CAPITAL GAINS TAX

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 CAPITAL GAINS TAX : OVERVIEW

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 Capital gains essentials
Chargeable Chargeable assets Chargeable disposals
persons • All assets except • Sale
• Individual specifically exempt • Gift
– resident in UK • Capital sums for • Part disposals
• Company surrender of rights • Loss/destruction of asset
• Trustee • Compensation for damage
Exempt assets include
• Partners in
partnership
• Cars Exempt disposals
• Wasting chattels • Transfers on death
• Non wasting chattels ≤ £6,000 • Gifts to charity
• Cash
• Qualifying corporate bonds (QCBs)
owned by individuals
• Assets held in ISAs
• Trading inventory, receivables
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© ACCA • Endowment policy proceeds
 Pro forma computation
Notes £
Gross sale proceeds (1) X
Less: Selling costs (2) (X)
Net selling price X
Less: Allowable costs (3) (X)
Capital gain X

Notes:
1. Use market value where transaction not at arm’s length
2. Include legal fees, advertising costs, etc.
3. Includes purchase price and purchase expenses (e.g. legal
fees), and any capital enhancement expenditure
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 Summary for 2019/20
£
Net chargeable gains for the tax year (after specific reliefs) X
Less: Annual exempt amount (2019/20) (12,000)
X
Less: Capital losses b/f (X)
Taxable gains X

CGT payable (Appropriate rate × Taxable gains) X

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 CGT payable for 2019/20
Rate of CGT depends on amount of taxpayer’s total taxable income
– If total taxable income and gains are less than upper limit
of BRB = CGT at 10% (18% residential property gains)
– To extent any gains (or any part of gains) exceed BRB =
taxed at 20% (28% residential property gains)
BRB extended for gross gift aid and gross personal pension contributions
Unused personal allowance cannot be used against gains

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 CGT variations to pro forma

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 Connected persons

• Civil partners are treated the same as spouses

• Transfers between spouses/civil partners living together made at cost

Effect of being connected

• Use MV instead of actual proceeds
• Loss relief restricted – only offset against gains to same connected person
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 Assets lost or destroyed
No insurance Insurance proceeds
proceeds received

Normal
computation:
capital loss
Partially reinvested within
Reinvested 12 months:
Not reinvested:
within 12
normal - immediate gain =
months:
computation proceeds not reinvested
elect for no (limited to gain itself)
gain/no loss
- rollover remaining gain
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 Assets damaged
No insurance Insurance proceeds
proceeds received

No disposal
Not used in Used in restoration
restoration

Normal part disposal Part disposal unless

‘rollover’ election to
deduct proceeds from
cost of asset

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CAPITAL GAINS TAX: SHARES AND
SECURITIES
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 Shares and securities
Identification rules Valuation rules Bonus and rights
Individuals issues

Disposals matched Quoted shares: Bonus shares:

with acquisitions: • Mid price (i.e. • Free shares
• Same day average) of quoted
• Next 30 days prices on the date of Rights shares:
(FIFO) the transaction • Shares at discount
• Share pool
Unquoted: In both cases
• Valuation (given) – add to pool

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 Takeovers
‘Paper for paper’ Mixture of ‘paper’ and
exchange cash
• No CGT disposal if
Cash element small Cash element not
satisfy conditions small
• Clearance 1.≤ 5% of total value
– Acquire > 25% or 1.> 5% total value
– Bona fide 2.≤ £3,000 if higher and
commercial reason 2. > £3,000
• Cost of original No CGT
implications at Cash received
shares becomes
date of exchange = part disposal
13 cost of new shares
• Can elect for normal
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 Shares and securities – other points
QCBs
– Exempt assets
– Treatment on takeover:
- calculate gain on takeover as if cash consideration
- freeze the gain
- until the disposal of the QCBs
Liquidations
– Payment before liquidator appointed = income
– Payment after liquidator appointed = capital
Losses on unquoted shares
– Can convert a capital loss into an income tax loss

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 STAMP TAXES

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 Stamp taxes
Stamp Duty Stamp Duty Land Tax (SDLT)
(SD)
Payable on Transfers of shares and securities Transactions in UK land and property
Rate 0.5% of consideration Up to 5% on commercial property
Minimum £5 depending on:
• Value of consideration
Rates given in exam
Specific Government stock
exemptions Most company loan stock
General • Gifts
exemptions • Transfers between 75% group companies
– Withdrawn if transferee company leaves group
within 3 years still owning asset
– Not available if arrangements to sell transferee
company in force

