CGT:

RELIEFS

Principal Private
Roll Over Relief Gift Relief
Residence Relief

Business Asset
Investor's Relief
Disposal
Relief

WHAT DO CGT RELIEFS MEAN?

In certain situations the tax payable on the disposal of an asset may be

reduced or a gain may be delayed by claiming capital gains tax reliefs.
Relief Available on the:
Principal private residence relief disposal of an individual’s private
residence
Non
Business Letting relief disposal of private residence after
Assets letting
Business Asset Disposal Relief disposal of certain business assets
Business Rollover relief sale of and reinvestment in certain
Assets new business assets
Gift relief gift of certain business assets
Investors' relief disposal of certain shares

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 1) PPR RELIEF:

PPR is occupied PPR is occupied for

Throughout Part period of
period of ownership
ownership

Gain is
exempt Gain

PPR relief
may reduce
the gain

What is PPR relief?

PPR relief applies when an individual disposes of:
❖ a dwelling house (including normally up to half a hectare of adjoining land)
❖ Which has at some time during his ownership been his only or
main private residence.
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 periods of occupation (see below).
❖ Calculate the PPR relief as follows:
Gain × (Periods of occupation/Total period of ownership)
❖ Deduct the PPR relief from the gain on the property.

Periods of occupation

The period of occupation includes periods of both actual occupation and

deemed occupation.
Periods of deemed occupation are:
(a) the last 9 months of ownership (always exempt, unconditionally)
(b) up to 3 years of absence for any reason
(c) any period spent living overseas due to employment
(d) up to 4 years of absence as a result of working elsewhere in the UK
(employed or self- employed).
Note that:

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 ❖ The absences in (b) to (d) 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 (c) and (d) above where an
employer requires the individual to work elsewhere immediately, thus
making it impossible to resume occupation.

Where an individual has more than one residence, he or she is entitled to nominate which of them is to
be treated as the main residence for capital gains tax 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.

Business use

Where a house, or part of it, is used wholly and exclusively for business
purposes, this part loses its PPR relief and becomes taxable.
It should be noted that:
❖ The taxpayer cannot benefit from the rules of deemed occupation for
any part of the property used for business purposes.
❖ However where part of the property was used for business purposes but
was also at any time used as the taxpayer’s main residence, the
exemption for the last 9 months applies to the whole property.
❖ The 9 month exemption does not however apply to any part of the
property used for business purposes throughout the whole period of
ownership.

Letting relief

Letting relief is available where an individual’s PPR is let out for residential
use. It applies only when:
❖ The owner lets part of the property whilst still occupying the remainder.

It does not apply to let property which is not the owner’s PPR (e.g. buy-to-let
properties). Letting relief is the lowest of:
❖ £40,000
❖ the amount of the gain exempted by the normal PPR rules
❖ The part of the gain (still in charge) attributable to the letting period.

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 2) BUSINESS ASSET DISPOSAL RELIEF

The rate of tax on certain qualifying business which qualify for entrepreneurs'
relief (ER) is 10%.
The relief operates as follows
❖ The first £1 million of gains on ‘qualifying business disposals’ will be
taxed at 10%, regardless of the level of the taxpayer's income
❖ Any gains above the £1 million limit are taxed at the usual rate
depending on the individual's taxable income.
❖ Gains qualifying for BADR are set against any unused basic rate
band (BRB) before non-qualifying gains.
❖ The 10% CGT rate is calculated after the deduction of:
– allowable losses, and
– The AEA.
❖ However, the taxpayer can choose to set losses (other than any losses
on assets that are part of the disposal of the business) and the AEA
against non-qualifying gains first, in order to maximise the relief.
❖ It is therefore helpful to keep gains which qualify for BADR separate
from those which do not qualify.

The relief must be claimed within 12 months of the 31 January following the end of the tax year
in which the disposal is made. For disposals in the tax year 2020/21, the relief must be claimed
by 31 January 2023.

The £1 million limit is a lifetime limit which is diminished each time a claim for
the relief is made.

NOTE: The gains qualifying for BADR is deducted from the basic rate limit for the
purposes of computing the rate of tax on the gain not qualifying for BADR.

