TX: Capital gains tax

Answer: C. Private motor cars are always exempt from CGT regardless of the gain made on disposal. Buy-to-let property (A) is chargeable, though private residence relief may apply to the main home. Shares (B) are chargeable assets. Antique furniture (D) — while chattels worth £6,000 or less are exempt, this antique is worth £10,000, so it is chargeable (though the gain may be restricted by the chattel rules).

Answer: D. Chargeable gain = Proceeds − Cost − Selling costs = £28,000 − £11,000 − £500 = £16,500. Option A (£17,000) ignores the selling costs. Option C is the gross proceeds. Option B adds the selling costs instead of deducting them.

Answer: A. Current year losses are deducted in full before the AEA: £18,000 − £5,000 = £13,000. Brought forward losses are only deducted to the extent needed to reduce gains to the AEA level: £13,000 − AEA £3,000 = £10,000 needs to be covered. Deduct £3,000 b/f losses: £13,000 − £3,000 = £10,000. Then deduct AEA: £10,000 − £3,000 = £7,000 net gain. Option B (£10,000) doesn't apply the AEA. Option C (£13,000) doesn't deduct b/f losses. Option D (£4,000) makes an error in applying the AEA before brought forward losses.

Answer: D. Transfers between spouses (or civil partners) who are living together are on a no gain/no loss basis — Adrian is deemed to dispose of the shares at his original cost of £4,000, so no gain arises. Bea acquires the shares at that same cost (£4,000) for future CGT purposes. Option A incorrectly treats this as a market value disposal. Option C incorrectly gives Bea a market value base cost. Option B — holdover relief is for gifts of business assets, not inter-spousal transfers.

Answer: A. The part disposal formula is A/(A+B) × original cost, where A = disposal proceeds and B = market value of the part retained. A = £90,000, B = £30,000. Allowable cost = £80,000 × £90,000/(£90,000+£30,000) = £80,000 × 0.75 = £60,000. Gain = £90,000 − £60,000 = £30,000. Option B (£48,000) uses the acreage method (6/10 × £80,000) — wrong. Option C uses the full original cost. Option D is also incorrect.

Answer: A. Tangible moveable property (chattels) with both proceeds and cost of £6,000 or less is exempt from CGT. The vintage car in Option A has proceeds of £4,500 (under £6,000) — it is exempt. Additionally, motor cars are always CGT-exempt regardless of value. The painting (B), vase (C) and jewellery (D) all have proceeds exceeding £6,000 so they are chargeable, though the gain may be restricted by the chattel rules.

Answer: D. Where a chattel with proceeds over £6,000 is sold at a gain, the chargeable gain is the lower of: (1) the actual gain, and (2) 5/3 × (gross proceeds − £6,000). Actual gain = £8,500 − £3,000 = £5,500. Restricted maximum = 5/3 × (£8,500 − £6,000) = 5/3 × £2,500 = £4,167. The chargeable gain is the lower figure: £4,167. Option A (£5,500) is the unrestricted actual gain. Option B (£5,167) is incorrect. Option C (£2,500) is the excess of proceeds over £6,000, not the restricted gain.

Answer: A. Ingrid lived in the property for the first 160 months. The final 9 months of ownership always qualify for PRR, even though she was not living there, so exempt months = 160 + 9 = 169 out of 200. Chargeable months = 200 − 169 = 31. Chargeable gain = £120,000 × 31/200 = £18,600. Option B (£24,000 = £120,000 × 40/200) treats all 40 months of letting as chargeable and ignores the final 9 months. Option C (£0) would apply only if the whole period of ownership qualified. Option D (£30,000) does not follow from the figures. Letting relief is not available, because Ingrid did not share occupation of the property with her tenants.

Answer: C. The share identification rules for individuals match disposals in this order: (1) shares acquired on the same day, (2) shares acquired within 30 days after the disposal (the 30-day rule, to prevent bed and breakfasting), (3) shares in the Section 104 pool. Emma's same-day acquisition of 2,000 shares is matched first. Option A (pool) is only third in priority. Option B (within 30 days after) is second. Option D (FIFO) is not used for shares.

Answer: C. All shares in the same company are pooled in the Section 104 pool. Pool after both purchases: 6,000 shares at total cost £10,000. Average cost = £10,000 / 6,000 = £1.6667 per share. Cost of 3,000 shares sold = 3,000 × £1.6667 = £5,000. Gain = £9,000 − £5,000 = £4,000. Option A (£3,000) uses only the original cost. Option B (£5,400) uses incorrect averaging. Option D (£4,500) = £9,000/2, which is wrong.

Answer: C. A bonus issue (scrip issue) does not create a chargeable event — no CGT arises at the time of issue. The original cost (£5,000) is simply spread over the enlarged holding. Sophie receives 2,000 × 1/4 = 500 bonus shares, giving a total of 2,500 shares. New cost per share = £5,000 / 2,500 = £2. Option A is incorrect — the cost is pooled across all shares. Option B is wrong — the per-share cost reduces. Option D is wrong — bonus issues are not chargeable events.

Answer: A. Gains sit on top of income when determining the rate. Nathan has basic rate band remaining of £37,700 − £35,000 = £2,700. First £2,700 of the gain at lower rate: £2,700 × 18% = £486. Remaining gain: £22,000 − £2,700 = £19,300 × 24% = £4,632. Total CGT = £486 + £4,632 = £5,118. Option B (£4,320) applies 18% to the full gain. Option C (£3,960) uses incorrect rates. Option D (£5,280) applies 24% to the full gain.

