Chargeable Gains for Individuals

Question 1

capital gains pro forma?

Answer 1

gain on asset 1 xxx
less loss on asset 2 (xxx)
equals: chargeable gains xxx

less: annual exempt amount (xxx)
less: loss b/f (xxx)

equals: taxable gains xxx

Question 2

taxable gains that fall into unused BRB?

Answer 2

10% CGT

Question 3

taxable gains above BRB?

Answer 3

20% CGT

Question 4

tax rate for residential gains in unused BRB?

Answer 4

18%

Question 5

tax rate for residential gains above BRB?

Answer 5

24%

Question 6

what should be taxed first?

Answer 6

non-residential gains

to utilise the 10%

Question 7

annual exempt amount (AEA)?

Answer 7

3,000

deducted from total chargeable gains to calculate taxable gain for the tax year

Question 8

if AEA is not used in a tax year, what happens?

Answer 8

it’s wasted

Question 9

how is the AEA used?

Answer 9

it’s offset against residential gains

to avoid the higher tax rates (18% & 24%)

Question 10

when is CGT payable?

Answer 10

by 31 Jan following the end of the tax year

Question 11

is there an alternative way to pay CGT?

Answer 11

election can be made to pay CGT in 10 equal yearly instalments only if the gift was:
- land
- controlling shares
- shares in an unquoted corp

Question 12

when is CGT payable for non-residential property?

Answer 12

within 60 days of disposal

Question 13

what happens when a residential property is jointly owned?

Answer 13

gain must be divided based on ownership %

Question 14

when is no UK land return required?

Answer 14

if:
- gain is covered by private residence relief
- disposal gives rise to a loss
- gain is covered by AEA

Question 15

how do you calculate tax due on disposal?

Answer 15

• deduct unused capital losses b/f
• deduct current year capital losses
• deduct AEA

Question 16

a reasonable estimate of a taxpayer’s taxable income is used to determine…

Answer 16

the remaining BRB available

Question 17

how is the remaining BRB available predicted?

Answer 17

a reasonable estimate of the taxpayer’s income is determined

Question 18

how are payments on account handled?

Answer 18

deducted from CGT liability to give final tax payable

Question 19

when does a capital loss arise?

Answer 19

when allowable costs exceed net proceeds

Question 20

how are current year capital losses handled?

Answer 20

deducted from capital gains

Question 21

how are excess capital losses handled?

Answer 21

carried forward to future years

Question 22

how should current year capital losses be used?

Answer 22

offset against residential gains to reduce the higher rate of tax

Question 23

how are capital losses brought forward handled?

Answer 23

deducted after current year capital losses and AEA

less: CY capital losses
less: AEA
less: capital losses b/f

Question 24

what happens if capital losses b/f aren’t used in a tax year?

Answer 24

they’ll continue to be brought forward to future years

Question 25

what happens when a spouse transfers to one another?

Answer 25

no capital gain or loss arises this is known as a no gain/no loss transfer (NGNL)

Question 26

how do NGNL transfers impact both parties?

Answer 26

transferor: - initial acquisition cost is used as proceeds transferee: - initial acquisition cost is used (these rules only apply when spouses are not separated)

Question 27

how do NGNL rules help minimise CGT liabilities?

Answer 27

by using: - both AEAs - unrelieved capital losses - both BRBs

Question 28

connected persons?

Answer 28

- spouse (& their relatives) - relatives (& their spouses) - business partners (& their spouses & relatives)

Question 29

how are disposals between connect persons handled?

Answer 29

when not covered by NGNL rules, deemed proceeds are MV at the date of disposal

Question 30

how are losses incurred on disposals to connected persons handled?

Answer 30

losses incurred on disposals to connected persons can only be offset against gains made to THE SAME connected person

Question 31

where only a part of an asset is disposed of, how is the acquisition cost calculated?

Answer 31

cost x a/(a+b) a = mv when disposed of b = mv of part retained

Question 32

a?

Answer 32

mv when disposed of

Question 33

b?

Answer 33

mv of part retained

Question 34

how are incidental costs handled for part disposals?

Answer 34

- if they relate to solely the part sold: deduct in full - if they relate to the whole asset: apportion in same way as cost

Question 35

how are disposals of shares handled?

Answer 35

it's necessary to have matching rules to identify which shares are being sold and the allowable cost to use in the CGT computation

Question 36

categories for matching shares disposed of?

Answer 36

- shares acquired on same day of disposal - shares acquired within 30 days after disposal (FIFO) - shares bought prior to disposal date (share pool)

Question 37

when quoted shares are gifted...

Answer 37

mv (proceeds) are: - lower quoted price + 1/2*(higher quoted price - lower quoted price) half up rule

Question 38

what is a bonus issue?

Answer 38

an issue of free shares to existing shareholders in proportion to their existing holdings e.g., Bob has 500 shares, he gets a bonus issue of 20% to bump up to 600 shares

Question 39

how are bonus issues handled?

Answer 39

add extra shares to the s104 pool at nil cost (share pool)

Question 40

scope of CGT?

Answer 40

charged on chargeable disposals of chargeable assets by chargeable persons

Question 41

chargeable disposal?

Answer 41

sale/gift of all/part of an asset excludes gifts to charities & assets transferred between spouses

Question 42

exempt assets for CGT?

Answer 42

- cash - cars - bonds - national savings certificates - premium bonds - winnings - ISAs - wasting chattels - non-wasting chattels bought & sold for less than 6,000

Question 43

disposal consideration?

Answer 43

proceeds received or MV if not made at arms length

Question 44

acquisition cost of an asset is...

Answer 44

proceeds when sold MV when gifted probate value when inherited

Question 45

wasting chattels?

Answer 45

chattels with less than 50yrs useful life

Question 46

if disposed of for 6000 or less & acquired for 6,000 or less...

Answer 46

any gain is exempt & any loss is allowable

Question 47

if disposed of for 6000 or more & acquired for 6000 or less...

Answer 47

there's a marginal relief for the gain 5/3*(gross proceeds less 6000)

Question 48

if disposed of for 6000 & acquired for more than 6000...

Answer 48

allowable loss is calculated in normal way

Question 49

if proceeds are 6000 or less & acquired for 6000 or more...

Answer 49

allowable loss is restricted acquisition cost - 6000 (treat proceeds as they are 6000)

Question 50

incidental costs related to purchase?

Answer 50

treated the same as the purchase price total cost * a/(a+b)

Question 51

incidental costs related to disposal?

Answer 51

deducted alongside purchase price to calculate gain/loss

Question 52

rights issue?

Answer 52

when shareholders buy shares at a PREFERENTIAL rate