Qualifying business disposals

The relief applies to the disposal of:

1) the whole or substantial part of a business carried on by the
individual either alone or in partnership
2) assets of the individual’s or partnership’s trading business that has now ceased
3) shares provided:
a) the shares are in the individual’s ‘personal trading company’, and
b) The individual is an employee of the company
(part-time or fulltime).
An individual’s ‘personal trading company’ is one in which the individual:
owns at least 5% of the ordinary shares
which carry at least 5% of the voting rights.
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 POINTS TO REMEMBER
✓ The disposal of an individual business asset used for the purposes of a continuing trade does not
qualify. There must be a disposal of the whole of the trading business or a substantial part
(meaning part of the business which is capable of separate operation)
✓ The sale of an asset in isolation will not qualify.
✓ Where the disposal is a disposal of assets (i.e. not shares), relief is not available on gains arising
from the disposal of those assets held for investment purposes
✓ There are no minimum working hours for an employee to qualify
✓ There is no requirement to restrict the gain qualifying for relief on shares by reference to any non-
business assets held by the company.

Qualifying ownership period

The assets must have been owned for 2 years prior to the date of disposal
In the case of shares the individual must have been an employee of the
company and the company must have been their personal trading company for
at least 2 years prior to the disposal.
Where the disposal is an asset of the individual’s or partnership’s trading
business that has now ceased, the business must have been owned for at least
2 years prior to the date of cessation and the disposal must also take place
within three years of the cessation of trade.

c) INVESTOR’S RELIEF

Investors’ relief effectively extends Business asset disposal relief to

external investors in trading companies which are not listed (unquoted)
on a stock exchange. However, investors’ relief has its own separate £10
million lifetime limit. Qualifying gains are taxed at a rate of 10%. To
qualify for investors’ relief, shares must be:
- newly issued shares acquired by subscription on or after 17 March 2016
- owned for at least three years after 6 April 2016.
With certain exceptions (such as being an unremunerated director) the investor
must not be an employee or a director of the company whilst owning the shares.

4) ROLLOVER RELIEF
Gains arising on the disposal of qualifying business assets can be deferred,
provided their consideration is re-invested in a new asset.
❖ Qualifying assets are:
 Goodwill

 Fixed Plant and Machinery

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  Land & Bldg.

The re-investment of the proceeds must take

place within 1 year prior to the date of disposal
or within 3 years from the date of disposal.
❖ The gain deferred (rolled-over) is reduced from the cost of the
replacement asset, if the replacement asset is a non-depreciating asset.

Non depreciating asset is one with a useful life > 60 years.

Depreciating Assets
❖ If the replacement asset is a depreciating asset, the gain is not deducted
from the cost of the replacement asset but it is held-over, till it becomes
taxable on the earlier of the following events:
Disposal of the replacement asset
The date the replacement asset ceases to be used in the trade
Ten years from the date of acquisition of the depreciating asset
❖ The amount of gain rolled-over, depends upon how much of the
amount of the proceeds from the old asset is re-invested in the
new asset.

The only depreciating assets that you need to be aware of for the
purposes of the TX examination are:
• Fixed plant and machinery
• Leasehold property with ≤60 years remaining on the lease

Partial Reinvestment
❖ If the entire proceeds are re-invested, the entire gain can be rolled
over but if the proceeds are partially re-invested, a part of the gain
may become immediately taxable.
❖ Immediately taxable: Lower of
a) Gain and
b) Cash not re-invested [Proceeds of old asset – cost of new asset]
If there is Non business use of Asset, then we get ROR only for the business use (See Q17,18)

5) GIFT RELIEF (HOLDOVER RELIEF)

The gift of an asset is a chargeable disposal which gives rise to a capital gains
tax liability for the donor, however the donor has not received any funds with
which to pay the tax.
Gift relief (GR) allows the gain arising on the gift of qualifying business assets to
be held over (i.e. deferred) until the asset is eventually sold by the donee.
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 The assets Qualifying for this relief are

 Assets used in trade

 Unquoted shares of any company and
 Quoted shares of a personal company. (A personal company here is one in which the
individual has at least 5% shareholding)

How does the relief work?

