F6 Taxation (UK). Section A: The UK tax system Section B: Income tax liabilities Section C: Chargeable gains Section D: Corporation tax liabilities Section.

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Presentation transcript:

F6 Taxation (UK)

Section A: The UK tax system Section B: Income tax liabilities Section C: Chargeable gains Section D: Corporation tax liabilities Section E: Inheritance tax Section F: National insurance contributions Section G: Value Added Tax Section H: The obligations of tax payers and/or their agents Taxation (UK)

Designed to give you the knowledge and application of: Section C: Chargeable gains C1. The scope of the taxation of capital gains C2. The basic principles of computing gains and losses C5. Gains and losses on the disposal of shares and securities C6. The use of exemptions and relief in deferring and minimising tax liabilities arising on the disposal of capital assets

C1: The scope of capital gains tax  Describe the scope of capital gains tax. [2]  Explain how the residence and ordinary residence of an individual. [2]  List those Assets which are exempt. [1] Learning Outcomes

 Compute capital gains for both individuals and companies. [2] Learning Outcomes C2: The basic principles of computing gains and losses

CGT is a charge on the increase in value of an asset over the period of ownership. The capital gains of a limited company and an individual have similarities and also differences. Capital gains tax (CGT) CompanyIndividual IncomeCapital gains are part of taxable total profits Totally separate from income tax, Capital gains are charged to CGT AllowanceIndexation allowance (to allow for inflation) is given. The indexation allowance is not applicable for individuals. ReliefRollover reliefEntrepreneur's relief on disposal of business Rollover relief Holdover relief for gift of business asset Rollover relief when business is incorporated The scope of capital gains tax

Chargeable person:  An individual resident or ordinarily resident in the UK and making a chargeable disposal pays capital gains tax  Companies pay tax on their chargeable disposals, but pay corporation tax, rather than capital gains tax Chargeable disposal:  The sale of an asset  The sale of part of an asset (e.g. selling a 40% share of a house)  The gift of an asset (e.g. giving an expensive necklace to your daughter as a gift)  The loss or destruction of an asset (e.g. an insurance receipt in respect of a fire damaged property). Chargeable asset : All capital assets are chargeable, unless specifically exempt. This applies to all assets wherever in the world they may be located. Liability to tax arises if there is a chargeable disposal of a chargeable asset by a chargeable person.

£ Disposal considerationX Less: Incidental costs of disposal(X) Net disposal considerationX Less: Allowable deductions Acquisition costs (including incidental costs)(X) Enhancement expenditure(X) Net gain / (loss)X For individuals The capital gains for both individual and companies

£ Disposal considerationX Less: Incidental costs of disposal(X) Net disposal considerationX Less: Allowable deductions Acquisition costs (including incidental costs)(X) Enhancement expenditure(X) Unindexed gainX Less: Indexation allowance(X) Net indexed gain / (loss)X For companies The indexation allowance is applicable only to companies. Continued…

Example Doll Plc and Dot Plc are sister companies (i.e. both companies are managed by the same group of people). During , Doll Plc sold its industrial building to Dot Plc for £100,000, when the actual market value of the same building was £150,000. As the transaction is between two connected persons, the market value on the date of sale (i.e. £150,000) is deemed to be sale proceeds and not the actual amount paid (i.e. £100,000), for the calculation of capital gains. Method of disposalDisposal proceeds SaleSale proceeds Sale to a connected personMarket value GiftMarket value Transfer to spouse / civil partnerSpecial rules Refer to Example (Linda) on page 232 Continued…

RECAP  Describe the scope of capital gains tax. [2]  Explain how the residence and ordinary residence of an individual is determined. [2]  List those assets which are exempt. [1]  Compute capital gains for both individuals and companies. [2]