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1 ACCAspace Provided by ACCA Research Institute ACCA P6 Advanced Taxation(uk) (AT uk) 高级税务 ( 英国 ) ACCA Lecturer: Shelley Song

2 Chapter 11 Chargeable Gains: an Outline 1 Chargeable and Exempt Persons, Disposals and Assets 2 Calculating CGT 3 Married Couples and Civil Partners 4 Part Disposals 2

3 1 Chargeable and Exempt Persons, Disposals and Assets For a chargeable gain to arise there must be: A chargeable person; and A chargeable disposal; and A chargeable asset otherwise no charge to tax occurs. 1.1 Chargeable and Exempt Persons 1.2 Chargeable and Exempt Disposals 1.3 Chargeable and Exempt Assets 3

4 1.1 Chargeable and Exempt Persons Chargeable Persons Individuals Partnerships Companies Trustees Exempt Persons Persons who are not resident in the UK are usually exempt persons Spouse/Civil partner 4

5 1.2 Chargeable and Exempt Disposals Chargeable Disposals Timing of a Disposal Sales of assets or parts of assets Gifts of assets or parts of assets Receipts of capital sums following the surrender of rights to assets The loss or destruction of assets A chargeable disposal occurs on the date of the contract. when a capital sum is received on a surrender of rights or the loss or destruction of an asset, the disposal takes place on the day the sum is received. Transfers of assets on death are exempt disposals. The heirs inherit assets as if they bought them at death for their then market values, but there is no capital gain or allowable loss on death. 5

6 1.3 Chargeable and Exempt Assets Definition All forms of property, wherever in the world they are situated, are chargeable assets unless they are specifically designated as exempt. Exempt Assets Motor vehicles suitable for private use National Savings & Investments(NSI) certificates and premium bonds Foreign currency bank accounts held by individuals, trustees and personal representatives Decorations awarded for bravery (unless purchased) Damages for personal or professional injury Gilt-edged securities (eg Treasury Stock) Qualifying corporate bonds (QCBs) EIS, SEIS, VCT shares Debts (except debts on a security) Investments held in individual savings accounts (ISAs) Certain chattels 6

7 Certain Exempt Chattels Eligible for Capital Allowance Either>6,000 Gain: Normal Loss:Nil Wasting Both<6,000 Exempt Non-Eligible for Capital Exempt Allowance Chattels Both>6,000 Normal Both<6,000 Exempt Non-Wasting One<6000 Capital Gain Capital Loss Limit to 5/3 (Proceeds-6000) Gross Sales Proceeds=6000 Non-Chattels Wasting Non-Wasting Allowable cost=[(predictable Life-Period of Ownership)/Predictable Life] ÁCost Normal 7

8 2 Computing Capital Gains Tax 2.1 Computing a Gain or Loss 2.2 Capital Gains Tax Rate 2.3 Allowable Losses 8

9 2.1 Computing a Gain or Loss A gain (or an allowable loss) is generally calculated as follows. Disposal consideration X Less incidental costs of disposal (X) Net proceeds X Less allowable costs (X) Gain X 9

10 Disposal Consideration Usually the disposal consideration is the proceeds of sale of the asset, but a disposal is deemed to take place at market value: Where the disposal is not a bargain at arm's length Where the disposal is made for a consideration which cannot be valued Where the disposal is by way of a gift. Special valuation rules apply for shares. 10

11 Valuing Assets_Special Rules for Shares and Securities Market value must be used in certain capital gains computations. There are special rules for shares and securities.the market value of quoted shares is the lower of: the two quotations on any day plus one quarter of the difference between the values, the `1/4 up value the mid-point between the highest and lowest prices at which bargains were done on the day except bargains at special prices. 11

12 Example: Valuing Assets_Special Rules for Shares and Securities? On 31 March 2016 the Daily Official List shows the following details for 25p ordinary shares in Marks & Spencer plc. Range of Prices quoted 335p - 340p 1/4 up value=336.25p Range of Bargains done 337p - 341p mid-point=339p The market value of Marks & Spencer plc 25p ordinary shares on 31 March 2016 is therefore p per share. 12