DONOR DONEE
Normal capital gain is calculated using Acquisition cost = deemed to be
market value as proceeds. market value at the date of gift.
The gain is not chargeable on the donor; it Base cost = Acquisition cost less the gain
is deferred against the base cost of the asset deferred by the donor.
acquired by the done
Note: The relief is only available to individuals not companies

SALES AT VALUE BELOW THE MARKET VALUE

The relief applies not just to outright gifts but also to sales for less than
market value (i.e. where there is an element of gift).
Case 1 : PROFIT [Q 24 (a) – (i)]
When the actual proceeds received from the donee is greater than the cost of donor, this is how it is done:

DONOR DONEE

Proceeds (MV) xxx Cost xx

Cost (xxx) Less GR (xx)
Gain xxx Base Cost xx
GR (xxx)
Chargeable gain xxx
(Actual Proceeds – Cost)

Case 2 : Loss [Q 24 (b) – (ii)]

When the actual proceeds received from done is less than cost of donor, then the entire amount of gain is
available as GR(Just as the normal calculation)

Assets not used wholly for Business purposes

The relief is restricted where either:

❖ only part of an asset is used for trading purposes
❖ an asset is used for trading purposes for only part of the donor’s period of ownership.
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 ASSETS LOST, DESTROYED OR DAMAGED

Lost/Destroyed
If an asset is lost or destroyed, then the receipt of insurance proceeds is treated as a normal disposal.
However, relief is available if the insurance monies are used to purchase a replacement asset within a
period
of 12 months.

Chargeable calculations when:

1) No insurance proceeds received

Compute a capital loss using the normal CGT computation
2) Insurance proceeds received, no replacement of asset
Chargeable gain/loss is computed using the normal CGT computation pro forma.
3) Insurance proceeds received, asset replaced within 12 months
-Full proceeds used:
Gain (Insurance proceeds – cost of first asset) can be set off against the replacement asset to
calculate the base cost of the replacement asset.
-Partial proceeds used:
The insurance proceeds not reinvested is immediately taxed as chargeable gain.
The remainder of the gain (actual gain – chargeable gain) is then set off against the cost of the
replacement asset to calculate its base cost.

Damaged
If an asset is damaged, then the receipt of insurance proceeds is treated as a part disposal. However,
if all the proceeds are used to restore the asset, then a claim can be made to ignore the part disposal
rules.

1) Proceeds not used in restoration work

Normal part disposal capital gains computation is used, wherein
Allowable cost = Cost x A / (A + B)
Where: A = Compensation received
B = Market value of the remainder at the time of the part disposal (i.e. value in its damaged
condition)

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2) Proceeds fully used in restoration work

Where all of the insurance proceeds are used in restoring the asset the taxpayer may claim to deduct
the proceeds from the cost of the asset rather than be treated as having made a part disposal of the asset.
Revised Base Cost = Original cost + Restoration expenditure – Insurance proceeds

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 QUESTIONS TO DO

PPR
1. On 1 May 1993 Karim purchased a house in Southampton for £25,000. He occupied the house
as follows:

Months
Lived in the house 14
Lived in a rental property in Southampton 27
Employed overseas 12
Lived with relatives 4
Lived in the house 161
Lived in a rental property in Newcastle 115

Karim remained in the rental property in Newcastle until he sold his Southampton house on
1 February 2021 for £95,000.
Calculate the chargeable gain after reliefs, if any, arising on the disposal of the house on
1 February 2021.

2. Arnold bought a house on 1 January 1999 and sold it on 30 September 2020 making a
gain of £189,000.
He occupied the house as follows:
Months
Lived in the house 24
Employed Overseas 78
Travelled the world 66
Lived in the house 93

Arnold made no other disposals in the tax year 2020/21 and had taxable income of
£30,500.

Calculate Arnold's capital gains tax liability for the tax year 2020/21
assuming all available reliefs are claimed.

3. On 30 June 2020 Alexander sold his house for £125,000, resulting in a capital gain of
£70,000. The house had been purchased on 1 July 2006, and one of the five rooms has
always been used for business purposes. Calculate the chargeable gain after reliefs arising
on the disposal of the house.

4. On 30 September 2020 Toby sold his house for £150,000, resulting in a chargeable gain
before reliefs of £60,000. The house had been purchased on 1 October 2011, and one of the
seven rooms had always been used for business purposes.

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 Calculate the chargeable gain after reliefs arising on the disposal of the house.

5. Mr Hanky bought a house in Luton on 1 June 1994. He occupied the house as

follows:

Hanky rented out one quarter of his house in the final period of occupation. The tenant
did not share any living space with Hanky.

He sold the house on 1 July 2020 realising a chargeable gain before reliefs of
£209,730. Calculate the chargeable gain after reliefs arising on the sale of the house.

6. On 30 September 2020, Eleni made a gift of a house to her grandson, Kostas. The house had
been bought by Eleni on 1 September 2007 for £45,000, and was extended at a cost of
£10,600 during June 2008. A market value of £140,000 at 30 September 2020 had been
agreed by HMRC. Eleni occupied the house as her main residence until 30 September 2016,
a period of 109 months. During this period, Eleni rented out one third of the house for 96
months. The tenant did not share any living space with Eleni. Eleni then went to live with
her sister for the remaining 48 months, until 30 September 2020.
Calculate the chargeable gain after reliefs arising on the gift.

