R03_flashcards_section_three

Question 1

What is Step 1 of the CGT calculation process?

Answer 1

Establish disposal proceeds.

This means identifying the sale price or market value received for the asset.

Question 2

What is Step 2 of the CGT calculation process?

Answer 2

Deduct acquisition, selling, and enhancement costs.

These costs reduce the gain by removing expenses incurred in obtaining and improving the asset.

Question 3

What is Step 3 of the CGT calculation process?

Answer 3

Deduct current year capital losses.

Losses generated in the same tax year must be offset before using previous year losses.

Question 4

What is Step 4 of the CGT calculation process?

Answer 4

Deduct previous year capital losses down to the annual exempt amount.

Older losses can be used but cannot reduce gains below the annual exempt amount.

Question 5

What is Step 5 of the CGT calculation process?

Answer 5

Deduct the annual exempt amount.

The annual exempt amount reduces taxable gains and should be applied in the most tax-efficient way.

Question 6

What is Step 6 of the CGT calculation process?

Answer 6

Add the gain to taxable income to determine the CGT rate.

CGT rates depend on whether the individual falls within the basic or higher-rate tax band.

Question 7

What were the CGT rates for gains on or after 30 October 2024?

Answer 7

• Basic-rate 18 percent
• Higher-rate 24 percent

These updated rates replaced the previous 10 percent and 20 percent rates for most assets.

Question 8

What are the CGT rates for 2025/26?

Answer 8

• Basic-rate 18 percent
• Higher-rate 24 percent

The post-October 2024 rates continue to apply for the 2025 26 tax year.

Question 9

What were the previous CGT rates before 30 October 2024 for most assets?

Answer 9

• Basic-rate 10 percent
• Higher-rate 20 percent

These older rates applied prior to the reform but no longer apply to disposals in 2025 26.

Question 10

What were the previous CGT rates before 30 October 2024 for non-exempt residential property?

Answer 10

• Basic-rate 18 percent
• Higher-rate 24 percent

Residential CGT was already higher than standard rates even before the reform.

Question 11

Why does making pension or gift aid payments reduce CGT?

Answer 11

They extend the basic-rate band.

This allows more of the gain to be taxed at 18 percent instead of 24 percent.

Question 12

Why do deductible business expenses help reduce CGT?

Answer 12

They reduce income, widening the basic-rate band.

This again allows more gains to fall within the lower rate.

Question 13

What types of events count as a disposal for CGT?

Answer 13

• Transfers of ownership
• Receipt of a capital sum

A disposal occurs whenever ownership changes or value is realised.

Question 14

Are trading transactions subject to CGT?

Answer 14

No.

Trading profits are subject to Income Tax instead.

Question 15

Name five trading indicators relevant to CGT.

Answer 15

• Period of ownership
• Quantity purchased
• Motive
• Financing
• Frequency

These help determine whether the activity is trading (Income Tax) or investment (CGT).

Question 16

What is ascertainable deferred consideration?

Answer 16

A fixed future amount.

It is included in disposal proceeds because it is known at the disposal date.

Question 17

What is unascertainable deferred consideration?

Answer 17

A future amount that cannot be fixed at disposal.

It is taxed as a separate asset, not added to initial proceeds.

Question 18

What is contingent consideration?

Answer 18

Amount payable only if conditions are met.

It is only taxed if and when the condition is fulfilled.

Question 19

When is market value used instead of sale proceeds for CGT?

Answer 19

When the disposal is not at arm’s length.

This prevents artificial undervaluation between connected parties.

Question 20

Is there CGT on death?

Answer 20

No.

Assets are uplifted to market value without triggering CGT.

Question 21

Is the CGT valuation approach the same as IHT valuation?

Answer 21

No.

They use different statutory valuation rules.

Question 22

When can holdover relief be claimed on a disposal?

Answer 22

When the disposal is chargeable to IHT.

This delays CGT to the recipient.

Question 23

What is the first identification rule for share disposals?

Answer 23

Shares acquired on the same day.

Same-day acquisitions are matched first with disposals.

Question 24

What is the second identification rule for share disposals?

Answer 24

Shares acquired within 30 days after disposal.

This prevents bed-and-breakfast tax avoidance.

Question 25

What is the **third identification rule** for share disposals?

Answer 25

Shares in the share pool. ## Footnote Remaining shares are matched using the pooled average cost.

Question 26

How are **bonus or scrip share issues** treated?

Answer 26

Treated as if acquired on the same day as original shares. ## Footnote Their base cost is spread across the pool.

Question 27

How are **rights issues** treated for CGT?

