Capital Gains Tax

Question 1

Define Capital Gains Tax

Answer 1

A chargeable gain or allowable loss arises on a chargeable disposal of a chargeable asset by a chargeable person

Question 2

What disposals are exempt from capital gains tax

Answer 2

• transfers on death
• transfers of asset as security for loan or mortgage
• gidta of assets to charities

Question 3

How is capital gains tax calculated

Answer 3

Gross Proceeds (or Market Value)
- Incidental cost of disposal
= Net proceeds
- Allowable Costs
= Gain/(Loss)
- Losses brough forward
= Net Chargeable Gain

Question 4

What are incidental cost of disposal

Answer 4

comissions and fees which relate to sale e.g. legal cost, advertising

Question 5

What is a Chattel

Answer 5

Tangible Moveable Property e.g. painting, yatch

Question 6

What is the formula for chattels?

Answer 6

[5/3 x (gross proceeds - £6,000)]

Question 7

How to tax part disposal

Answer 7

A / (A+B)
A = value of the part being disposed of (proceed) and B is the value of remainder

Question 8

In which order must you match shares in the same company

Answer 8

1. any shares acquired on the day of disposal
2. any shares acquired in 30 days after disposal
3. all shares (pool) acquired before the date of disposal

Question 9

What is entrepreneur’s relief

Answer 9

When individual running a business disposes of all or part of that business
First £1 million is 10%

Question 10

What are the conditions of entrepreneur’s relief

Answer 10

• The assets must have been owned for one year prior to the date of disposal
• cannot be used in trade
• disposal must take place in 3 years ikf the business has now ceased
• Must have at least 5%
• Must have been an employee for 1 months prior to disposal

Question 11

What is rollover relief?

Answer 11

When consideration recieved from sale of business assets to purchase more business assets - relief from CGT

Question 12

what are thr rules for rollover relief?

Answer 12

must acquire new assets within 12 months before or 36 months after sales
if claimed, the relief is deducted from allowable cost of new asset
only get full relief if total proceeds are reinvested

Question 13

What is incorporation relief?

Answer 13

Available when a business and all its assets (other than cash) are transferred to a company in exchange for shares
Gain on sale of business assets is rolled over into the value of the shares recieved in exchange
Apportion if only part of the consideration given by the company is in forms of shares

Question 14

How is gift relief used?

Answer 14

• the donor is treated as making a disposal of the asset at market value, and teh donee is treated as if he had aquired the asset at market value
• When gift relief is claimed, teh donor’s gain is deffered. The gain is deducted from the donee’s cost

Question 15

What is the interaction between gift and entrepenruer’s relief

Answer 15

• When a claim for gift relief is made, the donor may lose entitlement to entrepenuers’ relief
• If the asset qualifies, gift relief if claimed is applied before entrenpeneur’s relief

Question 16

Who is entitled to gift relief?

Answer 16

• individuals not companies
• the claim must be made by both the doner and the donee and must be made 4 years from the end of the tax year where disposal occured

Question 17

What qualifies as gift relief?

Answer 17

Gift aid cam be claimed on:
- Assets used in trade of the doner and his oersonal company (must be owned by him but not used nu him for trading purposes)

• Shares and securities of trading companies provoded that one
• The shares pr secruties are not quoted on a recpgnised stock exchange
• the shares gidted are of the individual’s personal company
• qualifies as individals company is they own 5%

Question 18

What is the process for gift relief when sold at undervalue?

Answer 18

Any proceeds recieved in excess of the original cost are chargeable to CGT immediately
The gain deferred, the gift relief, is reduced by this amount

Question 19

How is capital gains treated for private residences

Answer 19

If taxpayer has more than one residence, elect for one to be main residence
The relief is available in full if the taxpayer occupied the property throughout the enture period of ownership

Question 20

What formula is used for PPR (Private Residence Relief)

Answer 20

PPR = Gain x (peropd of occupation / period of owndeship)

Question 21

What abseness are deemed to be full occupation?

Answer 21

• Last 18 months if main residence beforehand
• Amy periof diring which the inidvidual wad required by his employment to live abroad
• up to 4 years where an employee has to live somewhre else in the UK due to employment
• Up to 3 years for any reason

Question 22

Private residence and business use

Answer 22

• Where oart of the residence is used exclusively for business, the gain in relation to tht is not covered by relief
• The last 18month rule does not apply to that part unless the bueisnss part was at some point used as main residence