Capital Taxes - Reliefs (Gift Relief & Replacement of Business Assets Relief) Flashcards
(29 cards)
what are the capital reliefs?
- replacement of business asset relief
- gift relief
- business asset disposal relief (BADR)
- investor’s relief
- private residence relief (PRR)
replacement of business asset relief?
gains on business assets can be deferred when proceeds are reinvested in new qualifying business assets
within the qualifying period
how can a gain be deferred under ‘replacement of business asset relief’?
by either:
- rolling it into the base cost of the new asset (rollover relief)
- freezing the gain until it becomes chargeable (holdover relief)
qualifying business assets for ‘replacement of business assets relief’?
- goodwill
- land & buildings
- plant & machinery
- ships/aircraft
- satellites/space stations
when must a replacement asset be purchased to qualify for ‘replacement of business asset relief’?
replacement asset must be purchased within:
- 1 year before sale of old asset
- 3 years after sale of old asset
how does rollover relief work?
gain is deferred by:
- deducting the relief from the gain of the old asset (no charge)
- deducting the relief from the base cost when selling the replacement
(this decreases the base cost to increase the gain on sale of new asset)
how does holdover relief work?
gain is deferred by freezing the gain
it is not deducted from the acquisition cost of the new asset
who is ‘replacement of business asset relief’ available to?
both individuals and companies
the only relief that applies to sole traders and corporations
when must ‘replacement of business asset relief’ be claimed?
within the later of:
- 4 years after the end of the tax year
- 4 years after the asset was acquired
when does the deferred gain arise under rollover relief?
deferred gain arises on the disposal of the NEW asset
by increasing the gain arising on its disposal
full relief is only available when…
(for replacement of business assets relief)
when all the net proceeds are reinvested
what happens if only some of the proceeds have been reinvested?
part of the gain is chargeable at the time of disposal (cannot be deferred)
what part of the gain cannot be deferred when part of the proceeds are reinvested?
(replacement of business assets relief)
lower of:
- the amount of net proceeds not reinvested
- the full gain
what does holdover relief apply to?
depreciating assets
depreciating asset?
an asset with an expected life no more than 60 years
e.g., plant & machinery with 40years left
when is a gain deferred till under holdover relief?
earliest of:
- the disposal of the asset
- 10 years from the acquisition of the asset
- the date the asset ceases to be used in trade
difference between holdover and rollover relief?
holdover = freeze
rollover = deferral
holdover = can only be frozen for 10years maximum
rollover = deferral has no time limit
what if an asset is used for business and non-business purposes?
only the gain relating to the business proportion is eligible for replacement of business asset relief
gift relief?
relief that arises when donor has been gifted an asset
OR
sold an asset for cheap
how does gift relief work?
allows the gain to be deferred until it’s sold by the recipient
what is eligible for gift relief?
- assets used donor’s in trade
- donor’s personal company
- unquoted shares
- quoted shares
personal company?
company in which one has at least 5% of voting rights
how does gift relief operate?
donor:
- proceeds = MV
- gain isn’t chargeable, but is deducted from acquisition cost for the recipient
recipient:
- acquisition cost = MV
- donor’s gain is deducted from the acquisition cost
must joint claims be made for gift relief?
yes
donor and donee must make a joint claim within 4 years of the end of the tax year in which it was gifted
