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  3. Personal Taxation

Understanding Capital Gains Tax (CGT)

Up to 60 CPD minutes

Introduction
Clients may be subject to capital gains tax when they dispose of certain assets. It is therefore vital for advisers when dealing with those assets to fully understand when capital gains may arise and how they will be taxed. The use of reliefs, exemptions and allowances can be a valuable planning tool which may allow clients to defer gains or minimise the tax they will pay on them.

This module is split into three sections and each section should take between 15 to 30 minutes to complete. Once you have completed all the sections there is a short self-assessment quiz to check what you have learned and a CPD certificate for up to 60 minutes can be claimed. Please read our guides below before attempting the self-assessment questions
Outcomes
On completion of this module you should be able to:
  • Explain when a capital gain may arise
  • Demonstrate how tax is calculated on capital gains
  • Determine when relief may be available to reduce or defer capital gains
  • Describe the share matching rules

Learning material

CGT - The basics

The first part of this module covers when disposals for CGT may arise, how gains are calculated, the treatment of losses and the key dates for the reporting and payment of tax.

CPD minutes: up to 15

Read the CGT basics guideOpens in new window
CGT - Allowance and reliefs

This section of the module looks at the reliefs and allowances available. It highlights when gains can be deferred, the relief available for business owners and for the disposal of residential property. 

CPD minutes: up to 30

Read the Allowance and relief guideOpens in new window
CGT - Share matching rules

The final section explains the special share identification rules. When clients make multiple purchases on different dates of shares or units within in the same fund these rules help to determine the acquisition price of the shares when they are sold.

CPD minutes: up to 15

Read the CGT basics guideOpens in new window

Post learning assessment

Question 1
On which of the following is there NO CGT payable?

a. Joan sells her holiday home to her daughter Sarah for £150,000. The estate agent valued the property at £200,000
b. Andrew switches his investment portfolio into joint names with his wife Faye
c. Raymond gifts shares in his business to his daughter Nicole
d. Tracy transfers her unit trust holding into a discretionary trust
Question 2
Linda sells a buy to let property which has never been her main residence. Linda is a higher rate taxpayer and has already used her annual CGT exemption on an earlier disposal. What rate of CGT will she pay following the sale of the property?

a. 28%
b. 20%
c. 10%
d. 0%
Question 3
Emily sold her business and realised a capital gain of £250,000. What can she do to defer the capital gain?

a. Claim entrepreneurs relief
b. Gift the proceeds into a discretionary trust and claim holdover relief
c. Purchase shares to an amount equal to the gain in an Enterprise Investment Scheme (EIS)
d. Purchase shares to an amount equal to the gain into an Venture Capital Trust (VCT)
Question 4
Adam holds units in a unit trust. His transaction history is as follows:
  • 1 May 2010 1,000 units purchased @ £1.00 per unit
  • 1 June 2016 500 units purchased @ £2.00 per units
  • 1 February 2019 200 units sold @ £2.50 per unit
  • 1 March 2019 100 units purchased @ £2.40 per unit

What will be the acquisition cost when calculating the capital gain on the shares Adam sold in February 2019?

a. £2.50 per unit
b. £2.40 per unit
c. £2.00 per unit
d. £1.33 per unit

Check your answers

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Any reference to legislation and tax is based on our understanding of United Kingdom law and HM Revenue & Customs practice at the date of production. These may be subject to change in the future. Tax rates and reliefs may be altered. The value of tax reliefs to the investor depends on their financial circumstances. No guarantees are given regarding the effectiveness of any arrangements entered into on the basis of these comments.