Taxation( Finance Act 2015)

Brunel Business School

MG 3027

Majid Aminzare
( MSc , BSc , MICB, ACCA(P.Q ))
Surgery Hours:
Tuesday 14:00 – 16:00

Week 20
Chattels, Wasting Assets, Shares
and Securities,Principal Private
Residence 1
 Computation of gains and losses

Purpose:

 The purpose of this chapter is to explain

special Capital Gains Tax rules apply to
disposals of Chattels, wasting assets, wasting
chattels ,Shares & securities and Principal
Private Residence .

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 Computation of gains and losses
Introduction:
 A “chattel” is an item of tangible ,moveable property
 A “wasting asset” is an asset with a predictable
useful life not exceeding 50 years .
 If an asset is both a chattel and a wasting asset
( e.g. a TV set)it is referred to as a “wasting chattel”.
 The disposal of a chattel for £6,000 or less is exempt
from capital gains tax .(gross disposal proceeds
before deducting incidental costs of disposal).
 If the gross disposal proceeds of a chattel exceed £
6,000 , the chargeable gain cannot exceed five-
thirds of the amount by which the disposal proceeds
exceed £ 6,000.
3

£
 Computation of gains and losses
Example 1:
In 2015-16, a taxpayer makes a number of
disposals, as listed below . Which of these
disposals would be exempt from CGT?
a. An antique table sold for £5,000.

b. A watercolour painting sold at auction .The

auctioneer deducted his 10% commission from
the selling price and sent the taxpayer a
cheque for the remaining £ 5,670.
c. A holding of shares sold for £ 4,500.

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 Computation of gains and losses
Solution:
a. The antique table is a chattel disposed of for £ 6,000
or less. Therefore the disposal is exempt from CGT.
b. A watercolour painting is a chattel . The gross
disposal proceeds must have been £ 6,300. ( 90%
5,670
100% ?
=5,670/90%)
The chattels exemption will not apply but the
chargeable gain cannot exceed five-third of £ 300 (£
300*5/3= £ 500)
c. A shareholding is not a chattel .Therefore the £ 6,000
exemption does not apply and the disposal will be
chargeable to CGT. 5
 Computation of gains and losses
Example 2:
In December 2015,Michael sells a piece of
antique furniture for £6,360 ,paying incidental
disposal costs of £ 320 .He had acquired the
furniture in January 2008 as a gift from his
mother .Compute Michael’s chargeable gain if
the market value of the furniture in January
2008 was :
(a) £ 5,500 (b) £ 4,900

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 Computation of gains and losses
Solution:
(a) (b)
Sale proceeds 6,360 6,360
Less: Incidental costs of disposal 320 320
6,040 6,040
Less: Deemed acquisition cost 5,500 4,900
Chargeable gain 540
1,140(restricted to £600)
Notes:
(a) The maximum gain is £ 360 *5/3= £ 600 . The gain of £ 540
in case (a) is less than £ 600 . So the chargeable gain is £
540.
(b) In case (b) , £ 1,140 exceeds £ 600 , so the gain is restricted
to £ 600. 7
 Computation of gains and losses

Part disposals of chattels:

 If a disposal is made of a part interest in a

chattel , this part disposal will be exempt from
capital gains tax only if the value of the whole
chattel immediately prior to the part disposal
is £6,000 or less .
 If the value of the whole chattel exceeds £
6,000 the disposal is not exempt from CGT
and the usual part disposal calculation is
performed .
8

£
 Computation of gains and losses
Example 3:
In October 2009 Jackie bought a statuette for £
3,500 .In October 2015 she sells a one-third
interest in the statuette for £ 2,000 .Compute
the chargeable gain if the value of the remaining
two-thirds interest in October 2015 is :
(a) £ 4,000 (b) £ 5,000
Solution
(a)The value of the whole chattel on the date of
part disposal is £ 6,000 ( 2,000+4,000) .Since
this value does not exceed
£ 6,000 the part disposal is exempt from CGT.
9
 Computation of gains and losses
Example 3:
(b) The value of the whole chattel on the date of
the part disposal is £ 7,000 ( 2,000+5,000)
.Since this value exceeds
£ 6,000 the part disposal is not exempt from CGT.
The computation of chargeable gain is as follows:
£
Sales proceeds 2,000
Less :Part cost: 2000 x 3,500 1,000
2,000+5,000
Chargeable gain 1,000
(restricted to £476) 10
 Computation of gains and losses
Note:
The part disposal fraction cancels down to
2/7ths ,so the gain is restricted to (7,000-
6,000) x 5/3 x2/7 = £476 .

