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Business Taxation 2011/12

Business Taxation 2011/12. Capital Gains Tax for Individuals. Objectives of Lesson Thirteen. Learners will be able to: Complete capital gains computations for sole traders Use indexation allowance, taper relief and annual exemptions Deal with disposals of a business Deal with gift relief

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Business Taxation 2011/12

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  1. Business Taxation 2011/12 Capital Gains Tax for Individuals

  2. Objectives of Lesson Thirteen Learners will be able to: • Complete capital gains computations for sole traders • Use indexation allowance, taper relief and annual exemptions • Deal with disposals of a business • Deal with gift relief • Identify when to pay Capital Gains Tax • Identify the importance of keeping records

  3. Capital Gains – Business Assets • Not have to look at partnerships • Similar to chapter 4 and personal tax • Two instances where capital gains does NOT occur: • Disposal due to owner died • Disposal between spouses

  4. Annual Exempt Amount • Similar to personal allowance • £10600 for 2011/12 • Can only be offset against capital gains • It cannot be carried forward or backward • Once the annual exemption has been used the rate is 18% or 28% dependant on the individuals tax band • Basic rate band is £35,000 2011/12

  5. Computation As Before Proceeds on disposal x Less cost of disposal x Net proceeds x Less original cost x Less acquisition costs x Capital Gain x

  6. Connected Persons All gifts and sales to connected persons are treated by the revenue as Market Value Connected persons are • Ancestors of both partners (parent, grandparent etc) • Siblings of both partners (brother, sister) • Descendants of both partners (child, grandchild etc) • Business partners, civil partners and relatives as above

  7. Offsetting losses • Step One – Set v gains in the same year • Step Two – carry forward to offset future gains • If more losses than gains in a year, individual looses their annual exempt amount except if you carry forward then the exemption can be protected • The losses can be offset against same year gains or future years gains

  8. See page 8.6-8.7 example • Class complete 8.1/2 • Workbook 8.1

  9. CGT common rules • Same rules for sole traders and companies: • Capital allowances • Part disposals • Improvement expenditure • Chattels • Rollover relief

  10. CGT Matching Rules for Shares • Shares bought on the same day • Shares bought 30 days after • Remaining shares from the 1985 Pool • NO INDEXATION • Note this is NOT the same as companies • Same Day • Nine before disposal • Remaining shares from the 1985 Pool • USE INDEXATION

  11. Disposal of a Business • Fixed assets and Goodwill are the only areas we look at where CGT may be assessable • Fixed Assets – normally dealt with through capital allowance calculations • Goodwill?? – the difference between the asset value of the business and the purchase price.

  12. Entrepreneurs Relief • Applies to individuals who dispose of all or part of a business or shares in a ‘personal trading company’ • Lifetime limit £10,000,000 per individual previously £5,000,000 • Tax rate applied is then 10% not 18%/28% See example page 8.15 to 8.16

  13. Gift Relief • Normally the gift of an asset gives rise to a CGT liability at market value • The transfer of a ‘business asset’ can qualify for ‘Gift Relief’ • Both parties must agree • CGT liability is transferred to recipient • CGT is only paid when asset is eventually sold and the original cost is used to calculate the gain

  14. Gift Relief Gift Relief applies to • Assets used in the business • Shares in the trading company • Unquoted shares in other trading companies Example page 8.17

  15. Class complete 8.3 to 8.5

  16. Capital Gains Tax - Summary

  17. Keeping Records • Due to the period assets can be held for, original documentation should be kept. • Documents include invoices, contracts, deeds, valuations, sale documentation • Records for CGT should be held for the same period as those for Income Tax – five years after return date

  18. Class complete 8.6 to 8.8 • Workbook 8.2 to 8.5

  19. Well Done ! • The course is now complete and it’s time for revision

  20. Have the Objectives of Lesson Thirteen been met? Learners will be able to: • Complete capital gains computations for sole traders • Use indexation allowance, taper relief and annual exemptions • Deal with disposals of a business • Deal with gift relief • Identify when to pay Capital Gains Tax • Identify the importance of keeping records

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