CGT F6 Fa 20

FA 2020 CGT – F 6
Chapter # 01
Introduction to
Capital Gains Tax
By: Zohaib Shah 1

SKANS School of Accountancy
FA 2020 CGT – F 6
1. Capital Gains Tax
Gain on disposal of a capital asset is taxable as CGT.
Conditions
For a chargeable gain to arise there must be:
i. A chargeable person
ii. A chargeable assets
iii. A chargeable disposal
Otherwise no charge to tax occurs.
Chargeable Persons
i. Individuals (UK resident)

ii. Companies
iii. Partnerships
Exempt persons
The following are exempt persons
i. Registered Charities
ii. Approved superannuation funds (pension funds)
iii. Local authorities
iv. Registered societies
v. Approved scientific research association
vi. Diplomatic representatives
Chargeable Assets
All forms of property situated anywhere in the world are chargeable assets except exempt assets.
Exempt assets
The following are exempt assets.
i. Cars for private use

ii. Main residence
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FA 2020 CGT – F 6
iii. National saving certificates and premium bonds

iv. Foreign currency for private use
v. Damages for personal or professional injury
vi. Life assurance polices
vii. Work of art, scientific collections given for national purposes
viii. Gilt-edge securities (treasury stock)
ix. Qualifying Corporate Bonds (QCBS)
x. Certain chattels
xi. Debts + Inventory + cash (Current assets)
xii. Investments held in ISAs
Chargeable Disposal
Following are chargeable disposals
i. Sale of asset or part of asset

ii. Gift of asset or part of asset
iii. Receipt of capital sum related to asset
iv. Loss or destruction or damage of asset
v. The appropriation of assets as trading stock
Exempt disposals
The following are exempt disposals:
i. Transfer of assets on death

ii. Transfer of assets as security for a loan
iii. Gifts to charities or national heritage bodies
Time of Chargeable Disposal
i. Individuals are assessed on CGT under self-assessment on actual disposals of capital assets
between 6 April and 5 April.
ii. A chargeable disposal occurs on the date of contract or the date of a conditional contract
becoming unconditional.
iii. This may differ from the date of transfer of asset/cash.
iv. When a capital sum is received on capital asset on the loss or destruction of an asset, the
disposal takes place when the sum is received.
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FA 2020 CGT – F 6
v. Computation of chargeable gain/loss -20/21
Residential property Other gains

£ £
Chargeable gains/Total gains X X
Less: losses (X) .
Net gains X X
Less: Annual exemption (X) .
Taxable Gain X X
Tax rates = CGT
Normal computation
Proceeds X
Less: Incidental cost of disposal (X)
Net proceeds X
Less: Allowable cost (X)
Chargeable gains/loss X
Proceeds
Taken as higher of
i. MV of assets
ii. Actual sale proceeds
Incidental cost
i. Valuation fees
ii. Estate agency fees
iii. Advertising costs
iv. Legal costs
Allowable cost
i. Original cost of asset
ii. Incidental cost of purchase
iii. Capital expenditure
Capital expenditure must be reflected in the state of asset at the time of disposal.
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FA 2020 CGT – F 6
Annual exemption
i. Individuals are entitled to annual exemption of £12,300 for 20/21.

ii. AE is deducted at the end of the calculation of gain.
iii. If the AE is not utilized in any particular tax year, then it is wasted. It cannot be carried forward
or backwards to another tax year.
iv. Companies are not entitled to AE.
Capital losses
i. If the allowable cost of an asset exceeds its disposal value, then capital loss arises.
ii. Capital losses can be deducted from capital gains only.
iii. Capital losses arising in a tax year are deducted from capital gain of the same year and any
excess loss is carried forward to future tax years against gains of future tax year.
iv. Capital losses are deducted from gains before annual exemption.
v. Current year losses are deducted from current year gains in full. No matter AE is wasted.
vi. Brought forward losses are deducted from current year gains up to the amount of AE. Excess
loss is carried forward to future years.
Administration
 CGT is payable according to tax year.

