chapter 6 - chargeable gains

chargeable disposal

sale or gift of asset, eg:

• sale/gifts of assets or part of assets

• loss or destruction of asset (if money is received from insurance, money is disposal proceeds)

occurs on the date of the contract or when the date of a conditional contract becomes unconditional

exempt disposals

disposal w no chargeable gain or loss, includes:

• transfers on death

• gifts to charities

chargeable asset

• all assets are chargeable (unless exempt)

exempt assets

• motor vehicles for private use

• UK gov stocks

• qualifying corporate bonds (company loan stock)

• wasting chattels (race horses)

• premium bonds

• investments held in an ISA

basic capital gains computation

disposal consideration is deemed to take place at market value when the disposal is:

• a gift

• made for consideration that cant be valued

• made to a connected person (if taxpayer buys at a bad bargain, then actual proceeds is used)

costs:

• incidental costs (costs of selling asset (eg advertising, estate agents, legal costs, valuation fees)

• allowable costs: original purchase price of asset & costs incurred of purchasing asset

year end computation

annual exempt amount

• amount of capital gains a taxpayer may realise in a tax year before capital gains tax is deducted

• 3,000

losses

• offset against current year gains

• excess is carried forward and deducted AFTER future year annual exempt amount has been deducted

when is CGT payable

31 January

part disposal

• must determine the cost of the part of the asset that was disposed by:

COST * (A/ A+B)

A - market value (of part that was sold) before deducting incidental costs of disposal (basically disposal proceeds)

B - market value of part of asset that wasnt sold

chattel

tangible moveable property

wasting chattel

chattel with an estimated remaining useful life of <50 years (eg race horse or greyhound)

exempt from CGT

rule for computing gains/ losses on non-wasting chattels

transfers to connected persons

• if disposal is made to a connected person, the disposal is deemed at market value

• allowable losses can only be offset against gains in current or future tax years from disposals to the SAME connected persons

• and can only be set off if its still connected to the same person making the loss

who are the connected persons

transfers between spouses / civil partners

• taxed as two separate people.

• losses of one individual cannot be offset against the others gains

• disposals cannot have chargeable gains or allowable losses

• the person who acquired the disposal (during transfer) takes the original cost at which the other individual bought it for

tax planning

consider:

• delaying sale of an asset after end of tax year (gives you next years annual exempt amount + another yr to pay tax)

• spouses may transfer assets at no gain no loss, so make sure the asset is sold by the partner who: pays tax at a lower rate, unused annual exemption and has capital losses