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 CAPITAL GAINS TAX: RELIEFS FOR
INDIVIDUALS
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 Entrepreneurs’ relief (ER)
Only available to individuals
First £10 million of gains on ‘qualifying business disposals’ = taxed at 10%
£10 million = lifetime limit
Qualifying gains treated as using BRB before other gains
Allowable losses and AEA offset first against gains not qualifying for ER
10% rate applied after deducting:
− any remaining balance of allowable losses, and
− AEA
• Claim date: For 2019/20 disposals = 31 January 2022

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 Entrepreneurs’ relief

Qualifying business disposals

– Unincorporated business (whole or part), or
– Personal trading company shares (≥ 5%) provided also an
employee (part time or full time)
– Individual assets from an unincorporated business that has ceased
– Associated disposals
– Exclude goodwill transferred to related close company

Qualifying ownership period

– 2 years (must also be employed for 2 years if shares)
– Disposal within 36 months of cessation if assets disposed of out of
a business that has ceased
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 Investors’ relief (IR)

From 6 April 2016, investors’ relief was introduced

Extends the benefits of ER to certain investors who would not meet the
conditions for ER.
IR applies to the disposal of:
 unlisted ordinary shares in a trading company (including AIM shares)
 subscribed for (i.e. newly issued shares) on/after 17 March 2016
 which have been held for a minimum period of 3 years starting on 6 April 2016
 by an individual that is not an employee of the company.
IR is subject to a separate lifetime limit of £10m qualifying gains.
Note that the 2019/20 tax year is the first year that a claim for IR can be
made due to the 3 year minimum holding period.

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 Principal private residence
PPR occupied

Throughout For part of period of If property let

ownership

• Deduct PPR relief first

• Calculate gain • Letting relief
Gain exempt
• PPR relief = Lowest of
Period of occupation 1.£40,000
Gain x Period of ownership 2.PPR relief
3.Gain (after PPR) that
is due to letting
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 Deemed occupation
Conditional Unconditional
Up to 3 years - any reason
Last 18 months of ownership
Any period employed abroad
Up to 4 years
− working elsewhere in the UK
(employed or self-employed)
− working abroad
if self-employed
Must be actual occupation
at some point before and after
Condition relaxed
if reoccupation prevented by
terms of employment

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 Rollover relief (ROR)
Disposal of and reinvestment in

Qualifying business asset Within qualifying time

(QBA): period:
• Land and buildings
• Fixed plant and machinery From 12 months before to
• Goodwill 36 months after the sale
(unincorporated businesses only)
• Must be used in the trade

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 Rollover relief
Partial reinvestment
– A gain arises on the disposal of the original asset = lower of:
• the proceeds not reinvested
• the chargeable gain
Depreciating assets
– Life ≤ 60 years
(e.g. leasehold property, fixed plant and machinery)
– Gain deferred until earliest of:
• Sale of depreciating asset
• Depreciating asset ceases to be used in the trade
• 10 years from acquisition of depreciating asset

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 Rollover relief
Claim for ROR
must be made within 4 years of the later of the end of the tax
year in which the asset is:
- sold, or
- replaced

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 Gift relief (GR)

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 Incorporation relief
Conditions • All the assets of the business (except cash) must be
transferred
• The transfer must be of a business as a going concern
• Consideration must be wholly or partly in shares
Effect • No gains arise on incorporation
• Gain on sale of assets is rolled over against the acquisition
cost of shares
Consideration not • Gain eligible for deferral:
wholly in shares Gain x Value of shares issued
Total consideration
• Immediate gain for non shares consideration
Election • Can elect for incorporation relief not to apply
• May be beneficial if shares would not qualify for ER (pre-transfer ownership
can be taken into account for the 2 year condition)

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 EIS reinvestment relief
Individual disposes of ANY asset and reinvests money in EIS shares
– Can defer gain until dispose of EIS shares
– Must buy shares within:
1 year before, and
3 years after the disposal of the asset

• Can choose to defer any amount of gain up to the amount invested in EIS shares,
hence can leave some gain chargeable to use AEA

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 SEIS reinvestment relief
Individual disposes of ANY asset and reinvests money in SEIS shares which qualify for
IT relief:
– Some of the gain will be exempt from CGT
• Maximum SEIS exemption:
– 50% of the lower of:
• gain
• amount reinvested
• Can claim any amount of relief up to the maximum
• Maximum CGT exemption is £50,000 as the maximum investment for income tax is
£100,000

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