses - must be set against, carry forward, be claimed by when, capital losses and losses with connected party
- loss must be set against gains of same tax year
- excess loss can be carried forward to set against gains in future years
- losses must be claimed within four years of tax year they were made
- capital losses cannot be carried back (unless die in that tax year)
- losses made on transactions with connected party can only be used against gains for other transactions with that party. (Clogged losses)
Loss does not need to be reported to HMRC unless;
- disposal proceeds are more than four times the annual allowance
- taxpayer wishes to set the loss off against chargeable gains
Calc of gain - part disposals - formula
Formula - (proceeds of part disposal (a)/(a+market value))*original cost
Calculation of tax - CGT rates - rates for investment gains, property, business asset disposal relief and when payable
- 10% basic rate tax and 20% above
- non exempt residential property 18% at basic rate then 28% after
- business asset disposal relief gains taxed at 10% always
- CGT is payable on Jan 31st following the end of the tax year that the gain was made
Business asset disposal relief - claim when, relief covers how much, above this amount subject to what rate, how long to qualify for relief, available to who (3), shares in what count towards what
Associated disposals - what is it, when is relief restricted and not available when
- claimed when dispose of all or part of business
- gains made post 03/20, relief covers first £1m of qualifying gains during lifetime. Gains above this subject to normal CGT rates
- assets must have been owned for two years before the date of disposal to qualify for relief
- available for sole traders, disposal of shares in a trading company (if 5% and director) and partnership
- shares held in EIS count towards two year ownership requirements
- associated disposals - asset owned by individual but used by partnership. Relief restricted here in charge rent to use and not available if transfers business to related close company
Investors relief - what rate and lifetime limit, aimed at what and shares are, when issued, held for how long to qualify and investor must not be (2)
- 10% tax rate and £10m lifetime limit
- relief is aimed at attracting new capital into companies (t4 shares must be newly issued)
- shares issued post 03/16
- shares must be held for three years continuously
- investor must not be employee or director
Holdover relief - what is it, what qualify for this, how does it work (think base cost), who needs to claim, available to who, not available when and taxed on formula
- can hold over gains on disposals of certain assets by way of gift
- transfers that attract immediate IHT qualify for this
- if claimed, no CGT payable at the time of the gift but acquisition cost to donee is reduced by the amount of the held-over gain. This increases amount of gain made by the donee on disposal.
- donee and doner both need to claim to get this relief
- only available for residents in the uk
- not available for transfers of shares to a company
- taxed on disposal proceeds - original cost
CGT and trusts - creation of trust treated as, how calc’d, tax rates for inv and resi, relief available and annual exempt amount + split, AEA for disabled trust
- creation of trust is treated as disposal of asset by settlor even when retains interest via trustee or ben
- calc same way as an individual with annual exempt amount
- taxed at 20% investment and 28% non resident property
- holdover relief available
- annual exempt amount for trusts is £6,150 and can be split between max 5 trusts
- trust for disabled qualifies for full annual exempt amount
CGT for trusts - bare trust rate, vulnerable trust rate, life interest and possession trusts and death of life tenant
- gains under bare trust taxed at bens marginal rate
- vulnerable bens trust taxed on trustees based on rate of 10% investment gains and 20 or 28% depending on tax band for property gains
- life interest and possession trusts - trustees = 20% or 28% (property) - death of life tenant - no CGT
