Capital Gains Tax Flashcards
(42 cards)
What is the difference between valuing assets for CGT and IHT?
IHT it is the loss to the estate unlike CGT which is the asset value.
If a disposal is subject to income tax, is it deducted before or after CGT is calculated?
Before
How do you establish if income or capital gains tax should be paid on gains and what are the advantages of being treated as CGT?
(1) Income tax if trading / CGT if not
(2) CGT Annual Exemption and lower tax rates
HMRC have nine “badges of trade” used to establish if a transaction is one off and subject to CGT or a trading asset, not all needed are to be present, list 4.
- Inherited or gifted?
- Money borrowed to buy the asset?
- Personal enjoyment or profit?
- Transactions Similar to a Trade?
- Profit-seeking motive
- Was the asset changed to increase profit?
- The number of transactions
- Was it sold in a way that was typical of a trade or to raise emergency cash?
- A quick buy and sell would suggest a trade.
If an asset was acquired on or before ../../.. the cost is deemed to be the market value on that date and you can deduct post 1982 costs.
31/3/82
How is the date of disposal for CGT determined?
The date the contract for sale becomes binding, and if the buyer defaults the disposal is treated as void.
How are spouses and civil partners taxed for CGT?
Separately
What type of transfers are these and how are they taxed?
(1) When married and living together at some point during the tax year
(2) When separated and not living together during tax year
(3) On divorce
(1) Tax free, once sold the original acquisition cost is used.
(2) Taxable, transfer between connected parties
(3) Taxable, between unconnected parties
What are the three CGT benefits of inter spouse transfers?
(1) Use of both exemptions
(2) Use of lower tax rate
(2) Off set losses against spouse’s gains
How is CGT treated for spouses with jointly owned assets?
Each taxable on their share of the gain, for example 50/50 for Joint Tenants
What are the six CGT disposals other than sales?
(1) Gifts including to trusts
(2) Exchanges
(3) Destroyed creating a loss
(4) Compensation for damage (not in a profession)
(5) Insurance payment
(6) Capital for the surrender of rights
What are the five circumstances where the Market Value is used for CGT calculations?
(1) Not at “Not at Arm’s Length” sale between connected parties (family)
(2) Deliberate under value between friends
(3) Deliberate bargain price.
(4) Gifts
(5) Holdover relief
Who is entitled to the annual exemption?
Everyone.
Wasting assets are exempt for CGT what are they and when aren’t they exempt?
(1) Asset with expected life of 50 years or less.
2) Business Machinery where capital allowances have been claimed (So excludes business assets
What 12 assets are exempt from CGT apart from investments?
(1) Main residence
(2) Private motor vehicles
(3) *Woodlands
(4) Chattels under £6k
(5) Gambling winnings
(6) Decorations of valour sold by original owner
(7) Assets given to charity/museums
(8) **Assets of national interest
(9) Compensation in a profession
(10) Debts repaid to original creditor
(11) Cashbacks like mortgage lenders
(12) Foreign currency / bank accounts for personal use
- Woodlands free from CGT but CLT charged and IHT deferred until Timber sold when gifted on death (IHT Woodland Relief)
- *The new owner must make an agreement to look after , keep in UK and give public access
What are the five stages to a CGT Calculation?
(1) Disposal - Acquisition Cost
(2) Deduct Costs (Buy, Sell, Enhancement)
(3) Deduct same year losses
(4) Deduct Annual Exemption
(5) Calculate tax, in order that minimises tax i.e. gains taxable at the highest rate first such as property.
Which nine investments are exempt from CGT?
(1) Savings Certificates and Premium Bonds
(2) Gilts, Corporate Bonds, PIB’s
(3) ISA’s and CTF’s
(4) VCT
(5) EIS or SEIS
(6) Pensions
(7) Qualifying life assurance
(8) Up to 100k lifetime limit on Employee Shareholder Shares unless more than 25% voting rights, if received them pre 1/12/2016 limit is £50k.
(9) Shares in an employee Share Incentive Plan (SIP) until transferred to employee absolutely.
The following are not exempt:
(1) 2nd hand insurance policies
(2) non qualifying corporate bonds
(3) UT investing in corporate bonds
Tax Rate for CGT
(1) BRT
(2) Above BRT
(3) Addition for property
(4) Entrepreneurs relief
All of this is the tax tables;
(1) 10%
(2) 20%
(3) 8%
(4) Always 10%
* The taxable gain is treated as if it sat on top of income
What is a negligible value CGT Claim and how long do you have to make the it?
Where you still own an asset but it’s value has reduced to next to nothing, you have 2 years to make the claim, treated as having disposed of the asset even though you still own it.
How do you to calculate the CGT gain on a part disposal?
(1) The calculation
(2) How do you calculate deductible expenses?
(1) Calculate the value of the part disposed as a % of the TOTAL current value and apply that to the original cost.
(2) Apply the same formula above to the expenses unless they only relate to the part retained or disposed.
What is the MAXIMUM chargeable gain when calculating CGT on chattels?
5/3rds of excess of DISPOSAL proceeds over £6k
Is CGT paid on death and how are the beneficiaries treated?
(1) No CGT on death.
(2) Beneficiaries acquire at market value at the date of death which should be the same as the IHT value.
Payment of CGT
(1) When must you inform HMRC if you have made a gain greater than the annual exemption
(2) When is the tax due
(3) What changes in 2020
(1) Via your normal self assessment or within 6 months of the end of the tax year.
(2) 31st January, no payment on account
(3) A payment on account within 30 days for non exempt residential property
* Delaying disposals until new tax year defers the due date.
Can capital expenditure be deducted as the purchase price for CGT calculations if the owner created the asset?
Yes
