Individual Taxation - Capital Gains Tax Flashcards
(24 cards)
What 4 conditions must be met for CGT to apply?
- A chargeable disposal
- of a chargeable asset
- by a chargeable person
- giving rise to a chargeable gain
When is a CGT due for a disposal made in a tax year?
On or before 31 January following the end of the tax year in which the disposal occurs
What are the main 2 types of chargeable disposal
- Sale of an Asset
- Gift of an asset during lifetime (no CGT on death)
What assets are exempt from CGT?
- Principal Private Residence
- Motor vehicles for private use
- Certain investments (eg. ISAs)
- UK and foreign currency for personal use
What is the CGT treatment of disposals between spouses or civil partners?
Treated as made at no gain/ no loss. The receiving spouse inherits the original base cost
What is the CGT treatment of disposals between connected persons?
The disposal is deemed to be at market value, even if no money or reduced consideration was exchanged
Who is classed as a connected person for CGT purposes?
- Relatives
- Spouses of relatives
- Companies under common control
- Business partners
(not spouses of the disposer)
What is the basic formula to calculate capital gain?
Sale proceeds-disposal expenditure = net sales proceeds-initial expenditure(purchase costs)- subsequent enhancement/title expenditure=chargeable gain
What expenses are deductible when calculating a capital gain?
- Disposal expenses (e.g. agents fees)
- Acquisition cost and incidental purchase fees
- Enhancement costs and costs of defending or proving ownership
How are capital losses used?
- Must first be used against gains in the same year
- Unused losses may be carried forward indefinitely, but must be used against the first available gains
What is the annual exemption for CGT?
£3k of gains tax free. Only applies to individuals not companies
CGT rates for individuals?
18% for gains within basic rate band
24 % for gains falling in the higher or additional rate bands
How to determine which CGT rate to apply?
Add the person’s Taxable Income to their Taxable Chargeable Gains:
- If the combined total is below £37.7k charge at 18%
- If over, apply 24%
- If it straddles the threshold, split and apportion the gain accordingly
Do companies pay CGT?
No - companies pay corporation tax on chargeable gains
What does Business Asset Disposal Relief (BADR) do?
Reduces CGT on qualifying business disposals to 10%, up to £1million lifetime limit
What are the conditions for BADR on a business disposal?
- Business must be a trading business
- Must have been owned for 2 years prior to disposal
What are the conditions for BADR on share disposal?
- Trading company
- Shares held for 2 years
- Disposal person is an employee/officer
- Owns at least 5% of shares, profits and net assets for 2 years
Is BADR automatic?
No - a claim must be made by the first anniversary of the 31st January following the end of the tax year of the disposal
What is investors’ relief?
CGT relief allowing qualifying investors to pay 10% CGT, subject to a £1 million lifetime cap, on shares held for 3 years
What are the key conditions for IR?
- unlisted trading company
- shares fully paid, acquired for cash on or after 17 March 2016
- shares held for 3 years from 6 April 2016
- Investor is not an employee or officer
What is rollover relief?
Allows gains from disposal of a business asset to be rolled into a replacement asset, deferring CGT until the new asset is sold
What does rollover relief apply to?
- Land and buildings
- fixed plant/machinery
- goodwill
- Asset must be replaced within time limits
What is hold-over relief?
Allows a gift of a business asset to be treated as made without CGT liability for the donor; the donee assumes the donor’s base cost, deferring CGT until the donee disposes of the asset
What assets qualify for hold-over relief?
- Goodwill
- Business property
- Unquoted trading company shares