 Any asset disposed of from 6th April 20 to 5th April 21 is chargeable to CGT in 2020/21.
 CGT is payable by 31ST January following the end of tax year.
 For 2020/21 CGT is payable on or before 31st January 2022.
Calculation of CGT by individuals
For the tax year 19/20, the lower rate of capital gains tax is 18% and the higher rate is 20%. However, the
lower and higher rates are at 18% and 28% in respect of chargeable gains arising from the disposal of
residential property. These residential property rates will apply where a gain arising from the disposal of
residential property is not fully covered by the principal private residence exemption.
Chargeable gains are taxed at the lower rate of 10% (or 18%) where they fall within the basic rate tax band
of £34,500, and at the higher rate of 20% (or 28%) where they exceed this threshold. The basic rate band
is extended if a person pays personal pension contributions or makes a gift aid donation.
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FA 2020 CGT – F 6
EXAMPLE 1
For the tax year 2020-21, Adam has a salary of £44,000. During the year, he made net personal pension
contributions of £4,400. On 15 June 2020, Adam sold an antique table and this resulted in a chargeable
gain of £21,300.
For the tax year 2020-21, Bee has a trading profit of £60,000. On 20 August 2020, she sold an antique vase
and this resulted in a chargeable gain of £20,100.
For the tax year 2020-21, Chester has a salary of £43,500. On 31 October 2020, he sold a residential
property and this resulted in a chargeable gain of £47,300.
Adam
Adam’s taxable income is £31,500 (44,000 less the personal allowance of 12,500). His basic rate tax band
is extended to £43,000 (37,500 + 5,500 (4,400 x 100/80)), of which £11,500 (43,000 – 31,500) is unused.
Adam’s taxable gain of £9,000 (21,300 less the annual exempt amount of 12,300) is fully within the unused
basic rate tax band, so his capital gains tax liability is therefore £900 (9,000 at 10%). This will be due on 31
January 2022.
Bee
Bee’s taxable income is £47,500 (60,000 – 12,500), so all of her basic rate tax band has been used. The
capital gains tax liability on her taxable gain of £7,800 (20,100 – 12,300) is therefore £1,560 (7,800 at 20%).
This will be due on 31 January 2022.
Chester
Chester’s taxable income is £31,000 (43,500 – 12,500), so £6,500 (37,500 – 31,000) of his basic rate tax
band is unused. The capital gains tax liability on Chester’s taxable gain of £35,000 (47,300 – 12,300) is
therefore:
6,500 at 18% 1,170
7,980
28,500 at 28%
_____
9,150
Tax liability
_____
Assuming Chester’s income for the tax year 2020-21 was correctly estimated at the time of the residential
property disposal, his capital gains tax liability of £9,150 will have been paid 30 days after the disposal (30
November 2020), with no adjustment necessary under the self-assessment system.
As shown in example 28 above, where a person has both residential property gains and other gains, then
the annual exempt amount and any capital losses should initially be deducted from the residential
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FA 2020 CGT – F 6
property gains. This approach will save capital gains tax at either 18% or 28%, compared to either 10% or
20% if used against the other gains.
However, how any unused basic rate tax band is allocated between chargeable gains does not make any
difference to the overall capital gains tax liability (since the differential is 10% in both cases).
EXAMPLE 2
For the tax year 2020-21, Douglas does not have any income. On 15 June 2020, he sold an antique vase
and this resulted in a chargeable gain of £18,800. On 28 August 2020, he sold a residential property and
this resulted in a chargeable gain of £39,800.
Ignoring the payment on account in respect of the residential property gain, Douglas’ capital gains tax
liability is:
£
Residential property gain 39,800
Annual exempt amount (12,300)

_______
27,500
_______
Other gain 18,800

_______
Capital gains tax:

27,500 at 18% 4,950
10,000 (37,500 – 27,500) at 10% 1,000
8,800 (18,800 – 10,000) at 20% 1,760
______
Tax liability 7,710

_______
The annual exempt amount is set against the residential property gain.
The capital gains tax liability could alternatively be calculated as:
£
18,800 at 10% 1,880
18,700 (37,500 – 18,800) at 18% 3,366
8,800 (27,500 – 18,700) at 28% 2,464
______
7,710
______
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FA 2020 CGT – F 6
Appropriation of asset as a trading stock
i. When a taxpayer acquires an asset other than as trading stock and then uses it as trading
stock, the appropriation as a trading stock leads to an immediate chargeable gain or
allowable loss, based on the assets MV at the date of appropriation.
ii. The asset’s cost for income tax purposes is that MV.
2. Capital gains on death of an individual
CGT is a lifetime tax. Transfers on the death of an individual are exempt disposals.
The CGT consequences of death are therefore as follows:
a. No capital gain or loss arises as a result of death.
b. The beneficiaries inherit the assets of the deceased with the base cost equivalent to the MV of
the asset at the date of death (i.e. at probate value).
Capital loss in the year of death
Losses in excess of gains arising in the tax year of death can be:
i. Carried back to the three- tax years on LIFO basis.

ii. Set against the remaining net gains in those years
Set-off must be restricted to preserve the annual exemption of the previous years. This treatment is
similar to the bought forward losses.
As a result of carrying back losses, a repayment of CGT will be obtained from HMRC.
By: Zohaib Shah 8

FA 2020 CGT – F 6
Chapter # 02
CGT
Special Rules
By: Zohaib Shah 9

FA 2020 CGT – F 6
1. Treatment of disposal between connected persons
The CGT implications of making a disposal to a connected person other than to the spouse or civil partners
are as follows:
a. MV at the date of disposal is used for the calculation of gain or loss.

b. Capital loss on a disposal to a connected person can only be set-off against current or future gains
arising from the same connected person.
Implication of transfer between spouses and civil partnership
i. Inter-spouse transfer and transfer between civil partners are deemed to take place at no gain
no loss.
ii. The price that gives no gain no loss is the cost of asset.
iii. This rule only applies to couples living together and not to those who are separated.
When an individual acquires an asset as a gift (or from a sale for less than market value):
 The cost of acquisition = market value of the asset at the date of the gift (or sale at undervalue)
When an individual inherits an asset on death:
 The cost of acquisition = market value of the asset at the date of the death. (i.e. probate value)
Example 1
Ali bought a flat in UK in May 2001 for £25,000 to use when he was on holiday from work. The flat has
never been used as Ali’s main residence.
In December 2020 Ali decided to gift the flat which was worth £180,000.
a) Calculate the chargeable gain arising on the gift of the flat assuming Ali gifted the flat to:
i. His sister
ii. His wife
b) Calculate the chargeable gain arising if his wife sells the flat in June 2021 for £200,000.
c) Calculate the chargeable gain arising if his sister sells the flat in June 2021 for £200,000.
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FA 2020 CGT – F 6
2. Part disposal
The cost of an asset disposal off in parts is calculated by the following formula:
Cost = Total cost * A .

