Topic 4

Question 1

What happens if a loss is made on disposal of an asset?

Answer 1

The loss can generally be offset against gains made elsewhere.

Capital losses can be carried forward.

Question 2

When is CGT normally payable?

Answer 2

Normally 31st January following the end of the tax year in which the gain is realised.

Question 3

What costs can be added to the purchase price of an asset to reduce the size of the gain?

Answer 3

• The costs of purchase (eg solicitor costs)
• The costs of selling (eg solicitor costs)
• The cost of improvements

Question 4

How do you calculate CGT liability?

Answer 4

1 - Calculate the amount of the gain

2 - Deduct the CGT annual exempt amount

3 - Deduct any losses that can be offset against the gain

4 - What remains is the taxable gain

5 - Add taxable gain to taxable income to establish what rate(s) of CGT should be paid

6 - Apply tax at appropriate rates.

Question 5

What four reliefs are available for CGT?

Answer 5

• Private residence relief (main/only residence)
• Business asset disposal relief (when selling a trading business, set criteria applies)
• Roll-over relief (if a disposed asset is replaced by another business asset)
• Hold-over relief (if an asset is gifted CGT due can be deferred until the recipient disposes of it)

Question 6

What is the criteria for business asset disposal relief?

Answer 6

Individual must own at least 5% of the ordinary share capital and have at least 5% of the voting rights in the company.

Question 7

Who pays corporation tax?

Answer 7

• Limited companies
• Clubs
• Societies and associations
• Trade associations
• Housing associations
• Co-operatives

Question 8

When is corporation tax normally due?

Answer 8

• For companies with profits up to a set threshold it is due 9 months after the end of the relevant accounting period.
• For those above the threshold it is due in quarterly instalments beginning approximately halfway through the accounting period.