technical
capital gains tax questions
relevant to Professional Scheme Papers 2.3 and 3.2 (GBR)
question time
Paper 3.2 builds on the knowledge
acquired from Paper 2.3, Business Taxation.
As a revision aid, student accountant has
published over 300 short-form questions
during the past few months, written by
Pattie Laycock. The questions cover the core
areas of the Paper 2.3 syllabus. In this
article, we focus on capital gains. The
questions are based on the Finance Act
2003 and are relevant to the December
2004 exam session.
Q1 On 10 December 2003, Walter
disposed of a 30% shareholding in
A Ltd, an unquoted trading company.
The shares were acquired in August
2001, and their disposal resulted in a
capital gain of £60,000. Calculate
Walter’s chargeable gains after annual
exemption.
A1
£ £
Shareholding in
A Ltd 60,000
Gain after taper relief 15,000
(@75%)
Less annual
exemption (7,900)
Chargeable gains 7,100
A Ltd is a qualifying company for
business asset taper relief as it is an
unquoted trading company. Maximum
taper relief is available, as the shares
have been held for two complete years.
student accountant November/December 2004
Q2 On 9 November 2003, Ivan disposed of Q4 On 6 October 2003, Jane disposed of
a 1% shareholding in A plc, a quoted a 25% shareholding in A Ltd, an
trading company. The shares were unquoted trading company. The shares
acquired in May 1996 and their were acquired in July 2001. Give the
disposal resulted in a capital gain, after percentage of taper relief available.
indexation, of £80,000. Ivan is not an A4 Percentage of taper relief: 75%. A Ltd
employee of A plc. Calculate Ivan’s qualifies as a business asset as it is an
chargeable gain after annual exemption. unquoted trading company. Maximum
A2 taper relief is available, as the shares
£ £ have been held for two complete years.
Shareholding in
A plc 80,000 Q5 On 16 August 2003, Julie disposed of
Gain after taper relief 64,000 a 10% shareholding in A plc, a quoted
(@20%) trading company. Julie is not an
Less annual employee of A plc. The shares were
exemption (7,900) acquired in July 2001. Give the
Chargeable gain 56,100 percentage of taper relief available.
A5 Percentage of taper relief: 75%. A plc
A plc is not a qualifying company for qualifies as a business asset as it is a
business asset taper relief as it is quoted trading company and Julie’s
quoted, Ivan is not an employee, and holding is at least 5%. Maximum taper
the shareholding is less than 5%. Taper relief is available, as the shares have
relief is based on six complete years of been held for two complete years.
ownership as the shares were acquired
before 17 March 1998. Q6 On 10 January 2004, Janette disposed
of a 3% shareholding in A plc, a
Q3 Eva has capital gains, after annual quoted trading company. Janette is an
exemption and taper relief of £50,200 employee of A plc. The shares were
for 2003/04. She has taxable income acquired in July 2002. Give the
of £22,600 for 2003/04. Calculate her percentage of taper relief available.
capital gains tax liability for 2003/04. A6 Percentage of taper relief: 50%. A plc
A3 qualifies as a business asset as it is a
£ quoted trading company and Janette is
Capital gains tax an employee. Taper relief of 50% is
7,900 (30,500 - 22,600) available, as the shares have been held
at 20% 1,580 for one complete year.
42,300 (50,200 - 7,900)
at 40% 16,920
18,500
 technical
Q7 Describe the types of shareholding Q9 On 16 September 2003, Denise sold Q11 State the conditions that must be met
