6 Flashcards
(78 cards)
1
Q
What are the three types of reliefs from capital gains tax?
A
Exempted, Reduced, Delayed/deferred
2
Q
What is the only non-business asset that has a specific relief regarding capital gains tax?
A
Principal Private Residence (PPR) relief
3
Q
What type of relief allows for a lower rate of capital gains tax on qualifying disposals?
A
Business Asset Disposal Relief (BADR)
4
Q
What is the main condition for claiming Principal Private Residence (PPR) relief?
A
The property must have been the individual’s principal residence throughout the period of ownership
5
Q
What does ‘deemed’ occupation refer to in the context of Principal Private Residence relief?
A
Periods counted as occupation even though the owner may not physically be in the property
6
Q
True or False: PPR relief is available if the property is not occupied by the owner.
A
False
7
Q
What is the maximum period for which deemed occupation is allowed if employed overseas?
A
Any period of time
8
Q
Under what condition can a married couple only nominate one residence as their principal residence?
A
They are entitled to only one residence between them otherwise a single individual can have multiple but just assign one as their principle to hmrc within 2 years.
9
Q
What happens if a property is partially occupied for business purposes? and when is the 9 month period available to them?
A
The gain relating to the business part is taxable and 9 month period only available if at some point house was used for living in.
10
Q
What is the tax rate applied to the first £1m of gains under BADR?
A
10%
11
Q
What must be true for a disposal of a business to qualify for BADR?
A
It must have been owned in the 2 years prior to the disposal
12
Q
Fill in the blank: Investors’ relief applies to disposals of qualifying shares in an ________ trading company.
A
unlisted
13
Q
What is the lifetime limit for gains on which Investors’ relief can be claimed?
A
£10m
14
Q
What is the purpose of rollover relief?
A
To defer the gain on the disposal of a qualifying business asset when proceeds are reinvested
15
Q
What types of assets qualify for rollover relief?
A
- Land and buildings
- Fixed plant and machinery
- Goodwill
- Ships, aircraft, and hovercraft
- Satellites, space stations, and spacecraft
- Quotas (milk, potato, ewe, suckler cow)
- Lloyds syndicate rights
16
Q
What is the time period within which reinvestment must occur for rollover relief?
A
From 12 months before to 36 months after the sale
17
Q
True or False: Rollover relief must be claimed within 4 years from the end of the tax year of disposal.
A
True
18
Q
What is the condition for claiming Investors’ relief?
A
The shares must be new ordinary shares subscribed when issued and held for at least 3 years
19
Q
What is the effect of claiming BADR on capital gains tax?
A
It reduces the CGT payable on certain qualifying business disposals
20
Q
What must a taxpayer do to claim BADR?
A
Advise HMRC by 31 Jan of the following tax year
21
Q
What is the role of the annual exempt amount in calculating capital gains tax?
A
It is deducted from non-qualifying gains charged at 20% before applying to BADR gains
22
Q
What is the required occupation for claiming PPR relief?
A
Actual and deemed occupation
23
Q
What is the maximum gain that can be taxed at 10% under BADR?
A
£1m
24
Q
What happens if the full sale proceeds of a business asset are not reinvested?
A
A gain arises immediately, which will be the lower of proceeds not reinvested or the chargeable gain
25
What does 'fixed' mean in the context of fixed plant and machinery?
Immovable asset
26
What is a depreciating asset?
An asset with a predictable life of 50 years or less, or that will become a wasting asset within 10 years
27
Which assets qualify for rollover relief?
* Fixed plant and machinery
* Goodwill
* Ships, aircraft and hovercraft
* Satellites, space stations and spacecraft
* Milk and potato quotas
* Ewe and suckler cow premium quotas
* Fish quotas
* Lloyds syndicate rights
28
True or False: The old asset and new asset in a rollover relief claim must be of the same type.
False
29
What happens to the gain when rollover relief is claimed?
The gain is not charged to CGT on the disposal of the original asset but rolled over against the cost of the replacement asset
30
How does rollover relief affect the base cost of the new asset?
The base cost is reduced by the amount of the gain
31
Fill in the blank: If rollover relief is claimed on the first factory sale, the gain on disposal is ______.
nil
32
What is the effect of rollover relief on the sale of the second factory?
The gain will be taxed at the point of sale based on the reduced base cost
33
What is the maximum time frame for claiming full rollover relief?
The asset must have been used entirely for business purposes throughout the period of ownership
34
What happens if a depreciating asset is acquired?
The gain is frozen and becomes chargeable upon specific triggering events
35
List the three events that trigger the chargeability of a frozen gain.
* Disposal of the replacement asset
* The depreciating asset ceases to be used for the trade
* 10 years from the date of acquisition of the replacement asset
36
In the context of rollover relief, what is meant by 'non-business use'?
