Capital Taxes - Reliefs (BADR, Investors' Relief, PRR & BPR)

Question 1

BADR?

Answer 1

business asset disposal relief

Question 2

how does BADR work?

Answer 2

allows the first 1,000,000 of gains in an individual’s lifetime that arise on qualifying assets to be taxed at 10%

(regardless of BRB, HRB, ARB)

Question 3

which assets qualify for BADR?

Answer 3

• all/large part of an unincorporated trading business
• assets of a business within 3yrs of ceasing to trade
• shares in a PERSONAL TRADING company where individual is an EMPLOYEE or officer of the company

Question 4

personal trading company?

Answer 4

a company where the individual:
- owns at least 5% of shares

Question 5

what condition is there for qualifying assets for BADR?

Answer 5

assets must have been held for over 2yrs

Question 6

when must BADR be claimed?

Answer 6

within 12 months from 31Jan following the tax year in which disposal was made

Question 7

how does BADR operate?

Answer 7

• net off gains and losses on the sale of the business
• deduct losses and AEA
• tax remaining gain at 10%

Question 8

how does the BRB usage work with BADR?

Answer 8

gains qualifying for BADR use remaining BRB before other gains, so any other gains are likely to be taxed at 20%/24%

Question 9

when there both gift relief and BADR are available, what happens?

Answer 9

gift relief must be claimed first

Question 10

how does BADR work when no longer a personal company (shares are diluted)?

Answer 10

5% shareholding may become diluted

following options apply in this scenario:
- on issue of new shares, a notional gain is worked out based on MV of shares at share issue

• notional gain will qualify for BADR and defer until future disposal of shares
• base cost of the shares is the MV at the date the new shares were issued
• at the later disposal of shares, two gains will arise with the notional gain qualifying for BADR

Question 11

investors’ relief?

Answer 11

BADR is only available on a disposal of shares if:
- they own 5% at least
- are an officer/employee

investors’ relief extends the benefits of BADR to certain investors who don’t meet BADR criteria

Question 12

what does investors’ relief apply to?

Answer 12

disposal of:
- unlisted ordinary shares in a trading company
- held for a minimum of 3 years
- by individual who is NOT an employee

Question 13

difference between BADR & investors’ relief?

Answer 13

BADR - you must be an employee and own 5%

investors’ relief - you can’t be an employee

Question 14

investors’ relief lifetime limit?

Answer 14

10,000,000

whereas BADR is 1,000,000

Question 15

private residence relief (PRR)?

Answer 15

no gain arises on the disposal of an individual’s private residence if the property has been occupied throughout the period of ownership

Question 16

private residence is…

Answer 16

• a dwelling house
• at some point has been their only/main private residence

Question 17

can an individual/couple have more than one property?

Answer 17

no, can only have one between them at a time

Question 18

when must a couple decide what their private residence is?

Answer 18

• within two years of acquisition of second property
• within two years of marriage

Question 19

two types of PRR?

Answer 19

• private residence when occupied throughout period of ownership
• private residence when occupied for part of period of ownership

Question 20

PRR when occupied throughout period of ownership?

Answer 20

gain is exempt

Question 21

PRR when occupied for part of ownership period?

Answer 21

PRR relief may reduce the gain

Question 22

how are periods of absence from private residence handled for PRR?

Answer 22

• calculate the gain
• compute the total period of ownership
• calculate the periods of deemed/actual occupation
• calculate the PRR

Question 23

how do you calculate PRR when there’s been a period of absence?

Answer 23

gain * (period of occupation / total period of ownership)

Question 24

deemed occupation?

Answer 24

if a property was at some time

Question 25

how are the final 9 months of occupation treated for PRR?

Answer 25

exempt AKA: the 'final period of ownership' = last 9 months (36 months if individual is disabled or in a car home)

Question 26

what periods of non-occupation are classed as deemed occupation?

Answer 26

- 3 years of absence for any reason - any period spent working abroad - 4 years of absence whilst working in UK

Question 27

rules for deemed occupation?

Answer 27

individual cannot have another private residence during these times individual can let out the property during absence to be classed as deemed occupation, it must have been preceded by period of actual occupation

Question 28

deemed occupation?

Answer 28

if absent from the property, individual is still deemed to be occupying it

Question 29

how does PRR work when there is non-residential use?

Answer 29

no PRR is available for a part of a property which has been used exclusively for non-residential purposes no final period (9 months) exemption is available if the non-residential part has always been used for non-residential purposes

Question 30

what if non-residential part has been used for residential use? (PRR)

Answer 30

the final period (last 9 months) exemption applies

Question 31

letting relief?

Answer 31

when private residence has been partly let out, part of the gain will remain chargeable

Question 32

when does letting relief not apply?

Answer 32

when property is not the owner's private residence periods where the whole private residence is let out (e.g., owner is abroad)

Question 33

what is the letting relief amount?

Answer 33

lowest of: - 40,000 - PRR given - gain after PRR * (chargeable months due to letting/total chargeable months)

Question 34

BPR?

Answer 34

business property relief an inheritance tax relief available on both LT and DT

Question 35

where is BPR in the IHT computation?

Answer 35

transfer amount xxx less: BPR (xxx) less: marriage exemption (xxx) less: annual exemption (xxx) equals: chargeable amount

Question 36

when is BPR available?

Answer 36

- relevant business property is transferred - property has been owned for 2 yrs - transfer isn't part of an obligation to sell

Question 37

what condition must a lifetime transfer meet to qualify for BPR at death?

Answer 37

- transferee must still own the business property - property must still be relevant business property at date of death

Question 38

the amount of BPR available depends on...

Answer 38

the type of relevant business property being transferred

Question 39

what gets 100% relief for BPR?

Answer 39

- unincorporated trading business (not just an asset used) - interest in an unincorporated trading business (e.g., share in partnership) - shares in unquoted trading company (including shares quoted on AIM)

Question 40

what gets 50% relief for BPR?

Answer 40

- shares from a controlling holding in a quoted trading company (50% +) - land & buildings owned by transferor & used for business purposes by a trading company (which the transferor had control of prior to transfer)

Question 41

qualifying ownership period for BPR?

Answer 41

property must have been owned by transferor two years

Question 42

how is BPR handled for successive transfers?

Answer 42

if there are successive transfers of the same property one of which was on death and the first transfer qualified for BPR then the two year ownership period is ignored on the second transfer

Question 43

two exceptions to the two year rule for BPR?

Answer 43

- where property was inherited on death of a spouse, ownership by deceased spouse is counted as ownership by transferee - where property replaced other business property, transferor must have owned the assets for a combined period of 2yrs within the 5yrs prior to transfer

Question 44

is BPR available on excepted assets?

Answer 44

no

Question 45

excepted assets?

Answer 45

assets which are not used wholly/mainly for business purposes throughout the 2yrs prior to the transfer

Question 46

calculation to find eligible BPR when there are excepted assets?

Answer 46

value of transfer * ((net assets - excepted assets) / net assets)

Question 47

attributable liabilities?

Answer 47

value of any asset qualifying for BPR needs to be reduced by any liability associated with the relevant asset BPR only applies to the net value of the asset