13 Incidental Costs of Disposal & Allowable Costs Incidental Costs of Disposal Valuation fees Estate agency fees Advertising costs Legal costs. Allowable Costs The original cost of acquisition Incidental costs of acquisition Capital expenditure incurred in enhancing the asset Capital expenditure which enhances the value of the asset and is reflected in the state or nature of the asset at the time of disposal, or expenditure incurred in establishing, preserving or defending title to, or a right over, the asset. Costs of repairs and maintenance Excluded Costs of insurance Any expenditure deductible from trading profits Any expenditure met by public funds (for example council grants) 13

14 Example: Computing a Gain or Loss Joanne bought a piece of land as an investment for 20,000. The legal costs of purchase were 250. Joanne sold the land in December 2015 for 35,000. She incurred estate agency fees of 700 and legal costs of 500 on the sale. Calculate Joanne's gain on sale. Proceeds of sale 35,000 Less costs of disposal ( ) (1,200) Net proceeds of sale 33,800 Less allowable costs (20, ) (20,250) Gain 13,550 14

15 2.2 Capital Gains Tax Rate CGT is usually payable at the rate of 18% or 28% depending on the individual s taxable income. Individuals are entitled to an annual exempt amount. An individual pays CGT on any taxable gains arising in the tax year. Taxable gains are the net chargeable gains (gains minus losses) of the tax year reduced by unrelieved losses brought forward from previous years and the annual exempt amount. The annual exempt amount applies each tax year. For 2015/16 it is 11,100 15

16 Example: Capital Gains Tax Mo has taxable income of 24,775 in 2015/16. He made personal pension contributions of 200 (net) per month during 2015/16. In December 2015, he makes a chargeable gain of 28,200. Calculate the CGT payable by Mo for 2015/16. Chargeable gain 28,200 Less: annual exempt amount (11,100) Taxable gain 17,100 Basic rate band limit 31,785 Add: personal pension contributions (200 12) = 2, /80 3,000 Increased basic rate limit 34,785 CGT (34,785 24,775) = 10,010 (unused basic rate 18% 1,802 (17,100 10,010) = 28% 1,985 Total CGT payable 3,787 16

17 2.3 Allowable Losses Deduct allowable capital losses from chargeable gains in the tax year in which they arise. Any loss which cannot be set off is carried forward to set against future chargeable gains. Losses must be used as soon as possible. Losses may not normally be set against income (unless they arise on the disposal of certain unquoted trading company shares_eis,seis,vct). 17

18 Allowable Losses (Cont.) Allowable losses brought forward are only set off to reduce current year chargeable gains less current year allowable losses to the annual exempt amount. No set-off is made if net chargeable gains for the current year do not exceed the annual exempt amount. Bob has gains of 15,000 for 2015/16 and allowable losses brought forward of 6,000. Bob restricts his loss relief to 3,900 so as to leave net gains of (15,000-3,900) = 11,100, which will be exactly covered by his annual exempt amount for 2015/16. The remaining 2,100 of losses will be carried forward to 2016/17. 18

19 Losses in the Year of Death Losses arising in the tax year in which an individual dies can be carried back to the previous three tax years, later years first, and used so as to reduce gains for each of the years to an amount covered by the appropriate annual exempt amount. Only losses in excess of gains in the year of death can be carried back. 19

20 Example: Losses in the Year of Death Joe dies on 1 January His chargeable gains and allowable loss have been as follows. Gain/(loss) Annual exempt amount 2015/16 2,000 11,100 (12,000) 2014/15 11,200 11, /14 9,000 10, /13 28,000 10,600 We must set off the loss against the 2015/16 gains first even though the gains are covered by the 2015/16 annual exempt amount. Only the 10,000 net loss which arises in 2015/16 will be carried back. 200 of the loss will be used in 2014/15. None of the loss will be used in 2013/14 (because the gains for that year are covered by the annual exempt amount), and so the remaining 9,800 will be used in 2012/13. Repayments of CGT will follow. 20

