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Level 5 Business Tax Planning > Capital Taxes: Capital Gains > Flashcards

Capital Taxes: Capital Gains Flashcards

(46 cards)

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1
Q

What is Capital Gains Tax (CGT) charged on

A

Capital Gains Tax (CGT) is charged on the profit made when a chargeable asset is disposed of

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2
Q

who pays Capital Gains Tax (CGT)

A

Individuals and trusts pay Capital Gains Tax (CGT)

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3
Q

How do companies account for gains

A

Companies account for gains under Corporation Tax provisions

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4
Q

What does CGT ensure

A

CGT ensures that individuals are taxed not only on income but also on wealth accumulation via asset appreciation

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5
Q

What was CGT introduced

A

CGT was introduced in 1965

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6
Q

What does CGT prevent

A

CGT prevents avoidance through capital appreciation

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7
Q

When was indexation introduced

A

Indexation was introduced in 1982 (to account for inflation

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8
Q

When was Taper Relief introduced and phased out

A

1998: Introduction of taper Relief (phased out in 2008)

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9
Q

When was Entrepreneurs’ Relief introduced

A

2008: Introduction of Entrepreneurs’ Relief (now called Business Asset Disposal Relief)

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10
Q

When was lifetime limit for BADR cut to £1 million

A

2020/21: Lifetime limit for BADR cut to £1 million

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11
Q

What are chargeable gains

A

Chargeable gains are gains that arise on the disposal of a chargeable asset

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12
Q

What do chargeable gains exclude

A

Chargeable gains exclude:
- Normal trading stock
- Cash and certain exempt assets

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13
Q

What are chargeable gains disposals

A

Disposals include:
- Sale
- Gift
- Loss or destruction
- Compensation

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14
Q

Who are chargeable persons

A

Chargeable persons are:
- Individuals resident in the UK
- Trustees
- Partners

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15
Q

What are chargeable assets

A

Chargeable assets include almost all assets including shares, property, and goodwill

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16
Q

Where are chargeable assets defined

A

Chargeable assets are defined by TCGA 1992 s21

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17
Q

What are exempt assets

A

Exempt assets include:
- Motor vehicles
- Personal chattels ≤ £6,000
- UK government gilts
- ISA investments

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18
Q

Capital Gain =

A

Gain = Net Proceeds - (Original Cost + Incidental Acquisition Costs)

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19
Q

What are the key elements of calculating capital gains

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A

The key elements of calculating capital gains are:
- Proceeds
- Acquisition Costs
- Disposal Costs

20
Q

What are proceeds

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A

Proceeds: Sale price or market value if gifted/under-priced

21
Q

What are acquisition costs

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A

Acquisition costs is purchase price + legal/valuation fees

22
Q

What are disposal costs

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A

Disposal costs are: Estate agent fees, auction costs, legal fees

23
Q

What are the rates for general assets on basic and higher ratepayers

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A

General assets
- Basic Ratepayer: 10%
- Higher Ratepayer: 20%

24
Q

What are the rates for residential property on basic and higher ratepayers

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A

Residential property
- Basic ratepayer: 18%
- Higher ratepayer: 28%

25
What are the rates for BADR qualifying disposals on basic and higher ratepayers
BADR qualifying disposals - Basic ratepayer: 10% - Higher ratepayer: 10% (up to £1m)
26
What is the annual exempt amount of CGT for individuals
The annual exempt amount for CGT is £3,000 for individuals in 2024/25
27
What does Business Asset Disposal Relief (BADR) offer
BADR offers: - A 10% CGT rate for qualifying disposals - A lifetime limit of £1 million per individual
28
Who does BADR apply to
BADR applies to: - Sole traders disposing of whole/part of a business - 5% + shareholders in personal trading companies
29
When do you use apportioned cost
Apportioned cost is when only part of an asset is disposed of
30
Apportioned cost =
Apportioned cost = Total cost X A/A+B Where: - A = Market value of part disposed - B = market value of part retained
31
When can capital improvements be added to acquisition cost
Capital improvements can be added to acquisition cost if they: - Are not deducted as revenue expenditure - Improve the market value of the asset
32
What are chattels sold for > £6,000 subject to
Chattels sold for >£6,000 are subject to CGT with the gain capped
33
Maximum Gain =
Maximum Gain = 5/3 X (Proceeds - £6,000)
34
What happens to losses on chattels sold for < £6,000
Losses on chattels sold for < £6,000 are restricted or CGT purposes
35
What matching hierarchy should be used when disposing of shares acquired on different dates
When disposing of shares acquired on different dates, use the following matching hierarchy: 1. Same-day purchases 2. Purchases within 30 days 3. Section 104 Pool
36
What does the Matching Rules prevet
Matching Rules prevents manipulation of acquisition dates to create artificial losses/gains
37
What are bonus shares
Bonus shares are added to the pool with no additional cost
38
What are rights issues
Rights issues are new shares purchased at a discount. Their cost is added to the pool
39
What are the different deferral reliefs
The different deferral reliefs are: - Rollover Relief - Holdover Relief
40
What is rollover relief for
Rollover relief is for reinvestment in qualifying business assets
41
How does rollover relief defer fauns
Rollover Relief defers gains by reducing base cost of new asset
42
When must replacement be acquired with rollover relief
Replacement must be acquired 1 year before to 3 years after original disposal
43
What is holdover relief for
Holdover relief is for wasting assets
44
When does holdover relief defer gains until
Holdover relief defers gains until: - Replacement asset is sold - Ceases to be used in business - 10 years elapse
45
When is gift relief available
Gift relief is available when qualifying business assets are gifted
46
Who does gift relief apply to
Gift relief applies to: - Sole trader business assets - Shares in an unlisted trading company

Level 5 Business Tax Planning (13 decks)

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