Chapter 01 - Chargeable gains tax

Chargeable gains tax

- It is paid on the taxable gains arising from any chargeable disposal of any chargeable
asset by any chargeable individual

Chargeable disposal
- It means any disposal made by way of sale, gift, loss, damage, destruction, exchange
or surrender
- It does not include the following disposals viz. -
- Any disposal made to charities
- Any disposal made to political parties
- Any disposal made during the lifetime
- Any disposal made due to death (including death estate)

Notes -
- Any disposal made to charities includes any disposal made to the museums, galleries,
historical societies, heritage societies etc.

Chargeable asset
- It means any asset whether tangible, intangible, movable or immovable
- It does not include the following assets viz. -
- Gilt-edged securities
- Government securities
- National savings certificates
- Sovereign gold bonds
- Qualified corporate bonds
- Company loan notes
- Trade receivables
- Stock-in-trade
- Cash-in-hand (domestic or foreign)
- Winnings from betting, gambling, gaming, lottery and races
- Bravery awards and medals
- Motor vehicles
- Main residence
- Wasting chattels
- Non-wasting chattels bought and sold for ≤ £6000
- Investments held in the individual's savings account
- Investments held in the venture capital trust scheme
- Investments held in the enterprise investment scheme
- Investments held in the seed enterprise investment scheme

Chargeable individual
- It means any individual whether UK domiciled or not-UK domiciled
- UK resident individuals will pay chargeable gains tax on their worldwide taxable gains
- Non-UK resident individuals will pay chargeable gains tax only on their UK based
taxable gains

Proforma - Chargeable gain / loss Amount

Disposal proceeds xx
Less: Incidental cost of disposal xx
Less: Cost of acquisition, enhancements and improvements xx
Less: Incidental cost of acquisition, enhancements and improvements xx
Chargeable gain / loss xxxx

Date of disposal
Type of contract Date of disposal
Normal contract Date mentioned in the contract
Conditional contract Date on which all the conditions are satisfied

Disposal proceeds
Type of disposal Disposed at arm's length Not disposed at arm's length
Disposed to unrelated party Actual proceeds Market value
Disposed to related party Market value Market value

Cost of acquisition
Type of acquisition Cost of acquisition
If purchased Actual cost
In any other case Market value

Cost of enhancements and improvements

Type of acquisition Cost of enhancements and improvements
If purchased Actual cost
In any other case Actual cost

Notes -
- The cost of enhancements and improvements which were demolished prior to the disposal
will be ignored

Incidental cost of disposal, acquisition, enhancements and improvements

- It means any cost incurred on establishing, preserving or defending the title
- It includes the following costs viz. -
- Legal expense
- Valuation fees
- Stamp duty tax
- Auctioneer's fees
- Estate agent's fees
- Advertisement expense

Notes -
Any capital or revenue expense incurred before the disposal, acquisition,
-
enhancements
and improvements will be considered
- Any capital or revenue expense incurred during the disposal, acquisition, enhancements
and improvements will be considered
- Any capital or revenue expense incurred after the disposal, acquisition, enhancements
and improvements will be ignored

Proforma - Taxable chargeable gains Amount

Chargeable gains xx
Less: Cy's chargeable losses xx
Less: Annual exemption allowance xx
Less: Py's chargeable losses xx
Less: Losses xx
Taxable gains xxxx

Taxable gains
- It is that portion of taxable gains which is taxable
- It is taxed after the income tax
- It is taxed on the basis of income tax bands under which the individual is falling

Chargeable gains tax rates

Type of taxpayer Any other asset Residential property
Basic rate taxpayer 10% 18%
Higher rate taxpayer 20% 28%
Additional rate taxpayer 20% 28%

Chargeable gains tax payment due-date

Type of asset Due-date
Any other asset On or before 31st January following the tax year
UK based residential property Estimated - Within 60 days from the date of disposal
Final - On or before 31st January following the tax year

Annual exemption allowance

- It is that portion of taxable gains which is tax-free
- Any unused annual exemption allowance cannot be carried forward

Notes -
- It will be available to all the UK resident individuals (including children)
- It will be available in full in the year of birth and in the year of death

