Capital Gains Tax Capital Gains Tax Capital Gains Tax

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Capital Gains Tax

Capital Gains Tax

• In 2011/12 Sophie Baker makes the following chargeable gains which do not qualify for Entrepreneurs relief.

• Net gains £7,900 + £14,500 = £22,400 gain

– 30th October 2011 £7,900 – 15th January 2012 £14,500

• After deducting her personal allowance, Sophie’s taxable income is £37,000 and she pays £4,100 net into a personal pension plan. What is her CGT liability for 2011/12?

Capital Gains Tax

Capital Gains Tax

• Net gains £7,900 + £14,500 = £22,400 gain • Deduct £10,600 Capital Gains Tax Exemption • = £11,800 net gain

• Establish by how much basic the rate band bas been extended by the pension contribution £4,100 net / 0.8 basic rate = £5,125 £35,000 basic rate band + £5,125 = £40,125

Capital Gains Tax

Capital Gains Tax

• Taxable income of £37,000 £40,125 - £37,000 = £3,125 @18% = £562.50

• Taxable income of £37,000 £40,125 - £37,000 = £3,125 @18% = £562.50 £11,800 - £3,125 = £8,675 @28% = £2,429.00 = £2,991.50 Capital Gains Tax

Capital Gains Tax

Capital Gains Tax

• Marina James set up two discretionary trusts. In September 2011 one of the trusts made a gain of £9,500. • Assuming there are no further disposals during the course of the tax year, how much CGT will be payable in 2011/12?

Capital Gains Tax

Inheritance Tax Planning

Discretionary trust £5,300 CGT exemption maximum Two discretionary trusts so £5,300 / 2 = £2,650 each Computation Gain Remaining CGT exemption Taxable amount Tax @ 28% on £6,850

£9,500 (£2,650) £6,850 £1,918

Inheritance Tax Planning Computation Estate Exempt gift to charity Exempt gift to National Gallery Chargeable estate

Discretionary trust £5,300 CGT exemption maximum Two discretionary trusts so £5,300 / 2 = £2,650 each

£621,000 (£30,000) (£40,000) £551,000

• Robert has made no lifetime gifts and is a widower. He died in 2011/12 with an estate of £621,000. He left £30,000 to a charity and a picture worth £40,000 to the National Gallery. The balance was left to his two children in equal shares. • Robert’s deceased wife used her nil rate band on death. What is the amount of IHT payable on Robert’s estate?

Inheritance Tax Planning Computation Estate Exempt gift to charity Exempt gift to National Gallery Chargeable estate First £325,000 at nil% Next £226,000 @ 40% Total IHT

£621,000 (£30,000) (£40,000) £551,000 £0.00 £90,400 £90,400

Inheritance Tax Planning

Inheritance Tax Planning

• Alan made the following gifts:

2006 gift • Two £3,000 annual gift exemptions can be used • The balance £56,000 is chargeable but below the nil rate band there is no tax to pay • Chargeable lifetime transfer (CLT) • Death within seven years, but below the nil rate band • No tax is payable.

– August 2006 £62,000 into a discretionary trust – October 2007 £92,000 outright to his son

• Alan died in June 2011 with an estate of £410,000, leaving £90,000 to his wife and the rest to his daughters. What is the IHT liability on his estate?

Inheritance Tax Planning 2007 gift • One £3,000 annual gift exemptions can be used • Potentially exempt transfer (PET) • Death within seven years, but total of transfers below the nil rate band • No tax is payable.

Death Estate

Death Estate Total Estate Exempt left to spouse Chargeable estate

£410,000 (£90,000) £320,000

Death Estate

Total Estate Exempt left to spouse Chargeable estate

£410,000 (£90,000) £320,000

Total Estate Exempt left to spouse Chargeable estate

£410,000 (£90,000) £320,000

Nil Rate Band Used up nil rate Band Nil rate band left

(£325,000) £145,000 £180,000

Nil Rate Band Used up nil rate Band Nil rate band left Taxable estate £320,000 £180,000 IHT payable @ 40%

(£325,000) £145,000 £180,000 £140,000 £56,000

Inheritance Tax Planning

Inheritance Tax Planning

• Chris died in November 2001 leaving all his estate to his wife Sandra apart from a £100,000 gift on death to his sister. • Sandra died in July 2011 leaving an estate of £950,000 to her two children. • How much Inheritance Tax would be payable on her estate?

• Chris’ nil rate band at time of death £200,000 • Chris gifted £100,000 out of £200,000 = 50% • Chris transfer 50% nil rate band allowance to Sandra

ST. JAMES’S PLACE

Inheritance Tax Planning Computation Sandra’s total estate Minus Sandra’s 150% nil rate band Estate subject to IHT IHT to pay £462,500 @ 40%

£950,000 (£487,500) £462,500 £185,000

R03 - Learning Outcome 89 UK taxation system – Personal tax computations Various RO3 Chapters