Capital Gains Tax Flashcards
How do we calculate the gain?
Sale proceeds MINUS costs of acquisition MINUS any costs associated with acquisition, improvement and disposal
If it is transferred as a gift or to a connected person, we use MARKET VALUE
What is the effect of residence?
UK Residents pay CGT on worldwide assets
Non-UK Residents do not pay CGT at all UNLESS it is an interest in UK land
What assets are exempt from CGT?
Wasting chattels: cars, boats, watches, farm animals Assets worth less than £6,000 Assets transferred on death Assets transferred to spouse Assets transferred to charity
When is CGT due?
31 January following the year in which the gain was made. If gain made in 2021/2022, CGT is due on 31 January 2023.
On UK residential property, must be paid within 60 days of Completion
CGT Reliefs are deducted after figuring out gain. What are they?
Private Residence Relief Business Asset Disposal Relief Gift Relief Replacement of Business Assets Relief Incorporation Relief Enterprise Investment Scheme Reinvestment Relief
Private Residence Relief
- Property individual has used as their main home
- Deemed occupation: last 9 months of ownership, working abroad indefinitely, working in the UK 4 years, any other reason for 3 years.
- Must live in the property before and after
100% Relief
Business Asset Disposal Relief - 10% relief up to £1 million
All or part of a business (as a partner or sole trader)
Assets owned and used by the partnership in the 2 years before disposal
Shares in a personal company (where owner owns at least 5% of the ordinary shares and was an officer or employee or the company for 2 years before disposal)
CGT paid at lower rate of 10% on any gains. There is a lifetime limit of £1 million
Gift Relief (Hold Over relief)
Defers gain if gift is made. Donee of the gift pays CGT on the donor’s gain and their own gain
Qualifying assets:
Assets used in the donor’s trade or profession
Unquoted shares
Shares in donor’s personal company (5% or more ownership)
Assets that qualify for agricultural relief
Formula = Market value for donee MINUS gain made by donor originally
Replacement of Business Asset Relief (Roll Over relief) - no annual exemption
Land, buildings plant and machinery can be replaced with new asset either one year before or three years after the asset is sold for full relief - CGT will be paid when the replacement asset is sold
Whether fully reinvested = sales proceeds - cost of acquisition - if anything left over then that is chargeable
Also available to companies!!!
Incorporation Relief - no annual exemption
When individual transfers their ENTIRE business assets to a company in return for shares
Gain made from sale of the business is subtracted from the acquisition cost (value) of the shares
Enterprise Investment Scheme Reinvestment Relief
No CGT on gains made when investing in a qualified unquoted trading company
CGT rates
Higher and additional rate taxpayers = 20%
Basic rate taxpayers + BADR = 10%
Residential property (second or investment homes which do not qualify for PRR)
Basic rate: 18%
Higher rate: 28%
How do we calculate CGT owed?
- Identify the disposal
- Calculate the gain (sale proceeds - acquisition cost etc)
- Apply reliefs (BADR, incorporation, PRR etc…)
- Aggregate: Set losses against gains (if applicable)
- Take off Annual Exempt amount (if using BADR, we deduct annual exempt amount first and then apply 10% to the remainder)
- Apply the tax rate
How are losses treated for CGT purposes?
Losses must be set off against gains in SAME TAX YEAR