Answer 27

Added to the share pool. ## Footnote They increase the total number of shares and adjust the pooled base cost.

Question 28

How are **scrip dividends** treated for CGT?

Answer 28

Treated as new acquisitions. ## Footnote They form part of the share pool at their market value.

Question 29

Why do **employee share schemes** create larger gains?

Answer 29

They have a lower base cost. ## Footnote Options often allow purchase below market value, increasing the gain on disposal.

Question 30

If approved and unapproved scheme shares are acquired on the same day, what **election** is possible?

Answer 30

Elect to treat unapproved scheme shares as being disposed of first. ## Footnote This can reduce gains because approved scheme shares often have favourable CGT treatment.

Question 31

What is a **wasting asset** for CGT?

Answer 31

An asset with a life under 50 years. ## Footnote Wasting assets are exempt from CGT.

Question 32

When is a **chattel exempt** from CGT?

Answer 32

When its value does not exceed £6,000. ## Footnote This applies to antiques, artwork, and tangible moveable property.

Question 33

What is the **maximum CGT gain** on a chattel worth more than £6,000?

Answer 33

5/3 of the excess over £6,000. ## Footnote This limits the taxable gain on chattels.

Question 34

How is a **part disposal** calculated?

Answer 34

A ÷ (A + B) × original cost. ## Footnote A is part disposed of; B is market value of part retained.

Question 35

Do **spouses or civil partners** pay CGT when transferring assets between them?

Answer 35

No, it is a no gain/no loss transfer. ## Footnote The recipient takes over the original base cost.

Question 36

How are **jointly owned assets** taxed for CGT?

Answer 36

Each owner is taxed on their share. ## Footnote This allows both annual exempt amounts to be used.

Question 37

How long do **separating spouses** have to make no gain/no loss transfers?

Answer 37

Up to three tax years after separating. ## Footnote After this, market value rules apply.

Question 38

When can an **ex-spouse** retaining an interest in the former home claim PRR?

Answer 38

When the property is later sold. ## Footnote They may still qualify despite no longer living there.

Question 39

Name five **CGT exemptions**.

Answer 39

* Principal private residence * Private vehicles * NS&I certificates * Gilts * VCT shares ## Footnote These assets are fully exempt from CGT.

Question 40

How does **non-residence** affect PRR?

Answer 40

Periods of non-residence make part of the gain taxable. ## Footnote Only periods of actual occupation qualify.

Question 41

Can a person choose which home is their **main residence**?

Answer 41

Yes, if they have multiple homes. ## Footnote Election must be made within two years of acquiring the second property.

Question 42

When does **lettings relief** apply for private residence relief?

Answer 42

When part of the home is let while the landlord also occupies the property. ## Footnote The relief applies only in cases of shared occupancy.

Question 43

What is the **maximum lettings relief** available?

Answer 43

£40,000. ## Footnote This is also capped by the exempt amount attributable to the main residence and by the gain arising from the let part.

Question 44

Can PRR apply if a property was purchased solely to make a **gain**?

Answer 44

No. ## Footnote HMRC denies relief when the intention was purely investment profit.

Question 45

What base cost is used for **pre-March 1982 acquisitions**?

Answer 45

Market value at 31 March 1982. ## Footnote This replaces the actual historic cost for CGT purposes.

Question 46

If a disposal gives rise to **Income Tax**, how is this treated for CGT?

Answer 46

The Income Tax is deducted from disposal proceeds. ## Footnote This prevents a double tax charge on the same value.

Question 47

Are **current year capital losses** mandatory to use?

Answer 47

Yes. ## Footnote They must be set against gains even if this wastes the annual exempt amount.

Question 48

In what order are **capital losses applied**?

Answer 48

Current year losses first, then previous years’ losses. ## Footnote Previous losses can only reduce gains down to the annual exempt amount.

Question 49

What is the **annual exempt amount** for CGT?

Answer 49

£3,000 for 2025 26. ## Footnote It cannot be carried forward if unused.

Question 50

What was the **older CGT annual exempt amount** before reductions?

Answer 50

Previously higher (for reference: £6,000 for 23 24, £12,300 before that). ## Footnote These older figures are no longer applicable but noted for historical comparison.

Question 51

What are the **CGT tax rates** for gains on or after 30 October 2024?

Answer 51

* Basic-rate 18 percent * Higher-rate 24 percent ## Footnote These apply to most assets for 2025 26.

Question 52

What were the **CGT rates** before 30 October 2024 for non-exempt residential property?