that qualify as a business asset for the 10,000 £1 ordinary shares in A Ltd to in order that rollover relief can be
purposes of CGT taper relief. her son for £87,500 when their market claimed (categories of qualifying asset
A7 A qualifying company is: value was £250,000. The shareholding not required).
1 a trading company which is either: was purchased on 16 April 1985 for A11 1 The reinvestment must take place
i unquoted or £22,500; the indexation allowance to between one year before and three
ii quoted, provided the April 1998 is £16,000. Denise and her years after the date of disposal of
shareholder is son are to elect to holdover the gain as the original asset.
an employee of the a gift of a business asset. Calculate 2 The old and new assets must both
company, or Denise’s capital gain. be qualifying assets and be used
holds at least 5% of the A9 for business purposes.
shares of the company. £ 3 The new asset must be brought
2 a non-trading company provided Proceeds (market value) 250,000 into business use at the time that it
the shareholder: Less: cost (22,500) is acquired.
i is an employee of the company 227,500
and Less: indexation allowance (16,000) Q12 List the categories of asset that qualify
ii does not hold more than 10% 211,500 for rollover relief for a company.
of the shares of the company. Less: gift relief A12 1 land and buildings
(cannot cover 87,500 - 2 fixed plant and machinery.
Q8 On 20 August 2003, Venta sold 20,000 22,500 = 65,000 of gain) (146,500)
£1 ordinary shares in A Ltd, an unquoted Chargeable gain before Q13 List the categories of asset that qualify
trading company, for £82,500. She had taper relief 65,000 for rollover relief for an individual.
acquired shares as follows: Gain after taper relief 16,250 A13 1 land and buildings
7 July 2002 25,000 shares for (@75%) 2 fixed plant and machinery
£56,250 3 goodwill.
23 August 2003 5,000 shares for Q10 Felicity disposed of three business
£22,500 assets in 2003/04, realising the Q14 On 1 May 2003, Charlotte sold 10,000
Calculate Venta’s capital gain. Ignore the following gains and losses: £1 ordinary shares in A Ltd, an unquoted
annual exemption. trading company, to her daughter, for
A8 1 Disposal of 5,000 shares Qualifying Gain/ £60,000, when the market value of the
purchased 23.8.03 period for (loss) shares was £88,000. The shares were
£ taper relief £ purchased on 1 August 1997 for
Proceeds 82,500 x Asset (1) 1 year 18,750 £30,400. Charlotte and her daughter
5,000/20,000 20,625 Asset (2) 1 year (1,250) have elected to holdover the gain as a
Less: cost (22,500) Asset (3) 2 year 52,000 gift of a business asset. Calculate
Loss (1,875) Calculate Felicity’s capital gains after Charlotte’s chargeable gain (ignore the
taper relief for 2003/04. indexation allowance).
2 Disposal of 15,000 shares A10 A14
purchased 7.7.02 £ £ £
Asset (1) Deemed proceeds 88,000
Proceeds 82,500 x Gain 18,750 Less: cost (30,400)
15,000/20,000 61,875 Asset (2) 57,600
Less: cost 56,250 x Loss (1,250) Gift relief (57,600 - 29,600) 28,000
15,000/25,000 (33,750) 17,500 29,600
28,125 Gain after taper relief Gain after taper relief 7,400
(@50%) 8,750 (@75%)
Gain 28,125 Asset (3)
Loss (1,875) Gain 52,000 Consideration paid for the shares
26,250 Gain after taper relief exceeds allowable cost by £29,600
(@75%) 13,000 (60,000 - 30,400). This amount is
Taper relief x 50% 13,125 21,750 immediately chargeable to CGT.

