Capital Gains Tax

A chargeable gain arises when

A chargeable disposal is made By a chargeable person of a chargeable asset

(In which situation, will CGT be imposed?) (Who will pay CGT?) (On which asset is the CGT impose?)

– Sale – Individuals All assets other than exempt

– Gift – Companies
– Compensation receipt
– Loss/destruction of asset

Date of Disposal:- When the contract is made not when asset transferred

Gain: For an individual asset Pro forma: CGT computation: Mr. Jack 2008/09
£ £
Disposal proceed/ xx Total 08/09 capital gains xx
(M.V, if bargain is not at Arm’s length) less: Total 08/09 allowable losses (max possible extent) (xx)
Less: incidental disposal cost (xx) Net gain xx
(Selling cost, commission, advertising) ____ less: losses b/f 08/09 – restricted (xx)
Net disposal proceeds xx Net capital gains xx
Less: Annual exemption 08/09 (9,600)
Less: Allowable expenditure Taxable gains xx
Cost of purchase (xx)
Incidental cost of purchase (xx) Capital gain tax @ 18% xx
(Site preparation, freight, handling cost)
Subsequent expenditure (improvement) (xx)
Chargeable gain/allowable loss xx/(xx)
Administration and payment:

• CGT is charged for tax years

• Any gain arising from 6/4/08 to 5/4/09 is taxed in 08/09
• CGT is payable on 31 January following the tax year e.g by 31/1/2010 for 2008/09

Returns of Information:

• A written notice of taxable gains must be sent to inspectors within 6 months of the end of tax year.
• Failure to do this, there is a penalty of up to the amount of tax unpaid on 31 January following the tax year.

Losses:

• Current year losses should be adjusted against current year’s gain.

• If an overall loss occurs than it should be carried forward and should be adjusted against the future gains.
• Losses should be claimed in such a way that annual allowance should not expire.

Special cases:
• Part disposal
• Chattel Disposal
• Asset Destroyed/Lost
• Shares and securities
 Part disposal
Part disposal: when some portion of the asset is sold, it is known as part disposal

£
Proceeds xx
Less: incidental cost of disposal (xx)
xx
Less: Cost of the part

Total cost of asset × M.V of the part sold (xx)

M.V of part sold + M.V of remaining part

Capital gain xx

Chattel Disposal

Sale price ≤ £6,000 Marginal relief Disposed at loss Chattel with

Cost ≤ £6,000 Sale price > £6,000 Sale price < £6,000 Sale price > £6,000
Cost < £6,000 Cost > £6,000 Cost > £6,000

Exempt Gain Deemed proceeds £6,000 Normal Calculation

Lower of

a) 5/3 × (gross disposal proceeds – £6,000)

b) Disposal proceeds xx
less: cost (xx)
Gain xx
 Asset Destroyed/Lost
Insurance compensation

Not received Received

Disposal proceeds/Scrape value 0/xx

Less: Allowable expenditure (xx)
xx No replacement Replacement within 12 month

Normal calculation Effect of no gain/no loss

£
Insurance proceed xx Gain of old asset will be
Less: cost (xx) Rolled over again cost of new asset
Capital gain/loss xx/(xx)

£ £
Cost of replacement asset xx
Less: Compensation xx
Add: Scrap value xx
Less: Deemed disposal proceed
of old asset (xx)
(xx)
Replacement asset base cost xx
 Shares and securities

Exempt Securities Valuation Rules(for sales proceeds) Matching rules(for cost)

Lower of 1) Same day purchases
a) Lower quoted price + ¼ × (higher quoted price - lower quoted price) 2) Following 30 Days
b) Highest recorded bargains + Lowest recorded bargains 3) Pool(includes all shares before sale)
2

Investment in government bonds

Investment in gilts

Exempt from CGT

Bonus Shares:
Shares received free of cost Add to pool

Right Shares:
Shares received at discount Add to pool

Calculation:
£
Sale proceeds (valuation rules) xx
Less: cost (matching order) xx
Gain xx