5 Flashcards
(81 cards)
1
Q
What are the three main categories of UK taxes?
A
Income taxes, Consumption taxes, Wealth/Capital taxes
2
Q
What is the purpose of income taxes?
A
Tax income earned between two points in time
3
Q
What types of taxes fall under consumption taxes?
A
- Value added tax
- Excise duties
4
Q
What do wealth/capital taxes tax?
A
An individual’s accumulated wealth regardless of source
5
Q
What are examples of wealth/capital taxes?
A
- Capital gains tax
- Inheritance tax
- Stamp duty
6
Q
Why was capital gains tax included in the tax base?
A
To ensure the tax system is equitable and efficient
7
Q
What is the basic rate of income tax in the UK?
A
20%
8
Q
What are the capital gains tax rates for residential property?
A
- 18% (basic rate band)
- 24% (above basic rate band)
9
Q
What was the annual exempt amount for capital gains tax in 2024/25?
A
£3,000
10
Q
What is considered a chargeable person for capital gains tax?
A
A person who is resident or ordinarily resident in the UK
11
Q
What assets are exempt from capital gains tax?
A
- Cash
- Foreign currency for personal expenditure
- Motor vehicles (except unsuitable vans)
- Decorations for valour
- Individual savings accounts (ISAs)
- Pension and annuity rights
- Prizes, lottery and betting winnings
- Principal private residence
12
Q
What constitutes a disposal for capital gains tax purposes?
A
- Sale of assets
- Gift of an asset
- Receipt of a capital sum derived from an asset
- Loss or total destruction of an asset
13
Q
What happens to assets transferred on death for capital gains tax?
A
They are exempt and beneficiaries inherit them at market value at the date of death
14
Q
What is a chargeable gain?
A
A gain arising on chargeable disposals of chargeable assets by chargeable persons
15
Q
What is the date of disposal in capital gains tax?
A
The date when the ownership of the asset changes
16
Q
What types of expenditure are classed as allowable deductions?
A
- Purchase cost of the asset
- Enhancement expenditure
- Expenditure to establish or defend title
- Incidental costs of acquisition and disposal
17
Q
What is the purpose of enhancement/improvement expenditure?
A
To enhance the value of the asset at the time of disposal
18
Q
What are incidental costs of disposal?
A
Fees and commissions for professional services, advertising costs, legal conveyance costs
19
Q
What is the treatment of connected persons in capital gains tax?
A
Market value must be used instead of sale proceeds for disposals between connected persons
20
Q
What is the due date for capital gains tax payment for individuals?
A
31 January following the tax year
21
Q
How are net chargeable gains taxed in relation to income tax bands?
A
10% (basic rate band) or 20% (above basic rate band) for normal assets
22
Q
What are the tax rates for net chargeable gains on residential property?
A
- 18% (basic rate band)
- 24% (above basic rate band)
23
Q
Fill in the blank: A capital gains tax is charged on _______ arising on chargeable disposals.
A
gains
24
Q
What is the normal capital gains tax rate on assets disposed of that are not residential property?
A
20%
24% applies if the asset disposed of is residential property.
25
What is the capital gains tax rate for residential properties disposed of after 30 October 2024?
18% and 24%
## Footnote
These rates were revised on 30 October 2024.
26
What is the annual exemption amount for capital gains tax for the tax year 2024/25?
£3,000
27
If Luis has a net chargeable gain of £40,900 and taxable income of £40,000, what is his capital gains tax payable?
£7,580
28
What is the basic rate band for the tax year 2024/25?
£37,700
29
How much of Victoria's taxable gain is taxed at 10%?
£25,700
30
What is the remaining taxable gain for Victoria that is taxed at 20%?
£12,200
31
True or False: Unused personal allowances can reduce a net chargeable gain.
False
32
When is the taxpayer required to notify HMRC of a gain arising on the sale of residential property?
Within 60 days
33
What is the penalty for failing to provide required notice to HMRC regarding chargeable gains?
Up to the amount of tax unpaid
34
What happens if allowable losses exceed chargeable gains in the same tax year?
The allowable losses can be carried forward.
35
In a scenario where an individual has chargeable gains of £12,200 and allowable losses of £10,000, what is the net chargeable gain?
£2,200
36
What is the capital gains tax payable if the net chargeable gain is less than the annual exemption?
No capital gains tax is payable.
37
If a taxpayer has a chargeable gain of £34,300 and an annual exemption of £3,000, what is the taxable gain?
£31,300
38
How should losses arising in the year be offset when there are gains on both normal assets and residential property?
Against the gain arising on residential property first.
39
What should be included in the computation for capital gains tax calculations?
Different columns for normal assets and residential assets
40
What is the treatment of losses brought forward if the current year losses are deducted first?
They reduce net chargeable gains only to the level of the annual exemption.
41
What is the capital gains tax payable for Drake with a total gain of £37,300 after the annual exemption?
£5,490
42
What is the tax rate applied to the portion of Drake's residential property gain that exceeds the basic rate band?
24%
43
What must be done if there are spare basic rate bands available?
They can be allocated in the most beneficial way.
44
What happens to an unused loss brought forward after it reduces net chargeable gains?
It can be further carried forward.
45
Fill in the blank: The basic rate band remaining for Drake after his taxable income of £12,000 is ______.
£25,700
46
What is a part disposal of an asset?
A part disposal may trigger a charge to capital gains tax, except when deemed 'small'.
## Footnote
Identifying allowable expenditure to deduct from sale proceeds involves using a fraction.
47
How is the fraction for calculating part disposals determined?
The fraction is A / (A + B), where A = Disposal consideration for the part disposed of and B = Market value of the remainder.