A+B
Where, ‘A’ is the value of part disposed off
‘B’ is the MV of part retained
i. ’ A’ is the gross sale proceeds before deducting incidental cast of disposal.

ii. Any selling expense incurred in the selling of part disposal off is deducted from the proceeds
of the asset disposed of.
iii. Any capital expenditure incurred on the part disposed of should not be brought into this
calculation. It should be deducted from the proceeds in full.
Example 2
Ahmed bought a 12 hectares of land for £30,000 in June 2004 for investment purposes. In July 2020,
Ahmed sold two hectares of land for £9,500. The remaining 10 hectares were worth £80,000.
Calculate the chargeable gain arising from the disposal of the land.
3. Chattels and wasting assets
A chattel is defined as tangible moveable property.
Chattel may be wasting or non-wasting as follows.
Wasting chattels Non-wasting chattels
Expected life 50 years or less Expected life more than 50 years.
Examples: racehorse Examples: antiques,

greyhound, jewellery
boat, caravan paintings
plant and machinery
 Exempt. The £6,000 rule apply

 Exception: plant and machinery
The £6,000 rule can be summarized in the table below.

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FA 2020 CGT – F 6
Sale proceeds Cost Tax position
Less than £6,000 Less than £6,000 Exempt
More than £6,000 More than £6,000 Normal calculation
Less than £6,000 More than £6,000 Deemed proceeds as £6,000
More than £6,000 Less than £6,000 Taxed on the lower of

 Normal calculation
 5/3 * (gross proceeds -
£6000)
Example 4
An individual sold a painting for £5,000 in June 2020. It was purchased for £3,000 three years ago.
Calculate the gain chargeable.
Example 5
Example 6
Example 7
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FA 2020 CGT – F 6
Example 7
Which of the following disposals are exempt from, and which are chargeable to, capital gains tax in view
of chattels?
1. Gift of a necklace which was bought for £4,000. Its market value at the date of gift was £7,000.
2. Sale of shares in a quoted trading company for £2,000 which were bought for £1,000.
3. Sale of the motor car, for £5,000 which was used for personal purposes. It was acquired for
£6,000.
4. Sale of boat for £20,000 which was acquired for £15,000.
5. Sale of painting for £5,000 which was acquired for £1,000.
6. Sale of greyhound for £10,000 which was acquired for £5,000.
Wasting assets
Wasting assets is an asset with a predictable life not exceeding 50 years
For CGT purposes, wasting assets can be split into three categories.
 Chattels not eligible for capital allowances = exempt from CGT

 Chattels eligible for capital allowances e.g. plant and machinery
 Other wasting assets.
Plant and machinery
Plant and machinery is always deemed to be a wasting asset.
 Sold at a gain – normal calculations apply

 Sold at a loss – no gain/no loss as relief for loss given in capital allowances computation.
Example 8
Sara bought a machine for use in her trade for £35,000 in May 2006. In October 2020 she decided to
replace it and sold the old machine for £40,000.
Calculate the chargeable gain arising on the disposal in October 2020.
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FA 2020 CGT – F 6
Example 9
Ali bought a machine for use in his trade for £35,000 in April 2002. In October 2020 he decided to
replace it and sold the old machine for £26,500.
Calculate the chargeable gain or allowable loss arising.
Other wasting assets
This category covers wasting assets which are not chattels e.g. immoveable plant and machinery,
copyrights and licenses which is deemed to waste over the life of the asset.
The allowable cost is calculated as:
C less (P/L * (C – R))
Where:
 P = the disposer’s period of ownership.

 L = the asset’s predictable life.
 C = the cost of the asset.
 R = the residual/scrap value of the asset.
Example 10
On 1 February 2011 Jane bought a wasting asset at a cost of £24,000. It had an estimated useful life for
30 years. He sold the asset for £38,000 on 1 February 2021.
Calculate the chargeable gain or allowable loss arising.
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FA 2020 CGT – F 6
4. Loss or destruction of asset
Where an asset is lost or destroyed the CGT consequences are as follows:
Asset lost or destroyed
No Insurance proceeds Insurance proceeds received
Normal CGT Computation
No sale proceeds (Unless scrap Date of disposal

value received).
= Date insurance proceeds
Deductions of allowable expenditure received (not date of destruction
will create an allowable capital loss or loss
Proceeds reinvested and

asset replaced within12
Proceeds not reinvested in replacing
months
asset
Normal CGT Full investment Partial

computation investment
Gain deferred until Can elect to defer part of the gain until
the subsequent the subsequent disposal of the
replacement asset.
disposal of the
replacement asset Amount chargeable now is lower of:
i) The gain
ii) Amount of insurance not