Answer 52

* Basic-rate 18 percent * Higher-rate 24 percent ## Footnote Residential property already used higher rates prior to reform, and these remain unchanged.

Question 53

What is **holdover relief**?

Answer 53

Relief allowing a gain on a gift to be deferred. ## Footnote CGT is postponed and the recipient takes a reduced base cost.

Question 54

When is **holdover relief available**?

Answer 54

On transfers chargeable to IHT or disposals of trading assets. ## Footnote These categories qualify for deferral.

Question 55

Who must claim **holdover relief**?

Answer 55

Usually both donor and recipient. ## Footnote If the gift is to a trust, only the donor must claim.

Question 56

When is **holdover relief not available**?

Answer 56

When the asset is transferred into a trust where the settlor retains an interest. ## Footnote This prevents avoidance where the donor still benefits.

Question 57

What is **Business Asset Disposal Relief (BADR)**?

Answer 57

A relief taxing qualifying business gains at 10 percent. ## Footnote It reduces the CGT rate for eligible business disposals.

Question 58

What was the **BADR lifetime limit** before 30 October 2024?

Answer 58

£1 million — unchanged. ## Footnote BADR has been £1 million since prior reductions.

Question 59

What is the **BADR lifetime limit for 2025 26**?

Answer 59

£1 million. ## Footnote This total applies to all qualifying gains across a lifetime.

Question 60

What is required to claim **BADR on a business**?

Answer 60

Disposal of a business or part of a business. ## Footnote The assets must be used in the business.

Question 61

What shareholding is required for **BADR on shares**?

Answer 61

At least 5 percent shareholding. ## Footnote The individual must also be an employee or director.

Question 62

What additional 5 percent conditions apply for **BADR shareholders**?

Answer 62

* 5 percent of voting rights * 5 percent of distributable profits or 5 percent of sale proceeds ## Footnote These tests ensure meaningful involvement.

Question 63

How long must assets be held to qualify for **BADR**?

Answer 63

At least two years. ## Footnote This applies to business assets and shares.

Question 64

What is **Investors’ Relief**?

Answer 64

A relief taxing qualifying gains for external investors at 10 percent. ## Footnote It applies to investments in unlisted trading companies.

Question 65

What was the **Investors’ Relief lifetime limit** before 30 October 2024?

Answer 65

£10 million. ## Footnote This larger limit was reduced in the reform.

Question 66

What is the **Investors’ Relief lifetime limit for 2025 26**?

Answer 66

£1 million. ## Footnote This is now aligned with BADR.

Question 67

What conditions must be met for **Investors’ Relief**?

Answer 67

* Shares must be newly issued * In an unlisted trading company * Held for three years ## Footnote These ensure long-term external investment.

Question 68

What is **EIS reinvestment relief**?

Answer 68

Relief deferring capital gains reinvested into EIS shares. ## Footnote The gain becomes chargeable only when the EIS shares are disposed of.

Question 69

Does **EIS reinvestment relief exempt** the gain?

Answer 69

No — it defers it. ## Footnote The tax is postponed, not removed.

Question 70

What is **SEIS reinvestment relief**?

Answer 70

Exemption for 50 percent of reinvested gains. ## Footnote The gain must also qualify for SEIS Income Tax relief.

Question 71

What percentage of **reinvested capital gains** is exempt under SEIS?

Answer 71

50 percent. ## Footnote The remaining 50 percent is still taxable.

Question 72

What is **business rollover relief**?

Answer 72

Relief allowing gains on business assets to be deferred when replacing them. ## Footnote The gain reduces the base cost of the new asset.

Question 73

What types of assets qualify for **business rollover relief**?

Answer 73

Assets used in a trade. ## Footnote Rollover applies when proceeds are reinvested in new trading assets.

Question 74

When is **incorporation rollover relief available**?

Answer 74

When an unincorporated business is transferred to a company in exchange for shares. ## Footnote The gain is rolled into the base cost of the new shares.

Question 75

How is **incorporation rollover relief applied**?

Answer 75

The gain reduces the issue price of the new shares. ## Footnote CGT is deferred until those shares are sold.

Question 76

When must **CGT be paid** if using the real-time CGT service?

Answer 76

Report by 31 December after the tax year and pay by the following 31 January. ## Footnote This applies to disposals reported outside self assessment.

Question 77

When must **CGT be paid** if using self assessment?

Answer 77

By 31 January after the end of the tax year. ## Footnote This is the same payment deadline as Income Tax.

Question 78

What is the **deadline for CGT payment** on non-exempt residential property?

Answer 78

Within 60 days of completion. ## Footnote This applies regardless of filing method.