1. F6 Taxation (UK)

2. 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)

3. Designed to give you 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

4. C2: Principles Of Computing Gains And Losses Learning Outcomes  Calculate the indexation allowance available to companies. [2]  Compute the amount of capital gains tax payable. [2]

5. The indexation allowance is calculated using the movement in the RPI (Retail Price Index). Each item of allowable expenditure is multiplied by the indexation factor. The formula for indexation factor is: = RPI for the month of disposal – RPI for the month of acquisition RPI for the month of acquisition (where RPI is retail price index) Indexation allowance (companies)  The IA must be rounded off to three decimal places  The IA cannot be used to create or increase a loss  The IA is calculated for each item of expenditure separately (such as cost of disposal, enhancement expenditure and so on). The indexation allowance (IA) available to companies Refer to Example (Multi Ltd) on page 234

6. The amount of capital gains tax payable Capital gains tax An individual pays capital gains tax on his taxable gains. Taxable gains are calculated as follows:  Deduct current capital losses and brought forward capital losses from net capital gains to give chargeable gains.  Chargeable gains are reduced by the annual exemption (£10,100 for 2010 -11) to give taxable gains.  After the calculation of taxable gains, Capital gains tax liability is calculated at the lower rate of 18% or the higher rate of 28% depending upon the taxable income of an individual.  Capital gains tax is collected as part of the self-assessment process. It is due on 31 January following the tax year. Payments on account are not needed. Therefore capital gains tax liability for tax year 2010-11 will be payable on 31 January 2012. Continued…

7. Calculation of taxable gains£ Net capital gainX Less: Current year capital loss(X) X Less: Brought forward capital loss(X) Chargeable gainX Less: Annual exemption(X) Taxable GainsX If the amount of chargeable gain for a year (as calculated above) is less than the annual exemption, the assessment is nil and any unused annual exemption is lost. Available for individual only Refer to Example (Suzy) on page 238 Continued…

8. RECAP  Calculate the indexation allowance available to companies. [2]  Compute the amount of capital gains tax payable. [2]