November/December 2004 student accountant

technical
Q15 On 9 December 2003, Sandra sold a A16
freehold factory for £219,000. The £ for holdover relief.
factory was purchased on 1 November Goodwill
1998 for £108,000. Only 75% of the Proceeds 125,000
factory has been used for business Less: cost Nil
purposes. Sandra has claimed to 125,000
rollover the gain against the cost of a Incorporation relief
new factory purchased on 15 (125,000 - 25,000) (100,000)
December 2003 for £234,000. The 25,000
new factory is used 100% for business Gain after taper relief 12,500
purposes. Calculate Sandra’s (@50%)
chargeable gain.
A15 1 The proportion of the gain relating
£ to the cash consideration cannot be
Disposal proceeds 219,000 rolled over, so £25,000 (125,000 x
Cost (108,000) 62,500/312,500) of the gain is
111,000 immediately chargeable to CGT.
Rollover relief 2 Taper relief is based on one
(111,000 - 27,750) (83,250) complete year of ownership.
27,750
Gain after taper relief 23,587 Q17 Bill has been in business as a sole
(@15%) trader since 1 June 1997. On
20 March 2004 he transferred the
The proportion of the gain relating to business to his son, Ben. Ben paid
non-business use is £27,750 £100,000 for the goodwill, which had
(111,000 x 25%) and this amount a market value of £120,000. The
does not qualify for rollover relief. The goodwill has been built up since the
chargeable gain relates to a business commenced, and has a nil
non-business asset. cost. Bill and Ben have elected to
holdover the gain. Calculate Bill’s
Q16 On 10 February 2003, Sally capital gain.
incorporated a business that she has A17
run as a sole trader since 1 April £ son for £270,000, when its market value
2001. The market value of the Deemed proceeds 120,000
business on 10 February 2003 was Less: cost Nil
£312,500. All of the business assets 120,000
were transferred to a new limited Gift relief
company, with the consideration (120,000 - 100,000) (20,000)
consisting of 250,000 £1 ordinary 100,000
shares valued at £250,000 and Gain after taper relief 25,000
£62,500 in cash. The only chargeable (@75%)
asset of the business was goodwill,
valued at £125,000 on 10 February 1 The consideration paid for the
2003. The goodwill has a nil cost. goodwill exceeds the allowable
Calculate Sally’s capital gain. cost by £100,000 (100,000 - nil).
This amount is immediately
chargeable to CGT.
2 Goodwill is a business asset.
Maximum taper relief is available
as the asset has been held for two
complete years.
student accountant November/December 2004
Q18 List the categories of assets qualifying
A18 1 Assets used in the trade of:
i the donor
ii the donor’s company where he
owns at least 5% of the shares.
2 Shares of trading companies where:
i the company is unquoted, or
ii the donor owns at least 5% of
the shares.
Q19 David bought a business asset for
£132,000 in July 2002. In February
2004 he sold it to his son for
£126,000, when its market value was
£156,000. David and his son have
elected to holdover the gain. Calculate
David’s capital gain.
A19
£
Deemed proceeds 156,000
Less: cost (132,000)
24,000
Gift relief (24,000)
Capital gain Nil
The consideration paid for the asset
does not exceed the allowable cost, so
the holdover relief is not restricted.
Q20 Tommy, a sole trader, brought a freehold
warehouse for £190,000 on 1 October
2001. In March 2004 he sold it to his
was £280,000. The warehouse has never
been used by Tommy for business
