Chapter 3 - CGT

Question 1

What are the tax rates for CGT 2025/26?

Answer 1

Basic rate tax - £18%
Higher/additional - 24%

Gains after are added to income and taxed as such.
Can potentially push client into higher rate band

Question 2

What types of disposals can trigger CGT?

Answer 2

Gifts or transfers between individuals and trusts
Exchanges of property/assets
Destruction of an asset
Sale of an asset

Question 3

When would the market value of an asset replace the disposal value?

Answer 3

• Disposal not at arms length = asset purposefully sold under value (mates rates) - Stops you selling something to your pal for a quid and avoiding CGT
• Sale of an asset acquired before 01/04/1982 - The value of the asset on that date is used as this is when ownership is considered to have started

Question 4

Is there CGT on death of a client?

Answer 4

No, IHT effectively takes over

Question 5

Is there CGT on inter-spousal transfers between registered civil partners?

Answer 5

No, the gain is basically moved with the asset to the other party. Then if asset was sold after transfer that gain would still apply.

Can be used if spouse is a lower rate tax payer

Question 6

Inter Spousal transfer

George and Gina are married. George is an additional rate TP and Gina earns £16k pa.

If George transfers shares with a £28k gain to Gina, when will the CGT liability arise, what rate and on what amount? No other gains or losses made this tax year.

Answer 6

Gain would be transferred from George to Gina, but no tax would be payable upon transfer.

On full disposal -

28k - 3k (CGT allowance) = 25k + 16k (income) = £41k so basic rate tax payer still.

25k @ 18% = £4,500

Question 7

Assets exempt from CGT

Answer 7

Main residence
Chattels sold for under £6k
ISA gains
Gains from directly held gilts/corp bonds
Pension funds
Gambling winnings

Question 8

Principal private residence & CGT

Answer 8

• Exempt from CGT for any period you live there
• Any period not present is potentially chargeable

Question 9

Private main residence

What are the main exemptions when it comes to selling your main residence?

Answer 9

• The whole time you lived in the property
• The previous 9 months before sale (as long as at some point it was your main residence)
• A max of 3 years for any reason, as long as you were a resident immediatly before and after abscence.

Question 10

How do you work out CGT on sale of a main residence? if applicable?

Answer 10

• Work out total ownership period in months
• Remove any exempt period
• Divide chargeable period by overall to get % chargeable
• Times gain by the % for the amount exposed to CGT

Question 11

Main residence & CGT on sale

Fraser bought a house as main residence in June 2002 for 100k net.

He resided there until June 2011 where he moved and rented out this property.

He sells in March 2026 for 200k net, how much of the gain made by Fraser would be subject to CGT?

Answer 11

• 288 months owned (24 years)
• Total exempt is 117 months: 108 months residence and 9 months exemption
• 288-117 = 171 months
• 171/288 = 0.59375
• £100,000 x 0.59375 = £59,375

• Work out total ownership period in months
• Remove any exempt period
• Divide chargeable period by overall to get % chargeable
• Times gain by the % for the amount exposed to CGT

Question 12

When are Chattels NOT subject to CGT?

Answer 12

When they are sold for less than £6000

Question 13

What is the formula for chattels relief?

Answer 13

5/3 x (sale price - £6000) = Y
If Y is less than the gain (sale price - purchase price) then Y is used for CGT purposes.

Question 14

Chattels relief

Rahul sold a vase for £8,000 that he originally bought for £500. Calculate the chattels relief.

Answer 14

5/3 x (2000) = 3,333
3,333 is less than 7,500 so 3,333 is used for CGT

5/3 x (sale price - £6000) = Y
If Y is less than the gain (sale price - purchase price) then Y is used for CGT purposes.

Question 15

In the current tax year, bob, a higher rate tax payer, has made the following disposals:

• £30,000 gains on shares
• £15,000 losses on shares

He also has a £20,000 registered loss from the 2002/2003 tax year.

Calculate his CGT liability

Answer 15

£30,000 - £15,000 = £15,000 net gain
£15,000 - £3,000 annual exemption = £12,000 gain

As this loss was registered it can now be used to offest the gains to £0

20,000 - 12,000 = 8,000 loss which can be carried forward for future tax years.

Question 16

If your income is below the HRTB, but the chargeable gain (when added onto your income) takes you into the HRTB, what is the gain taxed at?

Answer 16

Both 18% and 24%. The amount up until the higher band is taxed at 18%, anything above is taxed at 24%.

You cannot use your personal allowance to reduce.

Question 17

Types of relief

Business asset disposal relief

Answer 17

• Reduced rate of CGT when selling shares/assets in your own business.
• Must have had shares/interest in the business for 2 years
• £1million lifetime allowance
• 14% flat rate of CGT
• Must be applied to any CGT calculation first, so can use up your basic rate band
• Annual exemption can be applied to the gain

Question 18

Investors relief

Answer 18

• Reduced rate of CGT when selling shares in qualifying companies
• Must have held shares for minimum of 3 consecutive years issued after 06/04/2016
• Restricted to newly issued shares to attract investment into smaller companies
• Investor cannot be a remunerated director or employee of the company whilst owning the shares
• £1m lifetime allowance
• 14% flat rate of CGT payable

Question 19

Holdover relief

Answer 19

• Used for transfers in and out of trusts, or transfer of own company. Defers CGT to the next party

Assets must be either:
* Gifted into a relevant property trust / transfers chargeable to IHT
* Trading assets/shares in own company

• Both parties must claim the relief, donor and donee
• CGT payable when donee disposes of asset
• Acquisition cost is maintained during transfer

Question 20

Re-investment relief

Answer 20

Exclusive to EIS and SEIS
Deferral of CGT when investing

EIS
* Deferral of unlimited gains on investments made into EIS
* Payable on disposal of the EIS in the future
* Must be claimed in 12m before or 3 years after asset disposal

SEIS
* No deferral of CGT
* 50% exemption of CGT on disposed asset
* Other 50% payable without deferment

Question 21

Business rollover relief

Answer 21

Used when replacing business assets whereby the disposal proceeds are reinvested in a new business assets. Gains deferred

Question 22

Incorporate relief

Answer 22

Whena business moves to a company structure
Deferral of CGT until company is sold