CGT

Question 1

Entrepreneur’s relief

Answer 1

• applies to individuals and trustees who dispose of whole or part of a business or shares in a trading company in which they have a qualifying interest
• must have owned 5% or more of the Business and also be an employee or director of the business
• must have had an interest in the business for at least one year before disposal
• first £10m of gains chargeable to CGT at 10%
• remainder taxed at 10/20%
• still uses up basic rate band in the calculation

Question 2

Holdover Relief

Answer 2

• holds over the gain by way of a gift
• avoids /defers paying tax at time of disposal of trading assets
• no CGT is payable at the time of the gift
• donee’s acquisition cost is reduced by the held over gain
• which increases the gain on subsequent disposal
• relief only available if both donee and donor jointly claim it and recipient is UK resident
• must be claimed with 4 years of the transfer
• donees must own at least 5% of the company / mustn’t be listed on the stock exchange
• if donee leaves UK within 6 years then gain crystallises and tax may be payable by the donee
• if the donee fails to pay then the donor becomes liable

Question 3

Reinvestment into EIS

Answer 3

• where gains are reinvested into an EIS relief is available subject to the following rules:
• investment into EIS must be made within period of 12 months before and 3 years after a disposal which is subject to CGT
• gain is deferred until disposal of EIS
• unlimited amount of relief for CGT
• limits apply though for IT relief
• CGT rate applied is that at the end of the deferral period
• gains arising on the EIS itself are exempt if held for 3 years
• a loss can be set against future gains
• if the original deferred gain qualified for ER then the relief is still available when the gain becomes taxable again

Question 4

Reinvestment into Seed EIS

Answer 4

Gain reinvested into an SEIS relief is subject to the following rules

• investment into SEIS must be made in the same tax year as the disposal that is subject to CGT
• 50% of gain is then exempt from CGT
• 50 % of gain is treated in usual way (report by end of tax year and pay by 31st of following Jan)
• no CGT deferral like an EIS

Question 5

5 steps of a CGT calc

Answer 5

1) is it exempt or chargeable?
2) calculate gain (disposal value - acquisiton value - acquisition cost - enhancement costs - disposal costs = chargeable gain
3) calculate net gains = chargeable gain - current years losses - annual exemption - C/F losses = net gains
4) apply any reliefs
5) CGT bill

Question 6

CGT exempt assets (8)

Answer 6

1) gilts
2) intra spousal
3 death
4) PEnsions
5) charitable
6 ISA
7) VCT
8) chattels <6k
9) chattels which are wasting assets
10) most life policies
11) private residence
12) private motor cars
13) fixed interest securities
14) premium bonds
15) national savings certificates