reinvested
Example 11
Nida purchased an asset for £15,000 on April 1990 which was destroyed by fire on 31 July 2020. She
received scrap proceeds of £1,000. The asset was not insured.
Calculate the capital loss arising from the destruction of the asset.
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FA 2020 CGT – F 6
Example 12
Bill purchased an asset for £25,000 on October 1994 which was destroyed by fire on 30 September
2020. She received scrap proceeds of £1,000 and compensation of £35,000 from his insurance company
on 1 January 2021.
He purchased a replacement asset for £40,000 on 1 February 2021.
Assuming that bill claims loss by fire to be a no gain no loss disposal, calculate the allowable expenditure
(base cost) of the asset.
5. Asset is damaged but not totally destroyed or lost
Where an asset is damaged there are no implications for CGT purposes unless compensation, e.g.
insurance proceeds is received.
Where an asset is damaged and compensation is received there is part disposal for CGT purposes.
However, the computation is varied depending on whether or not the insurance proceeds are used to
restore the asset.
Example 13
Ali purchased a painting on 1 April 2004 for £10,000. The painting was damaged on 1 may 2020 when it
was worth £50,000. After the damage the painting was worth £25,000.
On 1 July 2020 insurance proceeds of 30,000 were received, which were not used to restore the painting.
Calculate the gain, if any, arising in respect of the painting.
Example 14
Amy purchased a painting on 1 April 2004 for £10,000. The painting was damaged on 1 may 2020 when it
was worth £50,000. After the damage the painting was worth £40,000
On 1 July 2020 insurance proceeds of £8,000 were received, all of the proceeds apart from £300 were
used to restore the painting.
Calculate the revised base cost for CGT purposes of the painting after it has been restored, assuming
Amy elects for the insurance proceeds to be rolled over against the cost of painting.
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FA 2020 CGT – F 6
Asset damaged
No Insurance
Insurance proceeds
proceeds received
No chargeable Normal part disposal CGT computation

disposal
COST X A/ (A+B)
A=insurance received
B=value of asset in its damaged

condition
Election available if:

 Asset is non-wasting;
 Insurance used to restore the
asset.
Used to restore the Not used in

asset restoration
Normal part
Normal part disposal unless elect to
disposal
defer the gain.
computation
If elect
arises
-No part disposal
- deduct proceeds from the cost of the
restored asset
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FA 2020 CGT – F 6
Chapter # 03
Shares and Securities
For Individuals
By: Zohaib Shah 18

FA 2020 CGT – F 6
Shares and securities need special treatment because an investor may hold several shares or securities in
the same company, bought at different prices but otherwise identical.
The rules for shares and securities held by companies are different with later in this text.
In the next chapter we will consider CGT deferred reliefs.
Valuation of quoted shares
Value of quoted shares is simply the average quoted price based on the day when they are disposed of.
Example 1
Shares in A plc are quoted in the Stock exchange daily official list at 400p to 480p.
What would their value for CGT purposes.
1. The matching rules for individuals
There are special rules for matching the shares sold with shares purchased. Disposals are matched first
with shares acquired on the same day, then with in the following 30 day and finally with the share pool.
Quoted and unquoted shares and securities present special problems when attempting to compute gains
or losses on disposal. For instance, suppose that an individual buys some quoted shares in X plc as follows.
Date number of shares cost
5 may 1983 100 150
17 august 2010 100 375
On 15 august 2015, he sells 120 of the shares for £1,450. To determine the chargeable gain, we need to
be able to work out which shares out of the two original holdings were actually sold.
We therefore need matching rules. These allow us to decide which shares have been sold and so work out
what the allowable cost on disposal should be.
At any one time, we will only be concerned with shares and securities of the same class in the same
company. If an individual owns both ordinary shares and preferences shares in X plc, we will deal with the
two classes of shares entirely separately, because they are distinguishable.
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FA 2020 CGT – F 6
Disposal of shares by individuals is matched in the following order with the purchase of share for the
calculation of cost:
i. Same Day Purchase