purposes. If possible, Tommy and his son
wish to elect to holdover any gain arising.
Calculate Tommy’s capital gain.
A20
£
Deemed proceeds 280,000
Less cost (190,000)
Capital gain 90,000
1 The warehouse does not qualify for
holdover relief as it is not a
business asset.
2 No taper relief is available as it is a
non-business asset, and has been
owned for less than three complete
years.
 technical
Q21 Jerome disposed of two assets in 2003/04: Q25 Janice made capital gains of £20,000
in 2003/04. She had an unused capital
Type of asset Qualifying period of Untapered gain loss brought forward of £14,000 from
ownership for taper relief 2002/03. Calculate Janice’s chargeable
£ gains for 2003/04 and the amount of
Asset (1) Business 3 years 80,000 any loss carried forward.
Asset (2) Non-business 2 years 15,000 A25
£
Jerome has unused capital losses of £8,000 from 2002/03. Jerome’s taxable income for Capital gains 20,000
2003/04 is £24,500. Calculate Jerome’s capital gains tax liability for 2003/04. Less: allowable losses brought
A21 forward (20,000 - 7,900) (12,100)
£ £ 7,900
Asset 1 80,000 Less: annual exemption (7,900)
Gain after taper relief (@75%) 20,000 Chargeable gains Nil
Asset 2 15,000 Capital losses carried forward
Less: capital loss brought forward (8,000) (14,000 - 12,100) 1,900
7,000
27,000 Brought forward capital losses need
Less: annual exemption (7,900) only be offset to the extent that gains
Chargeable gains 19,100 are not covered by the annual
exemption.
Capital gains tax
Q26 A plc disposed of a shareholding in an
£ unquoted trading company on 28
6,000 (30,500 - 24,500) x 20% 1,200 December 2003 for £200,000. The
13,100 (19,100 - 6,000) x 40% 5,240 shareholding was purchased on 7 July
6,440 1996 for £160,000. The indexation
allowance from July 1996 to April
Taper relief is maximised by setting the brought forward capital loss against the asset not 1998 is £9,200 and from July 1996
qualifying for taper relief. to December 2003 it is £21,200.
Calculate A plc’s chargeable gain.
A26
Q22 Elaine, a sole trader, brought a motor Q24 Jenny made the following capital gains £
car for £28,200 on 1 December and allowable losses in 2003/04: Proceeds 200,000
2003. In March 2004 she sold it to £ Less: cost (160,000)
her daughter for £24,000 when its Capital gains 20,000 40,000
market value was £30,000. The motor Allowable losses 13,000 Less: indexation allowance (21,200)
car has always been used by Elaine for Chargeable gain 18,800
business purposes. If possible, Elaine Calculate Jenny’s chargeable gains for
and her daughter wish to elect to 2003/04. The indexation allowance is calculated
holdover any gain arising. Calculate A24 from the month of purchase to the
Elaine’s capital gain. £ month of sale for a company.
A22 Capital gain: nil. Motor cars are exempt Capital gains 20,000
from CGT. Less: Allowable losses (13,000) Q27 Jessica purchased a non-business asset
7,000 on 1 November 1994 and sold it on 1
Q23 By what date should the capital gains Less: annual exemption (7,000) August 2003. What is the qualifying
tax liability for 2003/04 be paid? Chargeable gain Nil period for taper relief purposes?
A23 31 January 2005. A27 Six years. Five years from 6 April 1998
Current capital losses must be set off in to 5 April 2003 plus one further year
full: the set off cannot be restricted to because it was owned on 17 March
avoid wasting the annual exemption. 1998 and is a non-business asset.