## Footnote
This fraction helps in determining the allowable expenditure.
48
Calculate the allowable expenditure for Samuel's part disposal: Original cost £280,000, Sale price £200,000, Remaining value £300,000.
Allowable expenditure = £280,000 x 2/5 = £112,000
## Footnote
The part disposal fraction calculated is 2/5.
49
What is the capital gain for Samuel after selling part of his building?
Capital gain = Sale proceeds (£200,000) - Cost of part disposed (£112,000) = £88,000.
50
What are the three possibilities when dealing with improvement expenditure in part disposals?
* Applies equally to the whole asset
* Applies wholly to the part disposed
* Applies wholly to the part retained
51
In Keith's case, what is the total chargeable gain arising from the sale of his main building?
Total gain = Disposal proceeds (£270,000) - Allowable expenditure (£177,273) = £92,727.
52
What is the treatment of transactions between spouses for CGT purposes?
Transactions are ignored for CGT unless there is a disposal to a third party, treated at no gain/no loss.
53
What maximum personal allowance can spouses/civil partners claim?
The maximum personal allowance is £12,570 each.
54
What is the maximum annual exemption for capital gains for spouses/civil partners?
The maximum annual exemption is £3,000 each.
55
How can Mr. and Mrs. Wright minimize their tax liabilities?
* Transfer rental property
* Transfer shares for sale
* Sell shares in two parts
56
What is the exemption rule for chattels sold at a gain?
Chattels costing less than £6,000 sold for £6,000 or less are exempt from CGT.
57
What is the marginal relief available for chattels sold for more than £6,000?
The gain is limited to 5/3 x (gross disposal consideration - £6,000).
58
How is loss relief calculated for chattels sold for £6,000 or more?
Loss is computed in the normal way, but if sold for less than £6,000, notional proceeds of £6,000 are substituted.
59
What defines a wasting asset?
A wasting asset is an asset with a predictable life not exceeding 50 years.
60
What distinguishes wasting assets for CGT treatment?
* Whether the wasting asset is a chattel
* Whether capital allowances can be claimed on it
61
What are the three categories of wasting assets?
* Wasting chattels with no capital allowances
* Wasting chattels with capital allowances
* Plant and machinery
62
What is the treatment of a wasting chattel on which capital allowances could not be claimed?
These are exempt from CGT.
63
What is the capital gains tax treatment for wasting chattels on which capital allowances could be claimed?
Subject to usual computations for chattels, with the benefit of the £6,000 exemption.
64
What are wasting chattels?
Items such as P&M that are prima facie eligible for CAs and have been used for business purposes
## Footnote
Chattels often include items that have a limited useful life and are subject to capital allowances.
65
What is the £6,000 chattels exemption?
A benefit that applies to disposal computations for chattels
## Footnote
This exemption allows for certain gains on chattels to be exempt from capital gains tax.
66
How is the loss calculated if disposal proceeds are less than the original cost?
The loss is reduced by the total CAs which have been available on the asset
## Footnote
This reduction may result in the loss being reduced to £nil.
67
What are examples of collectors' items treated as wasting chattels?
Antique clocks, watches, and vintage motorcycles
## Footnote
These items may have useful lives greater than 50 years but are still treated as wasting chattels.
68
What defines wasting assets that are not chattels?
Allowable expenditure is deemed to waste away over the life of the asset
## Footnote
The extent of wastage is calculated on disposal using a specific formula.
69
Example of a wasting asset calculation: What is the chargeable gain for Fiona's copyright?
£17,500
## Footnote
The gain is calculated as sale proceeds minus the unexpired portion of cost.
70
What should be done when an asset is lost or destroyed with no insurance proceeds?
Prepare a capital loss computation
## Footnote
The loss is created when acquisition costs are deducted from proceeds, which are nil.
71
How are insurance proceeds treated if an asset is lost or destroyed?
Used as proceeds in the capital gains computation
## Footnote
The acquisition cost is deducted from the insurance proceeds to determine gain or loss.
72
What happens if full insurance proceeds are spent on replacing an asset?
The disposal is deemed to be at no gain/no loss
## Footnote
Any gain is deferred until the sale of the replacement asset.
73
What is the initial gain calculation when Rory's painting is destroyed?
£12,000
## Footnote
This is calculated as insurance proceeds minus the cost of the painting.
74
What is the new base cost for Rory's replacement painting?
£34,000
## Footnote
This is calculated as the cost of the replacement minus any gain arising.
75
What occurs if only part of the insurance proceeds are spent on a replacement?
A gain arises limited to the amount not reinvested
## Footnote
This gain is immediately chargeable.
76
What is the chargeable gain when part of the insurance proceeds are not reinvested?
£3,500
## Footnote
This is the amount of insurance proceeds not spent on replacing the asset.
77
What is the result of a part disposal when compensation received is not used to restore the asset?
Deemed to be a part disposal
## Footnote
The allowable cost is calculated based on the compensation received and the market value of the remainder.
78
What is Joanna's allowable cost computation after damage to her chair?
£49,524
## Footnote
This is calculated using the compensation received and the market value of the damaged chair.
79
What happens if all proceeds from compensation are used to restore the asset?
The taxpayer can elect to disregard the part disposal
## Footnote
The proceeds reduce the original cost of the asset.
80
What is the gain if the chair is sold after all restoration proceeds are used?
£100,000
## Footnote
This is calculated as sale proceeds minus the new base cost.
81
What topics were covered in the lecture?
Part disposals, spouse and civil partner transactions, chattels and wasting assets, lost, destroyed and damaged assets
## Footnote
These topics are crucial for understanding capital gains tax implications.