ii. Following 30 days acquisitions on FIFO basis.
iii. Shares in Share pool.
These matching rules are applied individually for shares of the same class in the same company.
The bed and breakfast rule stops shares being sold to crystallize a capital gain or loss, usually to use the
annual exempt amount and then being purchased a day or so later. Without the rule a gain or loss would
arise on sale since it would be matched to the original acquisition.
Share pool
Share pool comprises of following 2 columns:
i. Number of shares
ii. Cost of shares
Example 2
Anita acquired shares in Kent ltd as follows:
1 July 1995 2000 shares for £4,000
11 April 2000 2500 shares for £7,500
17 July 2020 400 shares for £1,680
10 august 2020 500 shares for £2,000
Anita sold 4,000 shares for 16,400 on 17 July 2020.
Calculate Anita’s net gain on sale.
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FA 2020 CGT – F 6
Bonus issues (scrip issues)
When a company issues bonus shares all that happens is that the size of the original holding is
increased. Since bonus shares are free shares, issued at no cost, there is no need to adjust the original
cost. Instead the numbers purchased at particular time are increased by the bonus. The normal
matching rules will then be applied.
Example 3
Simon had the following transactions in S ltd.
1.10.96 bought 10,000 for £15,000
1.06.02 bought 10,000 for £15,000
1.2.10 bonus issue of one for five
14.10.20 sold 2,000 shares for £6,000
Compute the gain arising in October 2020.
Right issues
The difference between a bonus issue and a right issue is that the in rights issue the new shares are paid
for and this results in an adjustment to the original cost. In an open offer, shareholders have a right to
subscribe for a minimum number of shares based on their existing holdings and may buy additional
shares. Subscriptions up to the minimum entitlement are treated as a right issue additional
subscriptions are treated as new purchases of shares.
Example 4
Simon had the following transactions in S ltd.
1.10.96 bought 10,000 for £15,000
1.06.02 bought 10,000 for £15,000
1.2.10 took up right issue 1 for 2 at £2.75 per share
14.10.20 sold 2,000 shares for £6,000
Compute the gain arising in October 2020.
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FA 2020 CGT – F 6
2. Alterations of share capital
On an alteration of shares capital, the general principle is only to tax gains immediately if cash is paid to
the investors.
General principles
On a reorganizations or takeovers we must apportion the original cost of whatever the shareholder had
beforehand between the elements of whatever the shareholder has afterwards.
 Where a reorgnisation or takeover takes place and the new shares and securities are unquoted,
the cost of the original holding is apportioned using the values of the new shares and securities
when they come to be disposed of.
 If the new shares and securities are quoted, then the cost is apportioned by reference to the
market values of the new types of capital on the first day of quotation after the reorgnisation or
takeover.
Reorganisations
A reorgnisation takes place where new shares or a mixture of new shares and debentures are issued in
exchange for the original shareholdings. The new shares take the place of the old shares. The problem is
how to apportion the original cost between the different types of capital issued on the reorgnisation.
Example 5
An original quoted shareholding of 3000 shares is held in a share pool with a cost of £13,250.
In 2020 there is a reorgnisation whereby each ordinary share is exchanged for two” A” ordinary shares
(quoted at £2 each) and one preference share (quoted at £1 each).
Show how the original cost will be apportioned.
Takeovers
A takeover occurs when a company acquires share in another by using share, loan notes and cash. The
takeover rule apply where the company issuing the new shares end up with more than 25% of the ordinary
shares capita of the old company or the majority of the voting power in the old company, or the company
issuing the new shares make a general offer to shareholders other company which is initially made subject
to a condition which, if satisfied, would give the first company control of the second company.
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FA 2020 CGT – F 6
The exchange must take place for bona fide commercial reason and must not have as its main purpose,
or one of its main purposes, the avoidance of CGT or corporation tax.
The acquiring company can obtain advance clearance from HMRC that the transaction comes within these
rules and that the qualifying conditions have been met.
Example 6
Mr. le bon held 20,000 £1shares in Duran plc out of a total number of issued shares of one million. They
were bought in 2002 for £2 each. In 2020 the board of Duran plc agreed to a takeover bid by Spandau plc
under which shareholders in Duran plc received three ordinary Spandau plc shares plus one preference
share for every four shares held in Duran plc. Immediately following the takeover, the ordinary shares in
Spandau plc were quoted at £5 each and the preferences shares at 90p.
Show the base cost of the ordinary shares and the preference shares.
Share for share exchanges
No gain arises for “paper for paper “takeover.
The new shares acquired are assumed to have been purchased at the same date when original shares
were purchased and at the same cost.
The base cost of the new shares will be the original cost of shares.
Consideration in cash and shares
If part of the considerations is cash then a gain must be computed and normal part disposal rules will
apply. Deemed cost of original shares apportioned to cash element:
Cash received * cost of original shares

Total consideration
Example 7
Ali bought 10,000 shares in A plc in June 2007 for £20,000.
On 10 November 2020 the entire share capital of A plc was acquired by B plc. A plc shareholders received
2 B plc shares and £0.50 cash for each share held. B plc shares were quoted at £1.25.
Calculate the chargeable gain accruing to Ali as a result of the takeover in November 2020.
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FA 2020 CGT – F 6
Chapter # 04
CGT: Reliefs
For Individuals
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FA 2020 CGT – F 6
Reliefs available on business assets
The following reliefs are available on business assets:
 Rollover relief + Holdover relief