November/December 2004 student accountant

technical

Q28 Veronica purchased a business asset A31 Q35 Give the period for which an individual
on 1 November 1994 and sold it on £ £ receives an indexation allowance.
1 August 2003. What is the qualifying Business asset after A35 Indexation allowance is given from the
period for taper relief purposes? taper relief (@75%) 15,000 month of purchase to April 1998.
A28 Five years. Five years from 6 April Non-business
1998 to 5 April 2003. Business assets asset 16,000 Q36 Sebastian acquired 2,200 shares in
do not qualify for one further year Capital loss (11,000) A Ltd as follows:
when owned on 17 March 1998. 5,000 31 May 2003 1,500 shares
20,000 30 June 2003 500 shares
Q29 Owen disposed of a 10% shareholding 10 March 2004 200 shares
in A Ltd, an unquoted trading The capital loss is set against the asset
company, on 15 December 2003. The not qualifying for taper relief. He sold 1,000 shares on 26 February
shares were acquired in June 2001 2004. Against which acquisitions would
and their disposal resulted in a capital Q32 In May 2003, Adam sold a business the shares disposed of be matched?
gain of £60,000. Calculate Owen’s asset that resulted in a chargeable A36 1 Acquisition in the following 30
gain after applying taper relief. gain of £15,000. The asset was days
A29 Tapered gain: 60,000 x 25% = acquired in 1989. He has capital 10 March 2004 200 shares
£15,000. The shareholding is a losses of £11,000 brought forward 2 Acquisitions post 5 April 1998
business asset. The qualifying period is from 2002/03. Calculate Adam’s (LIFO)
two years. gains chargeable to CGT, and any 30 June 2003 500 shares
capital losses carried forward. 3 Acquisitions post 5 April 1998
Q30 On 15 December 2003 Ian disposed A32 (LIFO)
of a 1% shareholding in A plc, a £ 31 May 2003 300 shares
quoted trading company. The shares Chargeable gain 15,000
were acquired in May 1996, and their Capital loss brought forward (7,100) Q37 Gerald had the following transactions
disposal resulted in a capital gain 7,900 in A Ltd’s shares:
(after indexation) of £80,000. Ian is Less annual exemption (7,900) February 2003 Purchased
not an employee of A plc. Calculate Nil 7,000 shares
Ian’s gain after applying taper relief. June 2003 Purchased
A30 Tapered gain 80,000 x 80% = Capital loss carried forward (11,000 - 1,000 shares
£64,000. The shareholding is a 7,100) £3,900. July 2003 Bonus issue of
non-business asset. The qualifying 1 The capital loss brought forward is one for five
period is six years. set against the untapered gain. October 2003 Sold 5,000
2 The set-off of the capital loss shares
Q31 For 2003/04 Peter has made the brought forward is restricted so as
following chargeable gains and capital not to waste the annual exemption. Show the shares against which the
losses: disposal would be matched.
1 a chargeable gain of £60,000 on Q33 Give the share matching rules for A37 1 Acquisitions post 5 April 1998
a business asset individuals. (LIFO)
2 a chargeable gain of £16,000 on A33 1 Shares acquired on the same day June 2003 1,200 shares
a non-business asset as the sale. 2 Acquisitions post 5 April 1998
3 a capital loss of £11,000. 2 Shares acquired within the 30 (LIFO)
days following the sale. February 2003 3,800 shares
All three assets were purchased 3 Shares acquired after 5 April 1998
during June 2001 and were sold (LIFO basis). The bonus shares are treated as being
during December 2003. Calculate 4 Shares in the 1985 pool. acquired on the same day as the
Peter’s gain after applying taper relief. underlying holding.
Q34 Give the period for which a company
receives an indexation allowance. February 2003 7,000 + 1,400 bonus
A34 Indexation allowance is given from the June 2003 1,000 + 200 bonus
month of purchase to the month of sale.

