CAPITAL GAINS TAX

1
CAPITAL GAINS TAX

• Introduced to plug gaps in income tax system
• Originally flat-rate tax with no relief for
  inflation
• Indexation introduced from 31 March 1982
• Rebasing introduced back to 31 March 1982
• Indexation abolished Tapering Relief
  introduced-companies only

2
CAPITAL GAINS DEFINITION

• Disposal- includes all alienation of ownership
  rights sales, gifts, destruction of assets,
  death(!)
• Assets-all forms of legal property- tangible and
  intangible
• Part-disposals also included

3
CGT-EXEMPTIONS

• Exempt disposals- consideration liable to income
  tax/death/gifts to charities
• Exempt assets- PPR/Debts/Gambling Wins/Govt
  Securities/Company debentures/Motor Cars/ Wasting
  chattels (non-business)/ Chattels lt 6,000
• Damages for personal/professional injury or wrong

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CGTTERRITORIAL LIMITS
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CGT OUTLINE COMPUTATION
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CGT KEY CONCEPTS

• Consideration sale price or MV if a gift or
  not at arms length or between connected
  persons
• Disposal exes- includes valuation fees
• Acquisition costs- purchase price or MV-includes
  related costs eg legal fees
• Enhancement expenditure- capital improvements
  generally of lasting nature

7
CAPITAL GAINS TAX PART DISPOSALS

• Applies where part of asset still retained by
  disponer
• Cost and (if relevant ) enhancement expenditure
  is attributed to part-disposal using A/ (AB)
  formula
• Indexation applies in normal way
• Cost not attributed is carried forward against
  future disposals

8
CGT COMPUTATIONAL ISSUES

• Assets held on 31 March 1982- rebased and
  indexation runs from that date
• Annual exemption- 8200 per individual for
  2004-05
• Rates of tax- top rate of income tax assume 40
• For individuals, indexation stops at 4 April 1998

9
TATERING RELIEF

• Runs from 6 April 1998- individuals only, not
  companies
• Business assets , including unquoted shares- gain
  reduced by 75 after 2 years
• effective maximum rate of 10
• Non-business assets gain reduced by 60 after 10
  years

10
CAPITAL LOSSES

• Capital losses must be set off against capital
  gains in same tax yearnet gains
• Annual exemption deducted from net gains
• Losses offset against non-tapered gains first
• Unused losses are carried forward to future tax
  years
• C/f losses do not result in wastage of annual
  exemption

11
REPLACEMENT OF BUSINESS ASSETS

• Deferral-possibly permanent- of tax
• Gain is not taxed but instead is rolled over into
  cost of replacement asset
• Applies to certain business assets-buildings,
  goodwill, fixed plant goodwill n/a to companies
• Relief restricted where full proceeds not
  reinvested
• Holdover relief instead if lifelt 60 years

12
CGT GIFT HOLDOVER RELIEF

• Gifts disposal and acquisition at MV
• Holdover relief deferral (maybe permanent) of
  gain
• Gain on disposal not taxed but may be rolled over
  into cost of acquisition
• Applies to business assets, unquoted shares in
  trading companies
• Impact on tapering relief