 Gift relief
 Business asset disposal relief + Investor relief
The definition of business asset has been included in the relevant portion of every relief.
Reliefs available on Non-business assets
 Principal private residence relief (PPR)
1. Rollover relief
The gain on disposal of old asset is rolled over if the following conditions are satisfied:
i. The old asset disposed of and the new asset bought, both must be use for the business
purpose only however they may not have to be the same category of business assets.
ii. The new asset bought must be brought into business use immediately.
iii. The re investment of proceeds should take place within one year before or within 3 years
after the date of disposal.
Types of business assets
For rollover relief purposes, business assets have been divided into the following 2 categories:
i. Non-depreciating assets
 Goodwill (for unincorporated business)
 Land and buildings (freehold or leasehold) occupied and used for trading purposes
 Fixed plant and machinery
ii. Depreciating assets
 A wasting asset (i.e. with a predictable life of 50 years or less)
 An asset that will became a wasting asset within ten years
 Leasehold land and building with 60 years or less to run on the lease
 Fixed plant and machinery (Primary)
The treatment of rollover relief for both categories is different.
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FA 2020 CGT – F 6
Rollover relief and re investment into a non-depreciating asset
 If the replacement asset is a non-depreciating asset, then the gain rolled over on the disposal of
asset is deducted from the cost of new asset and base cost is calculated for the future disposal
of the new asset.
 The gain on the disposal of old asset is rolled over until the replacement asset is disposed of.
 For 20/21 disposals, individuals must claim rollover relief by 5 April 2025 (i.e. four years after
the end of the tax year).
Example 1
A trader disposed of an office building for £150,000 in June 2020. It was purchased for £100,000 five
years ago. He purchased a new office building for £200,000 in December 2020 and claimed rollover
relief.
Calculate the gain chargeable, if any, and the base cost of new office building.
Partial Re-investment of proceeds
If all the disposal proceeds of the old asset are not re invested into the new asset, then the gain equal to
the proceeds not re invested is immediately chargeable.
Example 2
A trader disposed of an office building for £150,000 in June 2020. It was purchased for £100,000 five
years ago. He purchased a new office building for £130,000 in December 2020 and claimed rollover
relief.
Note:
Making a rollover relief claim is optional. An individual may prefer to crystallize a gain in the current year
if it is covered by their capital losses and annual exemption.
Non Business Use
If an asset is used for business as well as non-business use, then that asset is considered as two separate
assets for CG purposes. The gain attributable to both assets must be computed separately and the gain
attributable to business use can be rolled over only.
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FA 2020 CGT – F 6
Example 3
A trader disposed off an office building for £200,000 in June 2020. It was purchased for £100,000 five
years ago. He rented out one quarter of the building for the entire period of ownership of the building.
He purchased a new office building for £160,000 in December 2020 and claimed rollover relief.
Rollover relief & reinvestment into a depreciating asset
If the replacement asset is a depreciating asset, then base cost is not calculated. The gain on disposal of
old asset is freezed until the earlier of:
a. The date when the replacement asset is disposed official

b. The date when replacement asset is ceased to be used in trade.
c. 10 years after the purchase of replacement asset
Since the replacement asset is a depreciating asset, base cost is not calculated. The gain is freezed until
the replacement asset is disposed of.
This form of relief is sometimes referred to as ‘holdover relief’.
Example 4
A trader disposed of some old items of plant and machinery for £100,000 in June 2020. They were
purchased for £70,000 a few years ago. He purchased a new machine for £110,000 in December 2020
and claimed rollover relief. In December 2021, the new machine was also disposed of for £120,000
2. Gift relief
Gift relief is available for gifts or sale at undervalue
 of qualifying assets
 by individuals to other individuals, trustees or a company
 if the recipient is resident in the UK at the time of the gift, and
 a claim is made
Gift relief is not automatic, it must be claimed by both the donor and the done by 5 April 2025
for gifts in 20/21.
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FA 2020 CGT – F 6
The relief operates as follows:
Donor Donee
 Normal capital gain is calculated using  Acquisition cost = deemed to be

market value as proceeds. market value at the date of gift.
 Base cost of the asset to the donee =
Acquisition cost less gift relief
Qualifying Assets
A qualifying asset is an asset which is:
i. Used by donor in his business.

ii. Used by company where the company is the personal company of the donor.
iii. Shares and securities in an unquoted company.
iv. Shares and securities in a quoted company where the company is the personal company of
the donor.
Personal company
A personal company is the company in which an individual holds at least 5% of the ordinary share
capital.
Disposal qualifying for a Gift relief
The following is disposals qualify for gift relief:
i. Outright gift of the qualifying asset by the donor of the Donee.

ii. Undervalue sale of asset by the donor.
Gift Relief & Outright Gift relief
If the donor gives an outright gift to the donee & if both claim gift relief then gain arising on gift of asset
can be rolled over.
The gain rolled over is deducted from the value of an assets and base cost is calculated for future
disposals by the donee.
By: Zohaib Shah 28

FA 2020 CGT – F 6
Example 5
A father gifted his son a shop valued at £200,000 on 30 June 2020. The shop was purchased by him for
£110,000 three years ago. Both claimed gift relief.
Calculate the gain chargeable and the base cost of the shop.
Gift Relief and Under Value Sale of assets
If an individual sells an asset to a connected person at less then MV & if both claim then gift relief can
also be claimed.
If the sale proceeds charged by the donor are more than the original cost of the asset, the excess of
proceeds over the original cost are immediately chargeable on the donor.
Example 6
A father sold his son a shop valued at £200,000 on 30 June 2020 for £120,000. The shop was purchased
by him for £110,000 three years ago. Both claimed gift relief.
Calculate the gain chargeable and the base cost of the shop.
Shares and Securities
If shares and securities of a personal company of a donor are gifted and company holds a chargeable
business assets and chargeable non business assets at the date of gift, then gift relief is calculated by the
following formula:
Gift relief = Gain X Chargeable business asset

Chargeable asset
No relief is available for business assets used in an investment business or shares in an investment
company.
Where the donor holds less than 5% of the voting rights in au unquoted company there is no restriction
to the relief when shares are gifted.
By: Zohaib Shah 29

