Capital Gains Tax Overview
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Questions and Answers

Which of the following are considered chargeable persons for capital gains tax (CGT) purposes in the UK?

  • Individuals resident in the UK (correct)
  • Charities
  • Companies paying corporation tax
  • Non-resident individuals

    • Which of the following are considered chargeable disposals for CGT purposes?

  • Sale of an asset
  • Gift of an asset
  • Loss or destruction of an asset
  • All of the above (correct)

    • Transfers of assets on death are exempt from CGT.

    True (A)

    Gifts to charities are subject to CGT.

    <p>False (B)</p> Signup and view all the answers

    Personal use currency is exempt from CGT.

    <p>True (A)</p> Signup and view all the answers

    National Savings Certificates and premium bonds are subject to CGT.

    <p>False (B)</p> Signup and view all the answers

    Which of the following is NOT an allowable deduction for CGT purposes?

    <p>Interest paid on a loan taken out to purchase the asset (D)</p> Signup and view all the answers

    What is the annual exempt amount (AEA) for CGT in 2023/24?

    <p>£6,000</p> Signup and view all the answers

    Unused AEA can be carried forward to future tax years.

    <p>False (B)</p> Signup and view all the answers

    What is the CGT rate for gains on residential property that is NOT your main residence?

    <p>28% (A)</p> Signup and view all the answers

    What are the main steps to compute CGT payable by an individual?

    <p>All of the above (F)</p> Signup and view all the answers

    When is the date of disposal usually determined for CGT purposes?

    <p>Date of agreement to transfer the asset (C)</p> Signup and view all the answers

    Flashcards

    Capital gains tax

    Tax on chargeable gains from asset disposals by chargeable persons.

    Chargeable persons

    Individuals in the UK, excluding companies that incur corporation tax instead of CGT.

    Chargeable disposal

    Selling, gifting, or losing an asset can lead to chargeable gains.

    Exempt from CGT

    Some transfers like death or gifts to charities don't incur CGT.

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    Exempt assets a-d

    Cars, main residences, wasting chattels, and personal use currency are exempt from CGT.

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    Exempt assets e-k

    Other exemptions include medals, savings certificates, lottery winnings, ISAs, and compensation.

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    Calculation of capital gains

    CGT applies to taxable gains when assets are disposed of, not appreciated.

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    Steps to compute CGT

    Calculate gains/losses, net them, deduct exemptions and losses, and compute CGT payable.

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    Disposal proceeds

    The amount received from selling an asset, minus incidental costs.

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    Market value in disposals

    Used when deals aren't at arms-length, like gifts or connected transfers.

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    Connected person

    Individuals connected by marriage, relatives, or business partnerships affecting CGT.

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    Allowable deductions

    Costs of acquisition, enhancements, or incidental expenses can be deducted from gains.

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    Basis of CGT

    Tax is based on gains from disposals in the current fiscal year.

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    Annual Exempt Amount (AEA)

    Taxpayer can exempt £6,000 of gains; unused amount is lost.

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    AEA unutilized

    Unused AEA cannot be carried forward and is wasted in the tax year.

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    Rates of CGT

    CGT varies based on income level and type of asset sold, particularly residential property.

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    Rate of CGT (1)

    CGT rates depend on taxable income and do not combine with gains in computations.

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    Rate of CGT (2)

    Gains under basic rate band are taxed at 10%; excess gains at 20%.

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    Steps to CGT computation

    Identify gains or losses, check for reliefs, deduct losses/exemptions to find CGT liability.

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    Date of disposal

    Contract date for asset transfer; conditions determine the actual date.

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    Study Notes

    Capital Gains Tax (CGT)

    • Capital gains tax (CGT) is levied on chargeable gains arising from the chargeable disposal of chargeable assets by a chargeable person.
    • Chargeable persons include UK residents. Companies pay corporation tax on gains, so they are not subject to CGT.
    • Chargeable disposals include sales, gifts, and losses/destruction of assets.
    • Some assets are exempt from CGT; these include transfers on death, and gifts to charities.
    • Certain assets are also specifically exempt, for example: cars, main residences, wasting chattels (like greyhounds or racehorses), currency, medals (inherited, not purchased), national savings certificates, lottery winnings, stock, ISAs, damages, and life insurance policies.

    Calculating CGT for Individuals

    • Individuals are taxed on taxable gains from all assets disposed of in a tax year.
    • CGT liability only arises when an asset is disposed of; appreciation does not trigger it.
    • The steps to compute CGT payable are:
      • Calculate gain/loss for each asset separately.
      • Calculate net chargeable gains (gains minus allowable losses).
      • Deduct the annual exempt amount.
      • Deduct capital losses carried forward.
      • Calculate CGT payable.

    Key Terms and Concepts

    • Disposal proceeds: Normally the sale price, minus incidental costs (e.g., agent fees).
    • Market value substitution: Used when the disposal wasn't at arm's length (e.g., gifts, transfers between connected people).
    • Connected person: Spouse, relatives, business partners, and their spouses, for CGT purposes.
    • Allowable deductions: Acquisition cost, enhancement expenditure (improvements), and incidental costs of acquisition.
    • Basis: Tax on gains from current-year disposals.
    • Annual Exempt Amount (AEA): £6,000 in 2023/24. Unused AEA is lost, not carried forward.
    • CGT Rates: Normal rates (10%, 20%) apply, with specific rates for residential properties (18%, 28%). Main residences are exempt.
    • Date of disposal: Usually the date of the contract, or when conditions are met for a conditional contract.

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    Description

    This quiz covers the fundamentals of Capital Gains Tax (CGT), including chargeable persons and disposals. Test your knowledge on various exemptions and the calculation process for individuals. Ideal for those looking to understand CGT implications in the UK.

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