If the old asset was not used entirely for business purposes, rollover relief is scaled down
37
What is Gift Relief also known as?
Holdover relief
38
What is the main benefit of Gift Relief?
Deferral of tax until a future disposal
39
True or False: Gift Relief applies to both individuals and companies.
False as only avaialble to individuals
40
What must both donor and donee do to claim Gift Relief?
Claim formally within 4 years of the end of the tax year of the transfer
41
What type of assets qualify for Gift Relief?
* Assets used in the trade of the donor
* Shares and securities of trading companies under specific conditions
42
What happens to the allowable expenditure for the donee when a gain is held over?
The actual gain that should have arisen is deducted from the donee’s allowable expenditure when the asset is finally sold
43
If the proceeds received by the donor exceed the original cost, what happens?
Any excess is chargeable to tax immediately
44
Fill in the blank: The chargeable gain which can be held over is restricted to ______.
Chargeable gain x Chargeable business assets / Chargeable assets
45
To claim BADR, what must the seller do?
Work for the business or company in which shares are owned
46
True or False: Investors can claim BADR.
False
47
What must the seller do to claim BADR?
Work for the business or company in which shares are owned
48
What is BADR?
Business Asset Disposal Relief
49
Can the seller claim BADR if they do not work for the company?
No
50
Who is eligible to claim IR?
Investors, not employees
51
What is IR?
Investors Relief
52
What must shares be to claim IR?
Subscribed for at the time of their issue
53
Can gift relief be claimed if the seller does not work for the company?
Yes
54
Are reliefs automatic or must they be claimed?
Must be claimed
55
What may a disposal be eligible for?
GR, BADR, or IR
56
What happens if GR is claimed?
The gain may be nil
57
What is the implication of not claiming GR?
Can use AEA or claim BADR/IR
58
What does AEA stand for?
Annual Exempt Amount
59
What is the significance of BRB?
May enable payment of tax at a lower rate
60
What is the relationship between the donor and donee in terms of reliefs?
They are independent people with their own preferences
61
What may be relevant if rollover relief is claimed for a partial gain?
BADR
62
What are the conditions for 'Conditional – i.e. rules attached' for deemed occupation?
Up to 3 years for any reason.
Any period of time if employed overseas.
Up to 4 years if employed/self-employed in the UK or self-employed overseas.
63
What are the **must have rules** for 'Conditional – i.e. rules attached' deemed occupation?
There must be actual occupation before and after the absence.
If reoccupation is prevented by employment terms, the condition is relaxed.
No other property should be treated as the Principal Private Residence (PPR) during this time.
64
What is the 'Unconditional' deemed occupation?
The last 9 months of ownership are treated as if the property was your main residence for CGT purposes, unconditionally.
65
What does BADR (Business Asset Disposal Relief) do and what disposals qualify for it?
* BADR reduces CGT on gains from certain qualifying business disposals. These include:
* Whole or part of a business: If part of a business is sold, it must be a substantial part, capable of independent operation. (must be owned **2** years before disposal)
* Assets of a trading business that has already ceased(must be disposed within **3** years of cessation of trading: (Investment assets are not eligible).
* Shares: If the shares are in the individual’s personal trading company and the individual is an employee of that company
66
What qualifies as a personal trading company for BADR and what conditions apply to shares for BADR?
An individual has be a part of their personal trading company **2** years before disposal (definition follows):
The individual owns ≥ 5% of the ordinary shares carrying at least 5% of the voting rights, and
Is entitled to ≥ 5% of the company’s distributable profits and ≥ 5% of its net assets on winding-up.
For shares to qualify for BADR, the individual must be an employee of the company.
67
How do you calculate Capital Gains Tax when some gains qualify for BADR?
* Separate gains that qualify for BADR from those that do not.
* Use losses & Annual Exempt Amount (AEA) against the gains taxed at 20 % first (i.e., the non-qualifying gains in the higher rate), then apply any remaining losses/AEA to BADR gains or other 10 % gains.
* Tax BADR gains: apply the 10 % rate to the first £1 m of lifetime-limit BADR gains.
* Tax non-qualifying gains at the normal CGT rates after step 2 adjustments.
68
When does Investors’ Relief apply and what are the key conditions?
Disposal of qualifying shares in an unlisted trading company where the investor is not an officer/employee.
Shares must be new ordinary shares that the investor subscribed for on issue.
Shares must have been issued on/after 17 Mar 2016 and held continuously ≥ 3 years from issue to disposal.
Investor must claim the relief (e.g., for a 2024/25 disposal, claim by 31 Jan 2027).
69
Give the key features and calculation rules for Investors’ Relief (IR).
CGT rate: 10 % on any qualifying gain.
