Capital Gains Tax Seminar

CGT Seminar(Capital Gains Tax)

Presenter: Zee Shan

Content:1. Introduction of the presenter;2. When to complete CGT computation;3. When not to complete CGT computation;4. Calculation template;5. Property transactions;6. Shares transactions;7. Reliefs;8. Q & A

Presenter: Zee Shan

Introduction of the Presenter

Zee Shan Bawany CTA ACCA MAAT

Leicester Regional Tax Manager

Smartfield Accountants

EducationQualification Centre

CTA (Chartered Tax Adviser) BPP Birmingham

ACCA (Association of Chartered Certified Accountants) De Montfort Uni

ATT (Association of Tax Technicians) FTC Birmingham

C & G 7407 Teacher Training Leicester College

AAT (Association of Accounting Technicians) Leicester College

BTEC National Diploma in Computing Leicester College

Smartfield Limited Tax Manager

Abbey Tax Plc Tax Consultant

Smith Hannah Ltd Head of Personal Tax

Leicester College Tax Lecturer

Employment

Hobbies

Hobbies

October 2014

Hobbies

July 2015

Hobbies

Abbreviations

CGT = Capital Gains TaxAE = Annual Exemption

CGT Supplementary Pages required if:• you sold or disposed of chargeable assets whichwere worth more than £44,000• your chargeable gains before taking off any losseswere more than £11,000 (‘annual exempt amount’)• you have gains in an earlier year taxable inthis period• you want to claim an allowable capital loss ormake a capital gains claim or election for the year• you were not domiciled in the UK and areclaiming to pay tax on your foreign gains on theremittance basis• you are chargeable on the remittance basis andhave remitted foreign chargeable gains of anearlier year

CGT Supplementary Pages not required if you only sell or dispose of:• private cars• personal possessions (chattels) worth up to £6,000 each, such as jewellery, paintings or antiques;• stocks and shares you hold in tax-free investment savings accounts, such as ISAs and PEPs;• UK Government or ‘gilt-edged’ securities, for example, National Savings Certificates, Premium Bonds and loan stock issued by the Treasury;• your main home, if you qualify for Private Residence Relief on the full amount of the gain

Calculation template £

Gross sales proceeds 100,000.00

Less: Incidental cost of disposal

(500.00)

Net sales proceeds

99,500.00

less: Cost (50,000.00)

Less: Enhancement expenditure -

Gain before relief

49,500.00

Less: Relief(s) -

Gain after relief

49,500.00

Less: Annual Exemption (11,000.00)

Chargeable gain

38,500.00

CGT charged at 10, 18% or 28%

CGT on Property

Investment property

Gains made on disposal of an investment property are subject to CGT.

Investment property

Example

Joan purchased a buy-to-let residential property on 01/01/2006 for £50,000.It was let out for the full period of ownership, until it was sold on 31/12/2015for £200,000.Joan is a higher rate tax payer.

Investment propertySolution

£

Gross sales proceeds 200,000.00

Less: Incidental cost of disposal -

Net sales proceeds 200,000.00

less: Cost (50,000.00)

Less: Enhancement expenditure -

Gain before relief 150,000.00

Less: Relief(s) -

Gain after relief 150,000.00

Less: Annual Exemption (11,000.00)

Chargeable gain 139,000.00

CGT charged 28% 38,920.00

Principal Private Residence

Private residence of an individual qualifies for PPR (Principal Private Residence) relief.

Principal Private ResidencePeriods Of Deemed Occupation

1. Living in job related accommodation;2. Transfer of the marital home to spouse following separation;3. Delay in taking up residence;4. Allowable absence; 5. Last 18 months.

Principal Private ResidenceLettings Relief

If principal private residence is let out before being sold then Lettings Relief may be claimed.

Principal Private ResidenceLettings Relief

Lettings relief is the lower of:1. PPR2. £40,0003. Gain accrued during letting period

Principal Private ResidenceLettings Relief

Example:You let 60% of your house as residential accommodation and occupied 40% as your home.You made a gain of £60,000 when you disposed of the property. You are entitled to Private Residence Relief for 40% of the gain – £24,000. Your remaining gain is £36,000 and it all results from the letting. The lowest of the three limits set out above is the amountof Private Residence Relief and so you are entitled to additional Letting Relief of £24,000.Your chargeable gain will be £12,000.

Principal Private ResidenceLettings Relief

Example:

John purchased his main residence on 01/01/2006 for £50,000.He lived in it till 31/12/2012. Then it was let out and eventually sold on 31/12/2015 for £200,000.

