BTAX Business Taxation Session 7: CGT

Topics Chargeable gains and exemptions Calculate gains and CGT Losses Part disposals, chattels, shares Reliefs (Entrepreneurs, Rollover, Gift) Administration of CGT 2

Chargeable Disposals of Assets Sell Give away Lose Destroy 3

Exempt Gains In what circumstances are gain exempt from CGT?

Exempt Assets for businesses Trading stock Chattels bought and sold for less than £6,000 Cars Government Securities or Gilts Animals

Connected person Who is a connected person?

Connected person What is different about gains when selling to a connected person

Calculate Gain Proceeds - Costs of disposal =Net proceeds - Original cost (+ incidental costs) - Improvements = Gain

Calculate CGT Total gains for year - Annual exemption = Gains subject to CGT Gains @ 10% or 18% + Gains @ 20% or 18% = CGT

Capital losses How do you deal with capital losses?

Calculate CGT with losses Total gains for year - Losses for year - Annual exemption - Losses b/f = Gains subject to CGT Gains @ 10% or 18% + Gains @ 20% or 28% = CGT

Calculate CGT: mixed gains RESIDENTIAL OTHER TOTAL Total gains for year X X - Losses for year (X) (X) - Annual exemption (X) (X) - Losses b/f (X) (X) = Gains subject to CGT X X Gains @ 18%/10% X X + Gains @ 28%/20% X X = CGT X Question 7.1

Issues in common with companies Links with Capital Allowances Improvement expenditure Chattels rules Part disposals Rollover Relief

Part-disposal How do you calculate the cost? 14

Chattels: How do you calculate the gain? Bought & sold for <£6,000 Bought for >£6,000 sold for <£6,000 Otherwise

Shares: match sale to purchase What is the priority? Remember: No Indexation Allowance

Disposal of a business Each individual asset is considered as a separate chargeable event Non current asset disposals need to be considered according to usual rules Goodwill is a chargeable asset

Rollover Relief Available for Companies and Individual businesses Applies when one business asset is sold and another is purchased Defers or postpones the gain until new asset is sold Gain can be deferred with each sale if rules complied with CGT-shares

Rules: category of assets Land & buildings Immovable plant & machinery Ships, Aircraft, Hovercraft Milk and fish quotas Space craft CGT-shares

Rules New asset must be purchased within three years after sale of old asset or one year before New asset must be brought into use by business CGT-shares

Partial reinvestment What if only part of the proceeds is spent on the new asset? Full gain can be deferred if all proceeds invested in new asset If partial reinvestment, then amount not reinvested becomes immediately chargeable Question 7.2 Example page 4.24 Students try M Ltd Students try D Ltd Students try 4.5 page 4.29 CGT-shares

Gift Relief : Individuals only Applies when an individual gives away business assets to connected party Disposal proceeds will be deemed to be at market value Election must be made by both parties Also applies to sales at undervalue

Gift Relief Donor does not have a CGT liability Gain on gift deducted from base cost of asset for recipient Gain will emerge when recipient sells asset Questions 7.4 Page 8.17 Jan Nice Handout questions 7,8,9 Students 8.4

Entrepreneur’s Relief On disposal of all or part of a trading business OR Disposal in shares of a personal trading company. Charged at rate of 10% (not 18% or 28%) Lifetime limit £10,000,000 Excludes goodwill on incorporation Questions 7.5 Example Dunn Trading page 8.15 Students 8.2 & 8.5

Administration of CGT Payment date: by 31st January following end of tax year No POA Retain all relevant records on assets held while still retain assets On disposal of assets, retain records for 5 years after deadline for submission of tax return If deferral reliefs claimed, retain records until all assets disposed of

Homework Tutorial book questions 8.2, 8.3, 8.4, 8.5, 8.1, 8.6, 8.7, 8.8 Make notes from chapter 8