FA 2020 CGT – F 6
Example 7
Ahmed gifted his son shares in A plc on 31st December 2020. The shares were valued at £200,000 on
that date. These shares were purchased by Ahmed for £120,000 three years ago. Ahmed never worked
for the company. Ahmed and his son elected to holdover the gain arising as gift of business asset.
The balance sheet of A plc on 31st December 2020 was as follows:
£
Freehold office building 200,000
Plant and machinery 100,000
Warehouse 100,000
Investments 100,000
Inventories 25,000
Receivables 50,000
Cash 25,000
Calculate the gain chargeable on Ahmed.
3. Business asset disposal relief
Business asset disposal relief is available on the disposal of the business and certain trading company
shares.
Lifetime limit
There is a limit of £1 million of gains on which this relief can be claimed. This is a lifetime limit starting
6th April 2020. The £1 million limit is a lifetime limit which is diminished each time a claim for the relief is
made.
Disposal qualifying for Business asset disposal relief
Entrepreneur relief is available where there is a material disposal of business assets. A material disposal
of business assets falls into one of following 3 categories:
i. A disposal of whole or part of the business

ii. Assets of the individual’s or partnership’s trading business that has now ceased
By: Zohaib Shah 30

FA 2020 CGT – F 6
Losses for assets qualifying for Business asset disposal relief
Where there is a material disposal of business assets, which result in both gains and losses, losses are
netted off against gains before this relief is applied.
Where the disposal is an asset of the individual’s or partnership’s trading business that has now ceased
the disposal must take place within three years of the cessation of trade.
iii. A disposal of shares and securities of a company where the company is:
 The personal company of the individual
 The trading company
 The individual is officer or employee of the company
All of the above conditions must be satisfied for at least two year ending with the date of disposal.
Relief is only available on relevant business assets. These are the assets used for purpose of the business
and cannot include shares and securities or assets held as an investment.
A personal company is one which:
a. The individual holds at least 5% of the ordinary share capital.

b. The individual can be exercises 5% of voting rights.
Qualifying ownership period
The assets being disposed of must have been owned by the individual making the disposal in the two
years prior to the disposal.
How this relief works
i. Gains qualifying for Business asset disposal relief are simply taxed at 10% regardless of the
level of person’s taxable income.
ii. Capital gains qualifying for Business asset disposal relief therefore reduce the amount of any
unused basic rate tax band.
iii. The annual exempt amount and any capital losses should initially be deducted from those
chargeable gains which do not qualify for entrepreneurs’ relief (giving preference to any
residential property gains). This approach could save capital gains tax at 20% (18% or 28% if
residential property gains are involved), compared to just 10% if used against chargeable
gains which do qualify for relief.
By: Zohaib Shah 31

FA 2020 CGT – F 6
iv. There’re several ways of presenting computation involving such a mix of capital gains but
the simples approach is to keep capital gain qualifying for Business asset disposal relief and
other capital gains separate.
v. The relief must be claimed within 12 months of the 31 January following the end of the tax
year in which disposal is made. For 20/21 disposals, the relief must be claimed by 31 January
2023.
Example 9
On 30th September 2020, Mika sold a business that she run as a sole trader since 1st January 2001. The
sale resulted in the following capital gains:
£
Goodwill 260,000
Freehold office building 370,000
Freehold warehouse 170,000
The assets were all owned for more than two year prior to the date of disposal. The warehouse had
never been used by Mika for business purposes.
Mika has taxable income of £4,000 for the tax year 20/21. She has unused capital losses of £28,000
brought forward from the previous tax year.
Calculate CGT payable by Mila for 20/21 and state the date when it should be paid.
4. Investors’ relief
Investors’ relief was introduced by the Finance Act 2016, but is only now available because of the three-
year holding period requirement.
Investors’ relief effectively extends entrepreneurs’ relief to external investors in trading companies which
are not listed (unquoted) on a stock exchange. However, investors’ relief has its own separate £10 million
lifetime limit. Qualifying gains are taxed at a rate of 10%. To qualify for investors’ relief, shares must be:
 newly issued shares acquired by subscription.
 owned for at least three years after 6 April 2016.
With certain exceptions (such as being an unremunerated director) the investor must not be an employee
or a director of the company whilst owning the shares.
By: Zohaib Shah 32

FA 2020 CGT – F 6
Example 10
On 20 June 2016, Winnie subscribed for 150,000 £1 ordinary shares (a 2% shareholding) in Unquote Ltd,
an unquoted trading company, at their par value.
She has never been an employee or director of the company. Winnie sold the 150,000 shares in Unquote
Ltd for £760,000 on 15 December 2020.
Winnie’s shareholding in Unquote Ltd does not qualify for Business asset disposal relief because the 5%
shareholding condition is not met and she was not an employee or director of the company. However,
the conditions for investors’ relief are met, including the three-year holding period requirement.
Winnie’s capital gains tax liability is:
Shareholding in Unquote Ltd (760,000 – 150,000) 610,000
Annual exempt amount (12,300)
597,700
Capital gains tax: 597,700 at 10% 59,770
5. Principal Private Residence (PPR) relief
A gain arising on the sale of an individual’s only or main private residence (this principal private or PPR)
is exempt from CGT. The exemption also covers grounds up to half a hectare.
The grounds can exceed half a hectare if the house is a large enough to warrant it, but if not, the gain on
the excess grounds is taxable. One hectare is equivalent to about 2.47 acres.
A married couple (or civil partnership) are entitled to only one residence between them for the purposes
of the private residence exemption.
Ownership of more than one residence
 For the exemption to be available the taxpayer must have occupied the property as a residence
rather than just as temporary accommodation.
 Where an individual has more than one residence he is entitled to nominate which of them is to
be treated as his principal residence for capital gains purposes by notifying HMRC in writing.
 The election must be made within two years of acquiring an additional residence otherwise it is
open to HMRC, to decide which residence is his main residence.
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FA 2020 CGT – F 6
Occupation
The gains are wholly exempt where the owner has occupied the whole of the residence throughout his
period of ownership. Where occupation has been for only part of the period, the proportion of gain
exempted is:
Period of occupation
PPR relief = Total gain x
Total period of ownership
Periods of occupation
The period of occupation is also deemed to include certain periods of absence, provided the individual
had no other exempt residence at the time and the period of absence was all some time both preceded
over this rule.
The periods of occupation include
 Any period of actual occupation

