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ATX - CGT - Part 3 (updated) Flipbook PDF
ATX - CGT - Part 3 (updated)
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Negligible value claims If the value of an asset becomes negligible for whatever reason, the owner may claim relief. They are then treated as having disposed of, and immediately reacquired, the asset at its negligible value. This treatment cystallises a capital loss. The deemed disposal is treated as occurring: At the date of the claim , or Up to two years before the start of the tax year in which the claim was made. The back dating of the capital loss applies only if the asset was actually of neglibible value at both the date of the claim and the earlier date.
Payment by installments CGT may be paid by installments: •where consideration is received in installments, and •on certain lifetime gifts.
Payment by installments Event
Payment details
If the consideration is received in installments Installments may be spread over the shorter of: over a period of more than 18 months. • eight years • the period over which payment of the disposal proceeds is spread. Interest on overdue tax is only charged if an installment is paid late.
• •
•
Gifts:
Installments may be paid: of land, or an interest in land; or • in ten equal annual installments out of a controlling interest in shares or• starting on the normal due date. securities (quoted or unquoted); or out of a minority interest in shares orThe tax not paid on the normal due date, will attract late securities of an unquoted company payment interest calculated in the normal way.
where the donor is not entitled to gift relief
The interest is payable with the remaining installments.
Transfer of ISA on death Upon death, an ISA allowance equal to the deceased individual's ISA savings can be claimed by the surviving spouse/civil partner
Stamp duty land tax There are two types of stamp taxes: Stamp duty land tax (SDLT) is payable on transactions involving land, unless the transaction is specifically exempt.
Transactions Stamp duty
Transfers of shares and other marketable securities
Stamp duty land tax
Transfers of UK land and property
SDLT is payable: by the purchaser on the transfer of land and property, lease premiums and rent paid under leases based on the value of the property transferred and the type of property.
Administration of stamp duty land tax , SDLT is payable: by the purchaser with the return which should be submitted within 30 days of the completion date (i.e. the date on which the contract for the land transaction is legally completed). Late payment interest is charged on late paid tax. Penalties may be charged.
Administration of SDLT The purchaser will receive a certificate from HMRC which must be submitted to the Land Registry in order to register ownership of land. HMRC will issue the certificate immediately but will then have nine months in order to make an enquiry into the return.
Penalties may be charged
Non residential property rates(SDLT)
£ 150,000 or less
0
£150,001 - £ 250,000
2%
£250,000 and above
5%
Residential property (SDLT)
£125,000 or less
0
£125,001 - £250,000
2%
£250,001 – 925,000
5%
£925,001 – 1,500,000
10%
£1,500,001 or more
12%
Small part disposals of land buildings Where the proceeds received on the part disposal of land and buildings are ‘small’, a part disposal gain arises unless an election is made. The effect of making an election is that: • • • •
There will be no part disposal at the time The gain is deferred until the disposal of the reminder The gain is deferred by deducting the proceeds received on the small part disposal from the original cost of the asset The base cost of the part retained is therefore reduced and the gain arising on the subsequent disposal of the remainder will be higher.
DEINITION OF SMALL PROCEEDS OF THE PART DISPOSAL : 1) EITHER EQUAL TO OR LESS THAN THE 20% OF THE VALUE OF THE LAND AND BUILDINGS BEFORE THE PART DISPOSAL, AND 2) TOTAL VALUE OF ALL LAND SALES IN THE YEAR IS EITHER EQUAL TO OR LESS THAN £ 20,000
Leases There are two situations relating to leases that are examinable: the assignment of a long lease the assignment of a short lease. The assignment of a lease means the complete disposal of the leasehold interest in the property and is usually by way of a sale or a gift.
The calculation of the chargeable gain The CGT treatment on the assignment of a lease is as follows:
Long lease (i.e. a lease with > 50 years to run at the date of disposal)
Normal gain computation applies.
Short lease (i.e. a lease with 50 years or less to run at the date of disposal)
Disposal of a wasting asset The allowable expenditure is adjusted to take account of the depreciating nature of the asset The cost is multiplied by the fraction: % for life of the lease left on disposal date ___________________________________ % for life of the lease left on acquisition
If required, HMRC's lease depreciation percentages will be given in the examination question.
EXAMPLE Peter sold a leasehold shop for £90,000 on 30 September 2017. He had acquired the lease for £50,000 on 1 October 2016 when the lease had 40 years to run. Lease percentages are as follows: 40 years 95.457% 39 years 94.842% Compute the chargeable gain arising on the assignment of the short lease in the tax year 2017/18.
The lease percentage calculation The length of time remaining on a lease at the time of disposal and acquisition is normally straightforward to calculate. However, there are two situations to look out for: The end of the lease is taken to be: the earliest date when either the landlord or the tenant has the option to terminate the lease.(for earliest termination contract ) The length of time remaining on the lease may not always be a whole number of years. Where this is the case: calculations are performed to the nearest month depreciation in between each year is deemed to occur on a straight line basis 1/12th of the difference between the percentages for the years either side of the actual duration is added for each extra month.
EXAMPLE Jim purchased a lease with 48 years to run on 1 September 2012 for £62,000. On 28 January 2018 he sold the lease for £75,000. Calculate the chargeable gain arising on the sale.
Lease percentages are as follows: 48 years 99.289% 43 years 97.107% 42 years 96.593%
Sale of rights nil paid If the shareholder who is offered the rights issue does not wish to purchase more shares in the company, they can sell the right to buy the new shares to another person. This is known as a 'sale of rights nil paid'. \ The treatment of a 'sale of rights nil paid' for CGT purposes depends on the : amount of sale proceeds (SP) received
If SP received are:
CGT treatment:
>5% of the value of the shares on which the rights are offered; and >£3,000.