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 Computation of gains and losses

Wasting chattels:
 Chattels which have a predictable useful life
not exceeding 50 years in length are referred
to as “wasting chattels” and are generally
exempt from CGT.
 An exception to this rule occurs in the case of
moveable plant and machinery used in
business and eligible for capital allowances .
 Unless disposal proceeds are £6,000 or less
,disposals of moveable plant and machinery
used in business and eligible for capital
allowances are not exempt from CGT. 12

£
 Computation of gains and losses

Wasting assets:

A wasting asset which is not a chattel is not

exempt from CGT. Typical examples of such
wasting assts include:
(a)Intangible assets such as copyrights, patents
and options with lives not exceeding 50 year in
length.

(b)Short leases

(c) Fixed plant and machinery

£
13
 Computation of gains and losses

Grant of a lease:
The grant of a long lease (over 50 years) out of a
freehold is treated as a part disposal for CGT
purposes and the normal part disposal rules apply .
The grant of a short lease out of a freehold is also
treated as a part disposal for CGT purposes and
therefore the part disposal rules apply again .
However part of the premium received on the grant
of a short lease is assessable to income tax as
property income and therefore ,in order to avoid
double taxation ,the disposal proceeds in the part
disposal computation are reduced by the amount of
the premium which is assessable as property
income. £
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 Computation of gains and losses
Example 4:
Jeffrey acquired a freehold property in October
2007 for £234,000 . In July 2015 he granted
Jill a lease on the property for £ 160,000 .The
market value of the freehold after the lease
had been granted was £ 200,000 .The
property was never Jeffrey’s residence
.Compute the chargeable gain ,given that the
lease granted to Jill was of duration .
(a) 99 years (b) 40 years

15
 Computation of gains and losses
Solution:
(a) This is a part disposal with A=160,000 and
B=200,000. The computation is as follows :
£
Sale proceeds
160,000
Less: Part cost: 160,000 x 234,000
104,000
160,000+200,000

Chargeable gain
56,000 16
 Computation of gains and losses
Solution:
(b) This is also a part disposal but £35,200
( 160,000 –(2% x 160,000 x 39 )) of Jeffrey’s
disposal proceeds will be assessable as property
income and this must be taken into account in the
CGT computation . The computation is as
follows :
£
Sale proceeds (160,000-35,200) 124,800
Less: Part cost: 124,800 x 234,000 81,120
160,000+200,000

Chargeable gain 43,68017

 Computation of gains and losses

Shares and securities :

For CGT purposes , disposals of shares or securities
are matched against acquisitions of the same class
of shares in the same company in the following
order :
a. First ,against any acquisitions made on the same day
as the day of the disposal .
b. Next ,against any acquisition made during the
following 30 days ,matching with shares acquired
earlier rather than later within that 30-day period .
This rule is intended to counter the practice known
as “bed and breakfasting” ,whereby shares are sold
and then almost immediately re-acquired so as to
trigger gains or losses for tax avoidance purposes.
£
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 Computation of gains and losses

Shares and securities : Continue

(c) Finally
against shares forming the “section
104 holding” .This consist of a pool of all the
shares of that class in that company that were
acquired before the date of the disposal and
which have not been matched against
previous disposals.( The name of this pool is
derived from section 104 of TCGA 1992 ,
which provides the legal basis for its
existence).
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£
 Computation of gains and losses
Example 5:
Paul made the following acquisitions and disposals
of ordinary shares in Crimson plc:
Date Number of shares
05 June 2009 acquisition 3,000
17 May 2010 acquisition 500
17 May 2010 disposal 800
09 June 2010 acquisition 200
13 March 2012 disposal 2,000
28 March 2012 acquisition 1,750
17 October 2015 disposal 1,000
Against which acquisition will each disposal be
matched? 20
 Computation of gains and losses
Solution:
(a)The 800 shares which were disposed of on 17
May 2010 are matched as follows:
I. first, against the 500 shares acquired on the
same day
II. Next, against the 200 shares acquired in the
next 30 days (on 9 June 2010).
III.Finally, against 100 of the shares that form
the s104 holding; these are the 3,000 shares
acquired on 5 June 2009 and there are 2,900
shares left in this holding after the 17 May
2010 disposal has been matched . 21
 Computation of gains and losses
Solution:
(b) The 2,000 shares disposed of on 13 March
2012 are matched as follows:
I. first, against the 1,750 shares acquired in the
next 30 days (on 28 March 2012).
II. Finally, against 250 of the 2,900 shares that
remain in the s104 holding.