Principal Private ResidenceLettings Relief

Solution: From Till

Actual period of ownership 01/01/2006 31/12/2015 10 years

PPR Actual Occupation 01/01/2006 31/12/2012 7 years

PPR Deemed Occupation 01/07/2014 31/12/2015 1.5 years

Letting relief 01/01/2013 30/06/2014 1.5 years

Principal Private Residence £

Gross sales proceeds 200,000.00

Less: Incidental cost of disposal -

Net sales proceeds 200,000.00

less: Cost (50,000.00)

Less: Enhancement expenditure -

Gain before relief 150,000.00

Less: Relief(s) -

PPR £150,000 x 8.5 years / 10 years (127,500.00)

Lettings relief £150,000 x 1.5 years / 10 years (22,500.00)

Gain after relief -

Less: Annual Exemption -

Chargeable gain -

CGT charged at 10, 18% or 28%

Entrepreneurs’ ReliefConditions to be met:

Unincorporated business

1. Sole trader or business partner2. Owned the business for at least one year

before the sale date or closure of business3. Dispose of business assets within 3 years

after selling or closing the business

Entrepreneurs’ ReliefConditions to be met:

Incorporated business: Share Sale

1. Hold at least 5% of shares and voting rights in the company2. Employee or director of the company3. Shares held for at least 1 year before sale4. The company’s main activities are in trading (rather than non-trading activities like investment)

Entrepreneurs’ ReliefLifetime limit

£10 million

Entrepreneurs’ ReliefCGT Rate

10%

Entrepreneurs’ ReliefExample

You dispose of your manufacturing and retail business which you had owned for the last eight years. You make gains and losses on the business assets as follows:

Factory premises £1,250,000Goodwill £1,300,000Retail shop loss (£500,000)

Entrepreneurs’ ReliefSolution

The gains and losses on the factory premises, the goodwill and the shop are aggregated and will together qualify for Entrepreneurs’ Relief which will be due in respect of the net gain of £2,050,000.

Entrepreneurs’ ReliefExampleYou have been a partner with three other persons in a trading business for several years.Each partner had a 25% interest in the partnership’s assets. On 31 December 2013 you retire and dispose of your 25% interest in the assets of the business. You make gains of £125,000 on the disposals of your 25% share ofthe business goodwill and premises.

Entrepreneurs’ ReliefSolutionAll of your gains will qualify for Entrepreneurs’ Reliefbecause you have disposed of the whole of your interest in the assets of the partnership.

Entrepreneurs’ ReliefExample

You dispose of the shares you had owned for the last 20 years in a company of which you were a director. You owned 20% of the shares of the company that entitled you to 20% of the voting rights. You made a gain of £860,000. The company had been a trading company but its trade ceased one year before you sold the shares, therefore the company ceased to qualify as a trading company.

Will you still be entitled to ER on the gain?

Entrepreneurs’ ReliefSolutionYour gain will still qualify for Entrepreneurs’ Reliefbecause the disposal was made less than three years after the company ceased to qualify as a trading company.

Share dealing within an ISA Account

Gains made on share dealings within ISA account are exempt from CGT.

Similarly losses are not allowable.

Gift of assets to charity

Gift of assets to UK registered charities are exempt from CGT.

Gift of assets to charity

A gift or other bargain not made at arm's length is treated as made on a no gain/no loss basis if the disposal is to:

1. A charity or to a national heritage body2. Housing organisation3. Employee trust

Transfer of assets between husband and wife

Transfer of assets between husband and wife take place at No gain: No Loss.

The no gain/no loss rules in TCGA92 S58 do not apply to disposals taking place after the end of the year of assessment in which a married couple separated.

Gift of asset to family

Gift of assets to family members are subject to CGT at MV (Market Value).

Consider the following taxes:CGT - MV and ERIHT - PET or CLTSD - Exempt or notVAT - Outside the scope of Vat or not

SD = Stamp DutyPET = Potentially Exempt TransactionCLT = Chargeable Lifetime Transaction

Gift of asset to family

Sometimes it is better to gift the assets through a “will” instead of gifting them during lifetime because at death CGT does not apply.

