Lecture 8 Capital Gains Tax Reliefs and Exemptions

A set of flashcards designed to help students understand and memorize key concepts related to capital gains tax reliefs and exemptions.

What is the main focus of the current lecture on Capital Gains Tax?

The lecture is focused on the reliefs available to reduce capital gains tax liability.

What is private residence relief?

It exempts capital gains from the sale of an individual's main residence.

What are the conditions for private residence relief to apply?

The property must be the individual’s main residence and not used exclusively for business purposes.

What is the maximum exemption period for a property under private residence relief after moving out?

The final nine months of ownership are exempt from capital gains tax.

What is business asset disposal relief formerly known as?

It was previously called Entrepreneur's Relief.

What is the tax rate for business asset disposal relief?

The current rate is 10% of the gain.

What is Investors Relief?

A relief that offers a 10% rate of tax to certain investors who do not qualify for business asset disposal relief.

What determines the eligibility for Investors Relief?

The shares must be unlisted and owned for at least three years after purchase.

What is gift relief?

A relief allowing a capital gain to be deferred when an asset is gifted to a connected person.

What is the significance of a claim for gift relief for both partys involved in the transaction?

Both parties need to agree to the claim, as it affects future tax implications.

How does rollover relief differ from other reliefs?

Rollover relief defers capital gains tax when proceeds from selling an asset are reinvested in a qualifying new asset.

What types of assets qualify for rollover relief?

Freehold lands, fixed plant machinery, goodwill associated with a business.

What happens if all proceeds from a business asset sale are not reinvested under rollover relief?

Only the portion reinvested can defer the capital gains tax; the uninvested amount will be taxable.

What is total exemption in capital gains tax?

It refers to situations where no capital gains tax arises, like when a taxpayer dies.

What is a part exemption in capital gains tax?

Applies when part of the property has not been the main residence for the entire ownership period.

Under what circumstances can married couples or civil partners only claim one private residence relief?

If they own two properties and only live in one as their main residence.

What is letting relief?

A limited relief allowing landlords to claim some exemption when renting out part of their residence.

Why is letting relief now considered more restricted than before April 2020?

It is only available when the property is rented to a third party while the owner is living there.

What must be evidenced for private residence relief?

Genuine occupation of the property as a main residence must be demonstrated.

What happens if a taxpayer is absent from their residence due to employment overseas?

They can qualify for private residence relief without having to move back into the property.

What is the cumulative limit for business asset disposal relief?

Up to £1 million of gains taxed at a 10% rate over a taxpayer's lifetime.

What can cause a loss of eligibility for business asset disposal relief?

Not owning at least 5% of the shares in the company at the time of disposal.

What are the HMRC enquiries based on in relation to capital gains?

They can cross-check property sales against declared capital gains under self-assessment.

What is required for a property's grounds and outbuildings to be exempt under private residence relief?

They must be included within half a hectare of the property.

What is the significance of having registered addresses or evidence of residence?

These are used by HMRC to verify claims for private residence relief.

How does the tax treatment differ for residential property versus shares in a trading company?

Residential property gains are taxed at a higher rate than business asset disposals.

What are the steps involved in calculating the taxable gain?

Calculate total period of ownership versus periods of actual occupation to find exempt amounts.

What is the maximum absence period applicable for private residence relief on a main home?

A taxpayer can be absent from the property for a total of three years during ownership.

How can taxpayers apply for business asset disposal relief?

They must declare eligibility on their self-assessment tax return.

What should taxpayers consider if they plan to sell a property after the exemption period?

They need to assess potential capital gains tax implications for future sales.

What is the rationale behind gift relief as it pertains to business succession?

It helps facilitate the succession of family businesses without creating a taxable burden.

What is the impact of gift relief on future capital gains for the recipient?

The deferred gain carries over to the recipient, potentially increasing their future taxable gains.

Why is understanding the rules of relief essential for taxpayers?

It aids in effective tax planning and ensuring compliance with tax regulations.