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 Computation of gains and losses
Example 6:
Paula makes the following acquisitions of ordinary
shares in Indigo plc:
Date Number of shares Cost
01 July 2008 5,000 6,300
02 Aug 2009 2,000 2,500
03 Feb 2012 1,200 2,300

04 January 2016 1,800 3,400

She sells 500 shares on 28 March 2016. No shares
are acquired within the next 30 days.
a. Show the s104 holding on 28 March 2016, just
prior to and just after the disposal on that date .
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 Computation of gains and losses
Example 6:continue
(b) Compute the chargeable gain or allowable loss on disposal if
sale proceeds are :
(i) £1,300 (ii) £ 1,000 (iii) £ 700
Solution :
The s104 holding is as follows:
Number of shares Allowable expenditure
Acquired 1 July 2008 5,000 6,300
Acquired 2 August 2009 2,000 2,500
Acquired 3 February 2012 1,200 2,300

Acquired 4 January 2016 1,800 3,400

10,000 14,500
Sold 28 March 2016(500/10,000ths) (500) ( 725)
S 104 holding c/f 9,500 13, 775

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 Computation of gains and losses
Example 6:continue
Notes :
1- The disposal in March 2016 must have come from the s104
holding since it cannot be matched against shares acquired on
the same day or within the next 30 days .
2- The disposal is 500 shares out of a pool of 10,000 shares
.Therefore 500 shares are deducted from the pool , along with
500/10,000ths of the allowable expenditure
3- on average , the allowable expenditure in the pool is £1.45 per
share and so the allowable expenditure deducted on the
disposal (£ 725 ) is equal to 500 shares at £ 1.45 per share
(b) £ £ £
Sales proceeds 1300 1,000 700
Less: Allowable expenditure 725 725 725
Chargeable gain/(allowable loss) 575 275 (25)

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 Principal private
residences
Introduction

A principal private residence is not a

chargeable asset for CGT purposes ,a CGT
liability may arise when a property is
disposed of which has been used as a
residence for only part of the period of
ownership or which has been used partly as
a residence and partly for other purposes.

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 Principal private
residences
Principal Private Residence (PPR) relief
PPR relief applies when an individual disposes
of:

 A dwelling house(including normally up to

half an acre of adjoining land)
 Which has at some time during his
ownership been his only or main private
residence .

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 Capital Gains Tax Relief

The relief
The relief applies where the PPR has been
occupied for either the whole or part of the
period of ownership.
PPR OCCUPIED

 Calculate gain
Gain is  PPR relief may
exempt reduce the gain
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 Capital Gains Tax Relief

Calculating the relief

Where there has been a period of absence from the
PPR the procedure is:

 Calculate the gain on the disposal of the property

 Compute the total period of ownership .
 Calculate the period of occupation
 Calculate the PPR relief as follows:
Gain x (Period of occupation /Total period of
ownership)
 Deduct the PPR relief from the gain on the property

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 Capital Gains Tax Relief

Period of Occupation
The period of occupation includes periods of
both:

 Actual occupation
 Deemed occupation

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 Capital Gains Tax Relief
Deemed Occupation
Periods of deemed occupation are:
a. If a property has been the taxpayer’s PPR at some
time, the final 18 months* of ownership always
count as a period of residence, whether or not the
taxpayer was actually resident then ( so helping
taxpayers who move house and have difficulty in
selling their previous residence).This rule applies
even if the taxpayer claims another property to be
his or her PPR during the 18 months.
* For disposals made before 6 April 2014 ,the final 36 months
of ownership were treated as a period of residence .This
figure was reduced to 18 months by Finance Act 2014 but
remains at 36 months for disabled persons and long-term
residents in care homes.
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 Capital Gains Tax Relief
Deemed Occupation
Periods of deemed occupation are:
b. Any period spent working abroad

c. Up to 4 years of absence while working away in

the UK.
d. A total of up to 3 years of absence for any reason

Note that:
 The absence in (b) and (c) must be preceded and
followed by a period of actual occupation .
 The condition to reoccupy the property after the
period of absence does not need to be satisfied for (
b) and (c) above where an employer requires the
individual to work elsewhere immediately ,thus
making it impossible to resume occupation.
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 Capital Gains Tax Relief

Ownership of more than one residence

Where an individual has more than one
residence he is entitled to nominate which
of them is to be treated as his principal
residence for capital gains purposes by
notifying HMRC in writing .

The election must be made within two years of

acquiring an additional residence otherwise
it is open to HMRC ,as a question of fact , to
decide which residence is the main
residence.
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 Capital Gains Tax Relief

Married couples/civil partners

Provided that they are not separated or
divorced ,a married couple (or civil
partnership) is entitled to only one
residence between them for the purposes of
the PPR relief .

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