student accountant November/December 2004

 technical
Q38 Harriet purchased an asset qualifying Q41 Timothy bought a factory in June A44 The capital gain is held over until the
for rollover relief in March 1989 for 1990 for £510,000 (indexed to April earliest of:
£280,000 (indexed to April 1998). In 1998). In August 2003 he sold the the disposal of the depreciating
June 2003 she sold the asset for factory for £600,000 and purchased a asset
£350,000 and spent £370,000 in new factory in February 2004 for the depreciating asset ceases to be
November 2003 on a new qualifying £450,000. Calculate Timothy’s gain used for trading purposes, and
asset. Calculate the amount of and the base cost of the new factory. ten years have elapsed since the
expenditure that will be deductible A41 depreciating asset was acquired.
when the new asset is sold. Gain £
A38 Proceeds 600,000 Q45 When an individual gifts an asset to
£ Less: cost (510,000) another individual, how is this treated
Cost of new asset 370,000 90,000 for capital gains tax?
Less: capital gain on Gain after taper relief 22,500 A45 The person making the gift is treated
old asset (350,000 - (@75%) as making a disposal at market value.
280,000) (70,000) Base cost of new factory 450,000 The person receiving the gift is treated
Deductible cost of as if he had acquired an asset at
new asset 300,000 The proceeds not reinvested of market value.
£150,000 (600,000 - 450,000)
Q39 Jennifer sold a business asset on 1 exceeds the gain on the old factory, so Q46 What is the effect of claiming gift
December 2003. What is the time none of the gain may be rolled over. relief?
period for reinvestment if rollover A46 The person making the gift has no gain.
relief is claimed? Q42 Angus purchased a factory in May The acquisition cost for the person
A39 1 December 2002 to 1 December 1990 for £675,000 (indexed to April receiving the gift is the market value of
2006 (ie one year before the sale of the 1998). He let out 15% of it. In May the item at the date of gift less the gain.
old asset to three years after the sale). 2003 he sold the factory for £750,000
and bought another in August 2003 for Q47 Donald gifted the following
Q40 Richard brought a factory in June £800,000, claiming rollover relief. shareholdings to his son:
1990 for £816,000 (indexed to April Calculate the chargeable gain arising 1 6% shareholding in A Ltd, an
1998). In August 2003 he sold the on the disposal in May 2003. unquoted trading company
factory for £960,000 and purchased a A42 The non-qualifying part of the capital 2 4% shareholding in B plc, a
new factory in January 2004 for gain is 11,250 (750,000 - 675,000 quoted trading company.
£900,000. Calculate Richard’s gain = 75,000 x 15%). This is taxable
and the base cost of the new factory. immediately. After taper relief @ 20% Donald is employed by B plc. On
A40 = £9,000. The gain is on a which of these gifts can the gain be
Gain £ non-business asset, with a qualifying held over?
Proceeds 960,000 period of six years. A47 6% shareholding in A Ltd. The
Less cost (816,000) shareholding in B plc does not qualify,
144,000 Q43 What is a depreciating asset for as a shareholding in a quoted company
Less rollover relief rollover relief purposes? must be at least 5%.
(144,000 - 60,000) (84,000) A43 A depreciating asset is one with an
Capital gain 60,000 expected life of not more than 60 years. Q48 Give the conditions for rollover relief
to apply on a business incorporation.
Gain after taper relief 15,000 Q44 When a trader reinvests in a A48 1 All the assets of the business
(@75%) depreciating asset, what relief is there (other than cash) must be
The proceeds not reinvested for the gain arising on the disposal of transferred.
(960,000 - 900,000) are taxed now the first asset? 2 The transfer must be of a business
Base cost of new factory as a going concern.
Purchase price 900,000 3 The consideration must be wholly
Less: gain rolled over (84,000) or partly in shares.
816,000

November/December 2004 student accountant

technical

Q49 Describe the operation of rollover Q53 On 1 October 2003 William disposed
relief when a business is incorporated. of an asset realising a gain, after taper
A49 The capital gains on the individual relief and annual exemption, of
business assets transferred to the £40,000. He has taxable income of
company are rolled over and deducted £1,000 for 2003/04. Calculate
from the allowable cost of shares William’s capital gains tax liability for
acquired from the company. 2003/04.
A53
Q50 When a business is incorporated, and £
some of the consideration given by the Capital gains tax
company for the assets is not shares, 960 (1,960 - 1,000) x 10% 96
what proportion of the capital gains is 28,540 (30,500 - 1960) x 20% 5,708
eligible for rollover relief? 10,500 x 40% 4,200
A50 Capital gains on 10,004
business assets x Value of shares issued
transferred Total consideration Pattie Laycock is a freelance writer
and lecturer
Q51 Angela disposed of an asset on 1
December 2003. By what date must
this gain be reported to the Inland
Revenue?
A51 5 October 2004. Within 6 months of
the end of the tax year in which the
asset is sold.

Q52 The following information relates to

Deidre:
£
2002/03 Income tax liability 20,000
2002/03 Capital gains tax
liability 6,000
2003/04 Income tax liability 24,000
2003/04 Capital gains tax
liability 5,000

Give the due dates and amounts for

payment of the 2003/04 tax liability.
A52
Income tax £
31.1.04 10,000
31.7.04 10,000
31.1.05 4,000
Capital gains tax
31.1.05 5,000

There are no payments on account for

capital gains tax.

student accountant November/December 2004