Enterprise Investment Scheme (EIS)There are two Capital Gains Tax reliefs within the EIS:

1. Disposal relief;2. Deferral relief

Enterprise Investment Scheme (EIS)

1. Disposal relief

If disposal relief is due you will not have to pay Capital Gains Tax on a gainon your disposal of the EIS shares. The following conditions have to be met:

• you must have held the EIS shares for at least three years (note that if youacquired EIS shares in a company which did not start to trade until a laterdate, the three years do not start until that later date)

• you must have received Income Tax relief in full on the whole of yoursubscription(s) for the EIS shares and none of the Income Tax relief musthave been withdrawn.

Enterprise Investment Scheme (EIS)

1. Disposal relief

Relief withdrawn

CGT disposal relief will not apply if shares are sold within 3 years.

Enterprise Investment Scheme (EIS)

2. Deferral relief

When you dispose of an asset and make a gain you usually pay Capital GainsTax for the tax year in which you dispose of the asset.

Deferral relief lets you treat the gain as not arising until some future date if you acquire EIS shares.

If you make a claim to defer a gain, the gain may be charged to Capital GainsTax in a later tax year, usually when you dispose of the EIS shares. If you getIncome Tax relief on an acquisition of shares, then you can claim deferralrelief as well.

You do not have to get Income Tax relief to claim deferral relief. To get full deferral relief you must invest an amount at least equal to the chargeable gain.

Enterprise Investment Scheme (EIS)

2. Deferral relief

When is the deferred gain revived?

The whole (or part) of the deferred gain is revived when there is a chargeableevent, unless you die before a chargeable event occurs. There is a chargeableevent if:• you dispose of your EIS shares (unless the disposal is to your spouse orcivil partner whilst living together, in which case the event occurs whenthat person disposes of the shares)• you (or your spouse or civil partner to whom you have transferred yourshares) cease to be resident in the UK, if this happens within three yearsfrom the time the shares were issued. But this does not apply if whicheverof you holds the shares takes up employment outside the UK and becomesresident again within three years, without disposing of any of the shares inthe meantime• the shares cease or are treated as ceasing to be eligible shares, for example,because the company is prevented from being a qualifying company.

Seed Enterprise Investment Scheme (SEIS)There are two Capital Gains Tax reliefs within the SEIS:

1. Reinvestment relief;2. Deferral relief

Seed Enterprise Investment Scheme (SEIS)1. Reinvestment reliefWhen you dispose of an asset and make a gain you usually pay Capital Gains Tax for the tax year in which you dispose of the asset. Reinvestment relief lets you treat 50% of a gain arising in 2013–14 as exempt from Capital Gains Tax if you acquire SEIS shares.If you get SEIS Income Tax relief on an acquisition of shares, then you can claim reinvestment relief as well. You cannot get reinvestment relief unless you also get SEIS Income Tax relief. To get full reinvestment relief you must invest in SEIS shares an amount at least equal to the chargeable gain. See theCapital gains summary notes. If you invest less, reinvestment relief is limited to half the amount invested.

Seed Enterprise Investment Scheme (SEIS)2. Disposal reliefIf disposal relief is due you will not have to pay Capital Gains Tax on a gain on your disposal of SEIS shares. The following conditions have to be met.

• You must have held the SEIS shares for at least three years. SEIS shares cannot be acquired before 2012–13 so disposal relief will not apply to any disposals before 6 April 2015.

• You must have received SEIS Income Tax relief in full on the whole of your subscription for the SEIS shares and none of the Income Tax relief must have been withdrawn.

Seed Enterprise Investment Scheme (SEIS)

Can you claim a loss?

If you make a loss on a disposal of your SEIS shares at any time you can set this loss against your chargeable gains. In computing the loss, you must reduce the cost of your shares by the amount of any Income Tax relief given and not withdrawn.

Venture capital trusts (VCT)

Only disposal relief is available.

Venture capital trusts (VCT)What is disposal relief?

If disposal relief is due, you will not have to pay Capital Gains Tax on anygain you make on the disposal of VCT shares. The following conditions haveto be met:

• relief is limited to acquisitions not exceeding £200,000 worth of VCT shares in any one tax year• you are an individual (not a trustee)• you are 18 or over at the date of disposal• the company was an approved VCT both when you acquired the shares and when you disposed of them• you acquired the shares for commercial reasons and not as part of a tax avoidance scheme.

Holdover Relief

Hold-over relief may be claimed for:

• gifts of business assets• gifts of unlisted shares in trading companies etc.• gifts of agricultural land• gifts which are chargeable transfers for Inheritance Tax purposes

Holdover Relief

How to claim hold-over relief?