Chargeable losses
Type of chargeable losses Cost of enhancements and improvements
Cy's chargeable losses It will be adjusted before the annual exemption allowance
Py's chargeable losses It will be adjusted after the annual exemption allowance

Losses
- It is adjusted after the previous tax year's chargeable losses
- It cannot result in taxable losses in the current tax year
- It comprises of the following viz. -
- Trading losses
- Losses when the asset enters the trust during the lifetime of settlor
- Losses when the asset enters the trust due to death of settlor
- Losses from disposal of investments held in real estate investment trust
- Losses from disposal of investments held in individual's savings account
- Losses from disposal of investments held in venture capital trust scheme
- Losses from disposal of investments held in enterprise investment scheme
- Losses from disposal of investments held in seed enterprise investment scheme
Chapter 02 - Valuation rules

Listed shares and securities

- It includes companies, real estate investment trusts, venture capital trust schemes,
enterprise investment trust schemes, seed enterprise investment trust schemes etc.
traded on any recognised stock exchange all over the world
- Value = (Highest price - Lowest price) ÷ 2
- The value to be used for calculating the chargeable gains tax must be cum-dividend value
or cum-interest value

Unlisted shares and securities

- It includes companies etc. traded on any alternate investment market all over the world
- Value = Given in the question

Other valuation aspects of shares and securities

Matching rules
- The number of shares and securities disposed will be matched with the number of shares
and securities acquired as follows viz. -
- Shares and securities acquired on the same day
- Shares and securities acquired within the next 30 days
- Shares and securities in the shares and securities pool balance

Bonus issue
- It will result in the following viz. -
- Increase in the number of shares and securities acquired
- No change in the cost of acquisition of shares and securities

Right issue
- It will result in the following viz. -
- Increase in the number of shares and securities acquired
- Increase in the cost of acquisition of shares and securities

Unit trusts
- It includes any unit trusts
- Value = Lowest published value on the date of disposal

Any other assets

- It includes any other assets
- Value = Market value on the date of disposal

Sale of major rights irt right issue

- It will be treated as part disposal of asset
- Chargeable gain / loss = Disposal proceeds - Cost of rights sold

Cost of rights sold

= Cost of all rights x Disposal proceeds ÷ (Disposal proceeds + Market value of rights
retained)

Cost of rights retained

= Cost of all rights - Cost of rights sold

Sale of minor rights irt right issue

- It will be treated as small part disposal of asset
- Chargeable gain / loss = NIL

Cost of rights retained

= Cost of all rights - Disposal proceeds

Conditions for sale of minor rights

- Following conditions must be satisfied for claiming sale of minor rights viz. -
- The proceeds must be ≤ £3000
- The proceeds must be ≤ 05% of market value of shares and securities held
Chapter 03 - Chargeable gains tax other aspects

Negligible value claim

- If the market value of the asset becomes negligible in value then the individual can treat
the asset to be disposed and then immediately re-acquired at such negligible value
thus resulting in adjustable losses

Particulars Amount
Disposal proceeds NIL
Less: Total cost xx
Chargeable gain / loss xxxx

Part disposal
- It occurs when any part of asset is disposed
- Chargeable gain / loss = Part disposal proceeds - Cost of part asset

Cost of part asset

= Cost of full asset x Part disposal proceeds ÷ (Part disposal proceeds + Market value of
remaining asset on the date of disposal)

Cost of remaining asset

= Cost of full asset - Cost of part asset

Notes -
- Any cost incurred wholly and exclusively irt the part asset will be deducted from the
chargeable gain / loss
- Any cost incurred wholly and exclusively irt the remaining asset upto the date of part
disposal will be included in the cost of full asset
Any cost incurred wholly and exclusively irt the remaining asset after the date of
-
part
disposal will be included in the cost of remaining asset

Small part disposal

- It occurs when any small part of asset is disposed
- Chargeable gain / loss = NIL

Cost of remaining asset

= Cost of full asset - Small part disposal proceeds

Notes -
- Any cost incurred wholly and exclusively irt the part asset will be included in the cost
of full asset
- Any cost incurred wholly and exclusively irt the remaining asset will be included in the
cost of remaining asset