 The last 09 months of ownership
 The following periods of deemed occupation:
a) Up to three years of absence for any reason
b) Any period while working abroad
c) Up to four years of absence while working elsewhere in the UK or self-employed abroad.
The periods of deemed occupation must normally be preceded and followed by period of actual
occupation.
An extra statutory concession relaxes this where an individual who has been required to work abroad or
elsewhere (i.e. (b) &(c) above) is un available to resume residence in his home because the term of his
employment require him to work elsewhere.
The last 18 months of ownership are always treated as a period of occupation, if at some time the
residence has been the taxpayer’s main residence even if within those last 18 months the taxpayer also
has another house which is his principle private residence.
Where a loss arises and all, or a proportion of, any gain would have been exempt, all or the same
proportion of the loss is not allowable.
By: Zohaib Shah 34

FA 2020 CGT – F 6
Example 11
Mr.A purchased a house on 1 April 1989 for £88,200. He lived in the house until 30 June 1989. He then
worked abroad for two years before returning to the UK to live in the house again on 1 July 1991. He
stayed in the house until 31 December 2006 before retiring and moving out to live with friends in Spain
until the house was sold on 31 December 2020 for £150,000.
Calculate e the gain chargeable.
Business use
Where part of a residence is used exclusively for business purposes throughout the period of ownership,
the gain attributable to use of that part is taxable. The last 18 months always exempt rule does not
apply to that part.
Letting relief
Letting relief is now only available where a property is let out and the property owner is in shared
occupancy with the tenant. This means that there is no longer any relief where the whole property is let
out. The letting exemption is restricted to the lowest of:
a. The amount of total gain which is already exempt under the PPR provision.
b. The gain related the letting part
c. £40,000
Letting relief cannot convert a gain into an allowable loss.
If a lodger lives as a member of the owner’s family. Sharing their living accommodation and eating with
them, the whole property is regarded s the owner‘s main residence.
Tax planning points
 Nominate that property where taxpayer has spent more days.

 Ensure taxpayer reoccupies the property after the period of absence.
 Where the taxpayer has more than one residence he should ensure that he nominates the
property with the greatest potential for gain as his main residence.
 Subject to tax and other financial considerations, exclusive business use of the property should
be avoided.
By: Zohaib Shah 35


CGT F6 Fa 20

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FA 2020 CGT – F 6

Capital Gains Tax

By: Zohaib Shah 1

1. Capital Gains Tax

Gain on disposal of a capital asset is taxable as CGT.

For a chargeable gain to arise there must be:

Otherwise no charge to tax occurs.

i. Individuals (UK resident)

The following are exempt persons

The following are exempt assets.

i. Cars for private use

iii. National saving certificates and premium bonds

Following are chargeable disposals

i. Sale of asset or part of asset

The following are exempt disposals:

i. Transfer of assets on death

Time of Chargeable Disposal

v. Computation of chargeable gain/loss -20/21

Residential property Other gains

By: Zohaib Shah 4

i. Individuals are entitled to annual exemption of £12,300 for 20/21.

 CGT is payable according to tax year.

Calculation of CGT by individuals

By: Zohaib Shah 5

6,500 at 18% 1,170

By: Zohaib Shah 6

Annual exempt amount (12,300)

Other gain 18,800

Capital gains tax:

Tax liability 7,710

By: Zohaib Shah 7

Appropriation of asset as a trading stock

2. Capital gains on death of an individual

Capital loss in the year of death

i. Carried back to the three- tax years on LIFO basis.

By: Zohaib Shah 8

By: Zohaib Shah 9

1. Treatment of disposal between connected persons

a. MV at the date of disposal is used for the calculation of gain or loss.

Implication of transfer between spouses and civil partnership

When an individual inherits an asset on death:

By: Zohaib Shah 10

Cost = Total cost * A .

i. ’ A’ is the gross sale proceeds before deducting incidental cast of disposal.

3. Chattels and wasting assets

A chattel is defined as tangible moveable property.

Chattel may be wasting or non-wasting as follows.

Wasting chattels Non-wasting chattels

Expected life 50 years or less Expected life more than 50 years.

Examples: racehorse Examples: antiques,

 Exempt. The £6,000 rule apply

The £6,000 rule can be summarized in the table below.

Sale proceeds Cost Tax position

Less than £6,000 Less than £6,000 Exempt

More than £6,000 More than £6,000 Normal calculation

Less than £6,000 More than £6,000 Deemed proceeds as £6,000

More than £6,000 Less than £6,000 Taxed on the lower of

Calculate the gain chargeable.

Calculate the gain chargeable.

Calculate the gain chargeable.

Calculate the gain chargeable.

By: Zohaib Shah 12

Wasting assets is an asset with a predictable life not exceeding 50 years