Lifetime limit: Up to £10 m gains per person (separate from BADR; due to fall to £1 m).
Mechanics:
Keep IR gains separate but follow BADR steps.
Offset AEA & losses first against gains taxed at higher rates, then against 10 % gains.
IR gains are set against any unused basic-rate band before other gains (same as BADR).
Result: Each eligible gain is charged at 10 %, up to the lifetime cap.
70
What is Rollover Relief and how does it work?
Rollover Relief allows the gain from disposing of a qualifying business asset to be deferred if the sale proceeds are reinvested into another qualifying asset.
If full proceeds (or more) are reinvested, the full gain is deferred.
If not all proceeds are reinvested, the immediate gain is the lower of:
The proceeds not reinvested (cash kept).
The chargeable gain.
Rollover Relief must be claimed within 4 years of the end of the tax year in which the disposal took place.
71
What is the effect of Rollover Relief on the "base cost" of a replacement asset?
If Rollover Relief is claimed, the gain from the original asset is not charged to CGT but is rolled over against (i.e., deducted from) the cost of the replacement asset.
This reduces the base cost of the replacement asset by the amount of the gain.
When the replacement asset is sold, the gain will be larger because the deductible cost is lower, and the deferred gain will be taxed at that point
72
How does Rollover Relief affect the "base cost" of a replacement asset in a practical example?
Without rollover relief:
Sell a factory for £300K, cost of £180K → Gain £120K.
Buy a new factory for £400K, sell it later for £500K → Gain £100K.
Total taxable gains: £120K + £100K = £220K.
With rollover relief:
The gain on disposal of the first factory becomes nil.
The base cost of the new factory becomes £400K - £120K = £280K.
When the second factory is sold for £500K, the gain is £500K - £280K = £220K, and the original £120K gain is deferred until the new asset's sale.
73
What is Rollover Relief when applied to depreciating assets?
If the new asset acquired is a depreciating asset, the gain is "frozen" (effectively set aside) and not rolled over against the new asset’s cost.
The gain becomes chargeable upon the occurrence of one of three events:
* Disposal of the replacement asset.
* The depreciating asset ceases to be used for the trade.
* 10 years from the date of acquisition of the replacement asset.
Keep the gain arising on the disposal separate; do not deduct from the cost of the depreciating asset.
If only part of the proceeds is reinvested, or the asset was not wholly used for the trade, part of the gain becomes taxable immediately.
All plant and machinery is deemed to be depreciating.
74
How does Gift Relief work?
As gifts can result in CGT this relief is treated like donee pays the market value of the asset and the actual gain is deducted from his allowable expenditure when asset is eventually sold. (defers the tax)
75
What else does gift relief apply to other than gifts?
Sales of assets at undervalue. Any proceeds recieved over and above original cost are taxable immediately.
76
What are the conditions for Gift Relief to apply to an asset?
Gift Relief applies to the following qualifying assets:
Assets used in the trade of the donor (e.g., if the donor is a sole trader).
The donor’s personal company: The donor must own at least 5% of the shares and voting rights in the company.
Shares and securities of trading companies, provided one of the following conditions is met:
The shares are quoted and are part of the donor’s personal company.
The shares are not quoted on a recognised stock exchange (though they may be listed on AIM).
No requirement to work for the company, unlike BADR.
77
What qualifies as chargeable business assets (CBA) for Gift Relief when gifting shares in a trading company?
Gift Relief applies only to chargeable business assets (CBA).
The chargeable gain from gifting shares in a trading company can be deferred if the shares are part of chargeable business assets.
Chargeable assets (CA): Any asset that, if sold, would give rise to a chargeable gain or an allowable loss.
Chargeable business assets (CBA): Assets used for the purposes of a trade, profession, vocation, office, or employment.
Excludes: Shares and securities held as investments.
Examples: Inventory, cars, cash, trade receivables, and plant/machinery under £6,000 are neither CBA nor CA.
78
What should be considered when deciding between Gift Relief, BADR, and IR (Investors' Relief)?
Back
Reliefs are optional and must be claimed by the taxpayer; they do not automatically apply.
A tax advisor will need to consider the individual’s personal circumstances before recommending which relief to claim.
Interacting Reliefs: For example:
Gift Relief (GR), BADR, or IR may be applicable, depending on the taxpayer’s circumstances.
If GR is claimed, the gain may be nil (if full claim is made), but the taxpayer cannot then benefit from the 10% BADR or IR rate.
If the donee (recipient) has BRB (Basic Rate Band) spare, it may be used to reduce the tax rate.
Other Interactions:
BADR may also apply if rollover relief is claimed for a partial gain.
BADR may be claimed on remaining gains if GR was previously claimed on part of the asset.
The donor and donee are independent people, so advisors must consider their preferences and circumstances when advising.