Conditions for small part disposal

- Following conditions must be satisfied for claiming small part disposal viz. -
- The aggregate disposal proceeds during the tax year must be ≤ £20000
- The small part disposal proceeds must be ≤ 20% of market value of full asset on the
date of disposal

Chattels
- They are tangible and movable assets

Wasting chattels
- They are those chattels which are having remaining useful life of ≤ 50 years on the
date of disposal
- Any gains on disposal of wasting chattels will be exempt gains
- Any losses on disposal of wasting chattels will not be adjustable losses

Non-wasting chattels
- They are those chattels which are having remaining useful life of > 50 years on the
date of disposal
- If the non-wasting chattels bought and sold for ≤ £6000 then -
- Any gains on disposal of non-wasting chattels will be exempt gains
- Any losses on disposal of non-wasting chattels will not be adjustable losses
- If the non-wasting chattels bought or sold for > £6000 then -
- Any gains on disposal of non-wasting chattels will be taxable gains
- Any losses on disposal of non-wasting chattels will be adjustable losses

Plant and machinery

- They are always considered as wasting chattels

If capital allowance is available on such plant and machinery

- Any gains on disposal of plant and machinery will be taxable gains
- Any losses on disposal of plant and machinery will be adjustable losses

If capital allowance is not available on such plant and machinery

- Any gains on disposal of plant and machinery will be exempt gains
- Any losses on disposal of plant and machinery will not be adjustable losses

Other assets
- They are those assets which are neither chattels nor plant and machinery

Wasting assets
- They are those assets which are having remaining useful life of ≤ 50 years on the
date of disposal
- Any gains on disposal of wasting assets will be taxable gains after reducing the total
cost of wasting asset on straight line basis
- Any losses on disposal of wasting assets will be adjustable losses

Non-wasting assets
- They are those assets which are having remaining useful life of > 50 years on the
date of disposal
- Any gains on disposal of non-wasting assets will be taxable gains without reducing the
total cost of non-wasting asset on straight line basis
- Any losses on disposal of non-wasting assets will be adjustable losses
Chapter 04 - Loss, damage, destruction, exchange or surrender of asset

Exchange or surrender of asset

- (not examinable in ATX)

Major damage to asset

- It will be treated as part disposal of asset
- Chargeable gain / loss = Insurance proceeds - Cost of damage

Cost of damage
= Cost of asset before damage x Insurance proceeds ÷ (Insurance proceeds + Market value
of asset after damage but before restoration)

Cost of asset after damage

= Cost of asset - Cost of damage

Notes -
- Any cost incurred wholly and exclusively irt the asset before damage will be included
in the cost of asset
- Any cost incurred wholly and exclusively irt the asset after damage will be included
in the cost of asset after damage

Minor damage to asset

- It will be treated as small part disposal of asset
- Chargeable gain / loss = NIL

Cost of asset after damage

= Cost of asset - Insurance proceeds

Notes -
- Any cost incurred wholly and exclusively irt the asset before damage will be included
in the cost of asset
- Any cost incurred wholly and exclusively irt the asset after damage will be included
in the cost of asset after damage

Conditions for minor damage to asset

- Following conditions must be satisfied for claiming minor damage to asset viz. -
- The proceeds must be fully re-invested
- The proceeds must be partly re-invested and the amount of proceeds not re-invested
must be small (i.e. £3000 or 05% of insurance proceeds WEL)

Loss or destruction of asset

If the asset was not insured
Particulars Amount
Insurance proceeds NIL
Less: Total cost xx
Chargeable gain / loss xxxx

If the asset was insured but the proceeds were not re-invested
Particulars Amount
Insurance proceeds xx
Less: Total cost xx
Chargeable gain / loss xxxx

If the asset was insured but the proceeds were re-invested after 12 months
Particulars Amount
Insurance proceeds xx
Less: Total cost xx
Chargeable gain / loss xxxx