Except where the claim is about a transfer to the trustees of a settlement,the transferor and the transferee must claim jointly. In the case of a transferto the trustees of a settlement, the claim is made by the transferor only.

Business Asset Rollover Relief

Business Asset Rollover Relief lets you defer any Capital Gains Tax due when you dispose of certain assets (called ‘old assets’). If you acquire other assets (called ‘new assets’) costing the same as, or more than, the amount you got when you disposed of the old assets, the relief allows you to postpone paying tax until you dispose of those new assets.

Business Asset Rollover Relief

Reinvestment time limit

Up to 1 year before or 3 years after the disposal of old asset.

Business Asset Rollover Relief

What is the claim time limit?

Within 4 years after the end of the tax year.

Business Asset Rollover Relief

Qualifying assets

Both the old assets you’ve disposed of and the new ones you’ve acquired must be:

1. Interests in buildings or parts of buildings2. Interests in land3. Fixed plant or machinery4. Ships, aircraft, hovercraft, satellites, space stations and spacecraft5. Goodwill6. Milk, potato or ewe and suckler cow premium quotas7. Fish quotas8. Payment entitlements under the single payment scheme or basic payment scheme9. Lloyd’s syndicate capacities

Business Asset Rollover Relief

Depreciating assets

If the new assets are depreciating assets you’ll get relief by a different method. Instead of your tax being deferred until you dispose of the new assets, it will be deferred until the earliest of the following:

1. when you dispose of the new assets 2. when you cease to use the new assets in your trade 3. 10 years from when you acquired the new assets

A depreciating asset is any fixed plant or machinery or any asset which will have a life of 60 years or less from when you acquired it.

Business Asset Rollover Relief

Example

You sell a shop and use the proceeds to buy fixed plant and machinery on 1 June 2014.You can claim to defer the gain on the shop until the earliest of:

1. the date you sell the plant and machinery2. the date you stop using the plant and machinery in your trade3. 01-Jun-24

Losses on loans to traders

If an individual lends money to his company by way of DLA (Director’s Loan Account) and that company becomes insolvent. Then the amount outstanding as DLA can be claimed as a capital loss.

Capital Loss Relief

Capital loss can only be offset against capital gains of current year or future years.

Subscriber share loss can be offset against revenue income.

Capital Loss Relief

Planning point

if a client wish to sell two rental properties. One in each tax year to release equity for retirement.

One property is expected to make a potential capital loss and the other is expected to make potential capital gain.

Then you should advise the client to sell the property with the accrued loss first, so it may be relieved in the following year against the gain on the other property.

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Please do not send me an e-mail to request slides after the event.

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Reviewson

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Dr Borislav Boychev (Radiologist)I am very much impressed from my business meeting with Mr. Zee Shan Bawany. I had to discuss some tax issues regarding my limited company with him and he answered to all my questions with a lot of professionalism and patience. He is a very helpful, honest and reliable person. I highly recommend him. Many, many thanks!

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Zahid Sardar (IT Contractor)Fantastic support, amazing services, brilliant advice, extremely friendly and helpful, and all for a great price!! I was looking to set up my limited company and I spoke to a number of different accountants but I settled with Smartfield Accountants after being recommended them by a friend and after speaking directly with Zeeshan and seeing just how easy it was communicating with him and how well he explained everything. He took me through the entire process of setting up and registering my company, registering for taxes and VAT, etc, and he was always there, at the other end of the phone, to answer each and all of my queries that I had. Being new to all of this, Zeeshan was extremely helpful, patient and friendly in explaining all the small details and taking me through all the options available to me. His advice was always unbiased and aimed at what is most beneficial for me and my business as opposed to his own and I really appreciated that. I am really glad to have been recommended Smartfield Accountants and to be working with them. I would very highly recommend them for all of your accounting and tax service needs.

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Dr Muhammad Shahbaz Sharif (GP)

I am a Doctor working as a GP in Leicester. I needed an accountant in Leicester and came across Zee Shan. I am very impressed and happy with the service I received. He was clear, concise and to the point. Didn't waste my time with fancy jargon. Got my work done very professionally. I would recommend him without any reservations.

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Dr Venu Gopal (A&E Doctor)

I visited quite a few accountants but most of them struggled to answer my queries and said they will find out and let me know. But Zeeshan gave simple, clear straight answers and everything is on his tips. Very knowledgeable, friendly and very professional guy. I would recommend to anyone without a doubt. Normally I think twice before joining an accountant but after the initial meeting with Zeeshan I felt like joining immediately. Hope this is helpful.

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