CGT Reliefs

Question 1

For how many months before disposal is deemed occupation for PPR relief?

Answer 1

18 months

Question 2

What 3 things constitute deemed occupation?

Answer 2

1. For upto three years for any reason
2. If the owner is required to work abroad by their employer.
3. For upto four years if required to work elsewhere in UK by employer or if self employed and forced to work away from home.

Question 3

What is the main condition for deemed occupation to apply?

Answer 3

Deemed occupation can only apply if preceded and followed by genuine occupation at some point.

Question 4

How much of a garden in included in PPR relief?

Answer 4

Upto half a hectare

Question 5

How is PPR relief taken if the owner owns more than one residence?

Answer 5

They can choose which property to use as their main residence and as such take PPR relief on that property.

Question 6

How do you calculate PPR relief?

Answer 6

Gain exempt = Gain x (no. months occupation/no. months of ownership)

Question 7

How is the amount of letting relief calculated?

Answer 7

Taking the LOWER of:

1. £40,000
2. The gain arising in the letting period not covered by PPR relief.
3. PPR relief already given.

Question 8

On what disposals can an individual claim entrepreneurs relief?

Answer 8

1. Whole or Part of Qualifying Businesses
   Sole Trader, Partnership Interest, FHL’s
2. Shares
   Five Percent, Twelve Months, Trading Co, Worker
   (Eee or director)
3. Shares in EMI Scheme
   No minimum ownership percentage - ownership starts from date of grant.

Question 9

For how long must a business/shares have been owned before disposal in order for Entrepreneurs relief to apply?

Answer 9

At least 12 months before disposal.

Question 10

In what form must the whole or part of the business be transferred when disposed of?

Answer 10

Transfer of Going Concern

Question 11

What are the conditions for ER if the business is ceasing to trade?

Answer 11

Must have been owned for 12 months prior to disposal and disposed within three years after cessation.

Question 12

How is ER given?

Answer 12

Gains eligible for ER are only taxed at 10%.

Question 13

If ER gains are available as well as non-ER gains, what is the most tax-efficient way to use this?

Answer 13

Offset losses and annual exemption against:
Residential Gains (18%, 28%), Non Residential Gains (20%), Entrepreneurs Relief (10%)

Question 14

True or False: ER is automatic

Answer 14

False. ER must be claimed for by 31 Jan following the tax year of sale.

Question 15

What are the associated disposals that qualify for entrepreneurs relief?

Answer 15

1. Whole or part of a partnership business

2. Shares in a qualifying company

Question 16

What is associated disposal?

Answer 16

Where an individual disposes of a separate asset that has been used in the partnership where they are a partner or in the company’s trade.

Question 17

Is ER relief available on commercial rent?

Answer 17

No. However, if rent received is less than MV then ER relief is proportionately withdrawn.

Question 18

What is investors relief?

Answer 18

10% tax rate on their gain on disposal of qualifying shares in an unquoted trading company.

• not officer or employer
• shares need to be held as three years
• won’t be in disposals until 2019/20

Question 19

How are proceeds deemed under gift relief?

Answer 19

Proceeds at deemed at market value when the disposal is gifted.

Question 20

How do we identify when gift relief is available?

Answer 20

If a disposal is made by gift or sale at less than market value.

Question 21

How is gift relief claimed?

Answer 21

• Normal gifting needs to have a joint claim made by the donor and donee (as the donee will be paying tax on a larger gain so need to certify their agreement)(
• Gifts to a trust do not need joint claim.

Question 22

What other taxes can be implicated by gift relief?

Answer 22

IHT on gifts,

ER may be claimed after gift relief if the ER conditions are satisfied.

Question 23

What are the conditions for gift relief to apply?

Answer 23

1) disposal must be made to a UK resident or a trust

2) must be a qualifying asset

Question 24

What are qualifying assets for gift relief to hold?

Answer 24

• Business assets used in the donors trade
• Agricultural property
• Unquoted shares in a trading company
• Quoted shares in a personal trading company
• Gifts subject to immediate IHT charge (lifetax on CLTs to trusts)

Question 25

If the gift is given for no consideration in exchange, how is the gain treated?