If the asset was insured and the proceeds were fully re-invested within 12 months
Particulars Amount
Insurance proceeds xx
Less: Total cost xx
Gain / loss xxx
Less: Rollover relief xx
Chargeable gain / loss NIL / loss

Replacement cost xx
Rollover relief xx
Base cost of new asset xxxx

If the asset was insured and the proceeds were partly re-invested within 12 months
Particulars Amount
Insurance proceeds xx
Less: Total cost xx
Gain / loss xxx
v/s
Insurance proceeds not re-invested xx
Chargeable gain / loss (WEL) xxxx

Replacement cost xx
Deferred gain (Chargeable gain / loss - Gain / loss) xx
Base cost of new asset xxxx
Chapter 05 - Taxation of assignment of leases and sub-leases

Assignment of lease
- It occurs when the tenant (lessee) assigns their right to use the property of the landlord
(lessor) to any other person

Remaining lease duration

- It is the duration of the lease arrangement remaining on the date of assignment of lease
and it helps in determining the type of lease assignment and the tax implications

Types of lease assignments

Short-term lease assignment

- They are the lease assignments with remaining lease duration of ≤ 50 years

Long-term lease assignment

- They are the lease assignments with remaining lease duration of > 50 years

Disposal proceeds
- It is the amount received by the lessee from any other person on assignment of lease

Cost of lease
- It is the amount paid by the lessee to the lessor on grant of lease
- It is the sum of lease premium and lease rentals

Tax implications in case of short-term lease assignment

Under income tax
- No tax implication

Under chargeable gains tax

Any gains on short-term lease assignment will be taxable gains after reducing the
-
cost
of lease using the lease depreciation tables
- Any losses on short-term lease assignment will be adjustable losses

Under inheritance tax

- Inheritance tax will be payable on short-term lease assignment during the lifetime of
lessee
- Inheritance tax will be payable on short-term lease assignment due to death of lessee

Tax implications in case of long-term lease assignment

Under income tax

- No tax implication

Under chargeable gains tax

- Any gains on long-term lease assignment will be taxable gains without reducing the cost
of lease using the lease depreciation tables
- Any losses on long-term lease assignment will be adjustable losses

Under inheritance tax

- Inheritance tax will be payable on long-term lease assignment during the lifetime of
lessee
- Inheritance tax will be payable on long-term lease assignment due to death of lessee

Assignment of sub-lease
- It occurs when the sub-tenant (sub-lessee) assigns their right to use the property of
 the landlord (lessor) to any other person

Remaining sub-lease duration

- It is the duration of the sub-lease arrangement remaining on the date of assignment
of sub-lease and it helps in determining the type of sub-lease assignment and the tax
implications

Types of sub-lease assignments

Short-term sub-lease assignment

- They are the sub-lease assignments with remaining lease duration of ≤ 50 years

Long-term sub-lease assignment

- They are the sub-lease assignments with remaining lease duration of > 50 years

Disposal proceeds
- It is the amount received by the sub-lessee from any other person on assignment of
sub-lease

Cost of sub-lease
- It is the amount paid by the sub-lessee to the lessee on grant of sub-lease
- It is the sum of sub-lease premium and sub-lease rentals

Tax implications in case of short-term sub-lease assignment

Under income tax

- No tax implication

Under chargeable gains tax

- Any gains on short-term sub-lease assignment will be taxable gains after reducing the
cost of sub-lease using the lease depreciation tables
- Any losses on short-term sub-lease assignment will be adjustable losses

Under inheritance tax

- Inheritance tax will be payable on short-term sub-lease assignment during the lifetime
of sub-lessee
- Inheritance tax will be payable on short-term sub-lease assignment due to death of
lessee

Tax implications in case of long-term lease assignment

Under income tax

- No tax implication

Under chargeable gains tax

Any gains on long-term sub-lease assignment will be taxable gains without reducing
-
the
cost of sub-lease using the lease depreciation tables
- Any losses on long-term sub-lease assignment will be adjustable losses

Under inheritance tax

- Inheritance tax will be payable on long-term sub-lease assignment during the lifetime
of sub-lessee
- Inheritance tax will be payable on long-term sub-lease assignment due to death of
sub-lessee