F6 Wk5 Lect1 Cap Gains Computation
F6 Wk5 Lect1 Cap Gains Computation
F6 Wk5 Lect1 Cap Gains Computation
Learning tasks:
Capital Gains Tax (CGT): Scope CGT: Overseas Aspects Exempt Assets Exempt Transfers for CGT Part Disposal Loss or Destruction of an Asset CGT: Proforma CGT: Computation Reading:
Recommended Text: ACCA Paper F6, Taxation BPP Learning Media Study Text Chapter 13 Melville 16th Ed. Ch 16, 17, 21
Chargeable person
Capital gains are chargeable on individuals and companies (note: companies do not pay CGT - they pay corporation tax on chargeable gains)
Chargeable assets
All assets, including those held overseas, are chargeable assets unless they are specifically exempt.
CGT rate
Individuals pay CGT on gains arising in a tax year at the rate of 18%
Annual exemption
Individuals have an annual exemption of 10,100 (2009-10) thus do not pay CGT on the first 10,100 of chargeable gains
Upon becoming resident in the UK, CGT is charged only on gains which arise after arrival provided the person has not been resident or ordinary resident in the UK for four out of the previous seven years.
Resident and ordinarily resident for CGT are defined as for income tax
Exempt Assets
Specified exempt assets:
Motor vehicles suitable for private use NSI certificates and Premium Bonds Foreign currency for private use Bravery awards (ie not purchased) Damages for injury Gilt-edged securities (ie treasury stock) Qualifying corporate bonds Certain chattels Debts ISA holdings Principal private residence
Where part of an asset is disposed of, the chargeable gain must be computed by deducting a fraction of the original cost of the whole asset from the disposal value.
Cost * A / A+B
Where : A = value of the part diaposed of B = Market value of the remainder
Damage
Any compensation or insurance monies relating to the damage of an asset will ordinarily be brought into the CGT computation as proceeds from a part disposal However, if the proceeds are used to restore the asset then the taxpayer may elect to set aside the part disposal and the proceeds may be deducted from the cost of the asset.
CGT: Proforma
Computation of CGT
Disposal value Less: Incidental costs of disposal Less Allowable expenditure: Acquisition cost of asset Incidental costs of acquisition Enhancement expenditure 1 Costs of defending owners title Valuation fees2 Chargeable gain/allowable loss Notes 1. mere repairs or maintenance are disallowed 2. for the necessary purpose of determining CGT XXX XXX XXX XXX XXX XXX XXX
CGT: Computation
Disposal value
Market value is normally taken to be proceeds of sale. However, the disposal value is taken to be market value where the disposal is: 1. not a bargain at 'arms length' ie between 'connected' people - eg relatives, business partners etc. 2. made for consideration which is hard to value 3. a gift