21 3 Married Couples and Civil Partners Disposals between spouses/civil partners who are living together give rise to no gain and no loss, whatever actual price (if any) was charged by the person transferring the asset to their spouse/civil partner. The no gain/ no loss treatment does not apply to employee shareholder shares. 21

22 Example: Married Couples and Civil Partners Harry has taxable income of 60,000 in 2015/16 and makes chargeable gains of 20,000 in 2015/16 on share disposals. His wife, Margaret, has taxable income of 4,275 in 2015/16 and has no chargeable assets. Harry bought a plot of land for 150,000 in He gave it to Margaret when it was worth 180,100 on 10 May Margaret sold it on 27 August 2015 for 188,200. The land does not qualify for entrepreneurs relief. Calculate any chargeable gains arising to Harry and Margaret in respect of the land and show the tax saving arising from the transfer between Harry and Margaret, followed by the disposal by Margaret, compared with Harry directly disposing of the land in August

23 Example: Married Couples and Civil Partners (Cont.) The disposal from Harry to Margaret is a no gain no loss disposal. Harry has no chargeable gain, and the cost for Margaret is Harry's original cost. The gain on the sale by Margaret is: Proceeds of sale 188,200 Less cost (150,000) Gain 38,200 Less AE (11,100) Taxable gain 27,100 Taxable income 4,275 CGT 27100@18% In contrast, Harry would have paid CGT on 38,200 at 28%. The tax saving is therefore: Tax saved on annual exempt amount 28% 3,108 Tax saved at basic rate (28 18)% 2,710 Tax saving on disposal by Margaret instead of Harry 5,818 23

24 4 Part Disposals On a part disposal, the cost must usually be apportioned between the part disposed of and the part retained. The amount of the cost attributable to the part sold is: A OCWA A + B A the proceeds (for arm's length disposals) before deducting incidental costs of disposal B market value of the remainder OCWA the original cost of the whole asset 24

25 Example: Part Disposals Mr Heal owns a 4 hectare plot of land which originally cost him 150,000. He sold one hectare in July 2015 for 60,000. The incidental costs of sale were 3,000. The market value of the 3 hectares remaining is estimated to be 180,000. What is the gain on the sale of the one hectare? The amount of the cost attributable to the part sold is 60,000/(60, ,000) 150,000 = 37,500 Proceeds 60,000 Less disposal costs (3,000) Net proceed of sale 57,000 Less cost (37,500) Gain 19,500 25

26 Land: small part disposal proceeds Where the consideration for a part disposal of land does not exceed 20% of the market value of the entire holding of land prior to the part disposal, a chargeable disposal does not take place. The taxpayer must make a claim by the first anniversary of 31 January following the end of the tax year. The net disposal proceeds are deducted from allowable expenditure when computing a gain on a later disposal of the remaining land. 26

27 Example: Land: small part disposal proceeds Bertha buys 10 acres of land for 20,000. She sells 1 1/2 acres for 5,000 in July 2015 and disposal costs amount to 50. Market value of the land immediately prior to the disposal is 30,000. You are required to show Bertha's CGT position. The consideration ( 5,000) is less than 20% of market value (20% of 30,000 = 6,000). Bertha may therefore claim for the relief to apply. As a result, no chargeable disposal takes place in July Allowable cost of the land retained is: Cost of 10 acres 20,000 Deduct: net proceeds of part disposal ( 5,000 50) (4,950) Allowable expenditure of land retained 15,050 27

28 Example: Land: small part disposal proceeds There are two further conditions to meet before this relief can apply: proceeds from the part disposal do not exceed 20,000; and aggregate proceeds from the part disposal and any other disposals of land (including buildings) in the same tax year do not exceed 20,000. If, in the previous example, Bertha had made another disposal of land for 15,750 in 2015/16, the relief could not apply since proceeds for the tax year (ie 15, ,000 = 20,750) would exceed 20,000. The normal part disposal rules would apply. 28

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