Lecture 8 Notes: Capital Gains Tax Describe the introduction and development of capital gains tax Calculate capital gains tax liability Describe the CGT reliefs CGT outline: Asset disposed of (sold) for more than it cost to acquire (increase in value of asset over time) = Chargeable gain on sale of capital asset Individual - pays CGT on net chargeable gains (gains - losses) for tax year: - Deduct annual exemption allowance (AEA) - Charged for tax years like income tax - Bring forward unrelieved losses to use after AEA - Payable 31st Jan following the tax year So CGT for 2022-23 is payable in January 31st 2024 Companies - not liable to CGT but pay corporation tax on net gains instead - Calculations mostly the same as for individuals but NO annual exemption given, instead Indexation Allowance applies 1982 - Indexation allowance given for an allowance due to gain arising from inflation (only real gains taxed) FA98 abolished indexation allowance for individuals ft replaced with a taper relief system (companies still get indexation allowance) FA08 abolished taper relief and replaced with a new flat rate of tax (18%) FA10 new rate of CGT introduced for higher and additional rate taxpayers (28%) from 23.06.2010 FA16 CGT rates reduced to 10% and 20% for most taxpayers FA17 CGT rates for residential properties increased to 18% and 28% Currently CGT approximately 1.7% of UK direct tax revenue CGT liability may arise when: - A chargeable person, makes a chargeable disposal, of a chargeable asset Chargeable Person Is: - Individual who is resident in UK during tax year disposal occurs But not: - Charities, approved superannuation funds, local authorities, friendly societies, scientific research
Chargeable Disposals Disposals: - CGT arises on sale, gift or surrender of rights to all or part of an asset - Deemed to take place when title is transferred Exempt disposals (no CGT liability arises): - Transfer on death (deemed acquired by beneficiary at value on date of death, IHT applicable) - Transfers of asset as security for loan or mortgage - Gifts of assets to charities Chargeable Assets: All assets are chargeable unless specifically exempt: All assets chargeable unless specifically exempted eg: - Motor vehicles of any age, - National savings certificates, premium bonds, - Foreign currency (for private use) - Decorations for valour (brave conduct) - Personal or professional injury payments (compensation), - Own life assurance policies, - Gilt-edged securities (eg Treasury bonds), - Qualifying corporate bonds (debentures) - Pension and annuity rights, - Betting and gambling winnings (including lottery wins), - Investments held in ISAs/LISAs Individuals: - AEA = £12,300 (only excess is taxable) (reducing to £6,000 for coming tax year and £3,000 following) Tax at flat rate of 10% for BRB or 20% for HRB/ARB For disposals of residential property, rates are 18% and 28% Computation Gain calculated for each chargeable asset by deducting allowable expenditure from net proceeds: Gross Proceeds (or market value) X less Incidental costs of disposal = Net disposal proceeds x (X) less