Answer: D. Business asset disposal relief (BADR) applies to qualifying disposals of trading businesses where the individual has owned the business for at least 2 years. Under Finance Act 2025, the BADR rate increased to 14% (from 10% previously). Felix qualifies — he has owned and worked in the business for 8 years, has not exceeded the £1,000,000 lifetime limit, and is disposing of the whole business. Option A (24%) is the higher rate CGT. Option B (18%) is the lower rate CGT. Option C (10%) was the BADR rate before FA 2025.

Answer: C. Rollover relief defers the gain where all proceeds are reinvested. Tom receives £500,000 but only reinvests £480,000 — there is £20,000 of proceeds not reinvested. The amount immediately chargeable = proceeds not reinvested = £20,000. The deferred gain = £150,000 − £20,000 = £130,000. The deferred gain is deducted from the base cost of the new asset. Option A wrongly defers the full gain. Option B uses incorrect calculations. Option D defers the full gain but correctly identifies £20,000 as the charge — incorrect as it defers too much.

Answer: D. Where holdover relief is claimed on a gift of qualifying business assets, the gain is held over — Nina does not pay CGT now. The son acquires the shares at the 'holdover cost': Nina's original cost of £15,000 (the gain of £30,000 is deducted from market value to give the son's base cost: £45,000 − £30,000 = £15,000). When the son sells, he will be taxed on both the original gain (held over) and any further appreciation. Option A gives son market value base cost — no holdover. Option C is wrong — the son's cost is reduced, not market value. Option B shows a gain for Nina when holdover should prevent this.

Answer: D. For residential property disposals (other than the main residence), the CGT rate for higher rate taxpayers is 24% under Finance Act 2025. For non-residential assets, higher rate taxpayers pay 24% also. The 18% rate (option A) applies to basic rate taxpayers on residential property and to all taxpayers on non-residential gains within the basic rate band. Option B (10%) no longer exists as a standard CGT rate. Option C (14%) is the BADR rate.

Answer: D. Renata actually occupied the property for 102 months (120 − 18). The final 9 months of ownership always qualify for PRR regardless of occupation, so exempt months = 102 + 9 = 111. The final 9 months fall within the 18 months of absence, so nothing is double-counted, and the remaining 9 months of absence are chargeable. Option A (102) ignores the final 9-month exemption. Option B (120) applies the old 18-month final period, which was cut to 9 months from April 2020. Option C (93) deducts the final 9 months instead of adding them.

Answer: C. Rights issue shares are paid for, unlike bonus issues. George receives 3,000 × 1/3 = 1,000 new shares at £4 each, costing £4,000. Total pool = £9,000 + £4,000 = £13,000 for 4,000 shares. Average cost = £13,000 / 4,000 = £3.25. Option A (£9,000) ignores the rights issue shares. Option B (£12,000) incorrectly prices the rights shares. Option D (£5,000) is wrong.

Answer: B. Where an asset is damaged (not destroyed) and insurance proceeds are received and used wholly in restoring the asset, the taxpayer can elect to treat the proceeds as reducing the original cost rather than as a disposal. This defers any CGT to the eventual disposal of the painting. Option A treats the proceeds as a gain — incorrect if the proceeds are reinvested in repair. Option C would apply if the asset was destroyed. Option D is wrong — insurance proceeds are not automatically exempt.

Answer: B. For BADR on shares, the individual must: hold at least 5% of the ordinary share capital and voting rights, be an officer or employee of the company, and have met these conditions for at least 2 years before disposal. Option A (5 years) is wrong — 2 years is the minimum. Option C (100% ownership) is wrong — 5% is the minimum. Option D is wrong — BADR applies to shares in personal companies which are often unquoted.

Answer: B. Investors' relief provides a 14% CGT rate on qualifying gains. To qualify: the shares must be newly issued ordinary shares in an unlisted trading company; the investor must not be an officer or employee of the company (this distinguishes IR from BADR); and the shares must be held for at least 3 years from 6 April 2016. There is a separate lifetime limit for IR. Options A, C and D all contain incorrect conditions.

Answer: A. Transfers between spouses are on a no gain/no loss basis, so Marcus could transfer some assets to his wife before selling them, allowing her own annual exempt amount of £3,000 to shelter gains. This is a straightforward and legitimate planning technique. Option B is wrong — you cannot invest gains in an ISA retroactively. Option C is wrong — capital gains cannot be carried back. Option D is wrong — capital gains and income are taxed under different systems.

Answer: D. Chargeable gain = Proceeds − Original cost − Enhancement expenditure − Disposal costs = £220,000 − £120,000 − £30,000 − £2,200 = £67,800. Option A (£100,000) ignores the enhancement and disposal costs. Option C (£70,000) ignores the disposal costs. Option B (£97,800) ignores the enhancement expenditure.

Answer: A. Gains are added on top of income to determine the rate. Cora has £17,700 of basic rate band remaining (£37,700 − £20,000). All of her £15,000 gain falls within the basic rate band. As this is a non-residential asset, the lower rate is 18%. CGT = £15,000 × 18% = £2,700. Option B uses 24% (higher rate). Option C uses a lower rate incorrectly. Option D uses an incorrect calculation.

Answer: D. Current year losses are deducted in full: £14,000 − £8,000 = £6,000 remaining. Brought forward losses are only used to the extent needed to reduce gains to the AEA level — they must not waste the AEA. After current losses: £6,000. To bring this down to the £3,000 AEA level, use £3,000 of b/f losses: £6,000 − £3,000 = £3,000. AEA then covers the remaining £3,000: chargeable gain = £0. B/f losses used = £3,000; £3,000 of b/f losses remain for future years. Option A uses all b/f losses unnecessarily, wasting £3,000. Options B and C show incorrect results.