Answer 25

It is a deferred gain realised by reducing the base cost of the gifted asset. The recipient then realises a higher gain when they come to sell on the asset.

Question 26

What are the two potential complications of of gift relief that need to be considered?

Answer 26

1. Partial Consideration | 2. Gift of Qualifying Shares

Question 27

How should the partial consideration method be followed?

Answer 27

1. Tax exceeds of actual proceeds received over cost immediately. 2. Roll over the balance into the base cost of the asset. 3. ER may be available to the gain taxed immediately if the conditions are satisfied.

Question 28

How should a gain of a gift of qualifying shares be treated?

Answer 28

1. Not all of the gain may be eligible for relief where a personal company has greater than 5% investment in net assets. 2. ER may be available on remaining gain if conditions satisfied.

Question 29

How do we calculate the relief on the gain for qualifying shares?

Answer 29

Total Gain x (MVCBA/MVCA) ``` CA = Chargeable Assets CBA = Chargeable Business Assets (i.e CA except investments) ```

Question 30

What are the anti-avoidance rules surrounding gift relief?

Answer 30

If the transferee ceases to be resident within six years from the end of the tax year of receiving the gift, the gain held over (deferred) will be assessed on them immediately before they change residence.

Question 31

When is rollover relief given?

Answer 31

When the proceeds from the sale of a qualifying asset used in the trade of the taxpayer is reinvested in a replacement qualifying asset used in the trade of the taxpayer.

Question 32

To whom is rollover relief available?

Answer 32

To both individuals and companies.

Question 33

What constitutes a qualifying asset for the purpose of rollover relief?

Answer 33

- Land and Buildings - Fixed Plant & Machinery - Ships, Aircraft, Hovercraft - Goodwill (Individuals Only)

Question 34

What are the timing conditions in order for rollover relief to hold?

Answer 34

The purchase of the replacement asset must occur within 12 months before or 36 months after the disposal of the original asset.

Question 35

What is taxed now and what is deferred with rollover relief?

Answer 35

Any proceeds not reinvested in a qualifying asset are deducted from the gain to be rolled over and taxed immediately. The deferred gain is realised by reducing the base cost of the replacement asset by the rollover relief as to realise a larger gain upon selling the replacement asset at a later date.

Question 36

Why do we treat depreciating assets differently for rollover relief?

Answer 36

There is a risk that the deferred gain on the replacement asset will not be a larger gain (therefore the deferred tax cannot be recovered by HMRC) if the depreciation on the assets reduces the value of the proceeds further than the reduction in the base cost.

Question 37

What is the definition of a depreciating asset for rollover relief purposes?

Answer 37

Asset with an expected life of less than 60 years or fixed plant and machinery.

Question 38

How is rollover relief implemented on a depreciating asset?

Answer 38

The deferred gain is not deducted from the base cost of the new asset and instead is postponed to the earliest of: - disposal of new asset - date new asset ceases to be used in the trade - 10 years after new asset was acquired

Question 39

What is incorporation relief?

Answer 39

Sale of assets from the sole trader to the company which is being incorporated. Incorporation results in chargeable gains or losses from the sale of the chargeable assets.

Question 40

How is incorporation relief given?

Answer 40

By reducing the base cost of the any shares that are received as consideration from the company.

Question 41

True or False: Incorporation relief is automatic.

Answer 41

True - however you can elect to have incorporation relief not apply.

Question 42

What is the deadline for incorporation relief to be de-elected?

Answer 42

Within two years of 31 January following the end of the tax year in which the business was incorporated.

Question 43

What are the three conditions for incorporation relief to be able to apply?

Answer 43

- Must transfer ALL assets to the company (excluding cash) - Business must be transferred as a going concern - The consideration must be wholly or partly in shares

Question 44

How is incorporation relief calculated?

Answer 44

Gain Deferred = Gain x (MV shares received/MV total consideration).