7. Maria has owned her house since 1 January 2009. She moved in as soon as
she bought it and occupied it until 1 January 2010 when she left to travel the world. Whilst
travelling, she got married and moved to London and did not re-occupy the property. She
sold the house on 1 January 2021.
In calculating the amount of principal private residence relief available to Maria, what is
the period of her occupation? (Answer in terms on years)

BUSINEDD ASSET DISPOSAL RELIEF

8. In the tax year 2020/21, Katie sold her trading business which she set up in 2008
and realised the following gains and losses:
Factory --------- 275,000

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 Goodwill -------330,000
Warehouse --- (100,000)
Commercial investment property---- 200,300
Katie also sold her shares in an unquoted trading company and realised a gain of £600,000.
She owned 25% of the ordinary shares of the company which she purchased ten years ago.
She has worked for the company on a part-time basis for the last three years.
Katie has not made any other capital disposals in the tax year 2020/21 but she has
capital losses brought forward of £7,800. She has never claimed any BADR in the past.
Her only source of income is a trading profit of £43,650.
Calculate Katie’s capital gains tax payable for the tax year 2020/21

9. Alexander has taxable income of £15,000 for the tax year 2020/21. He also has capital
gains of £25,300 on quoted shares not qualifying for business asset disposal relief and
£40,000 of gains qualifying for Business asset disposal relief.
What is his capital gains tax liability for the tax year 2020/21?

10. Luka disposed of a business in November 2020, realising a net chargeable gain of £660,000. He had
started the business in January 2012 and has used all the chargeable assets for business use throughout
the period of ownership. He has previously claimed BADR for qualifying gains of £400,000. He also
disposed of a holiday home in February 2021, realising a chargeable gain of £21,200.
The home had never been his main residence. Luka had taxable income of £40,000 in the tax year
2020/21.

Calculate Luka's capital gains tax payable for the tax year 2020/21.

11. In the tax year 2020/21 Paul sold shares in Dual Ltd, an unquoted trading company,
and realised a gain of £43,000. Paul has worked for Dual Ltd for eight years and has
owned 10% of the ordinary shares of the company for the last five years. Paul set up a
trading business in 2015 and in the tax year 2020/21 he sold a warehouse used in the
business, realising a gain of £246,000. Paul's trading profit was £38,000 in the tax year
2020/21. He did not have any other taxable income. In the tax year 2021/22 Paul sold
the rest of the business and realised the following gains:

Factory ----------- £649,500

Goodwill ---------- £13000

Paul also sold an antique table in the tax year 2020/21 and realised a chargeable gain of
£6,225.
His trading profit in the tax year 2020/21 was £51,350, and prior to the tax year 2020/21 Paul has
claimed BADR of £350,000.
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 Calculate Paul’s CGT payable for the tax years 2020/21 and 2020/21
Assume that the AEA and rates for the tax year 2020/21 continue in the future.

INVESTOR’S RELIEF
11. On 20 October 2020 Ashley sold 30,000 shares in Toon Ltd an unquoted trading company, for
£375,000 net of selling expenses of £10,000. Toon Ltd has in issue one million £1 ordinary shares that
had been subscribed for at par by the existing shareholders on 1 September 2017. Ashley had
subscribed for 40,000 shares but has never worked in Toon Ltd. In 2020/21 Ashley had
taxable income of £60,000 and had made other asset disposals giving rise to chargeable gains
of £7,000. Compute the CGT liability for Ashley on the disposal of the Toon Ltd shares in
2020/21.

ROLL OVER RELIEF

12. Smith purchased an asset qualifying for ROR in January 2004 for £160,000. In August
2020, he sold the asset for £180,000 and spent £200,000 in November 2020 on a new
qualifying asset. Calculate the chargeable gain arising on the disposal of the asset assuming
that ROR is claimed. Calculate the base cost of the new asset acquired.

13. Jones purchased a warehouse in February 2010 for £170,000. In July 2020, he sold the
warehouse for £300,000. He used the warehouse for the purposes of his trade throughout
the period of ownership.
In December 2021 Jones bought a new warehouse for £360,000 for the purposes of his
trade. He plans to sell the warehouse in January 2023 for £550,000.
Calculate the chargeable gains arising on the two sales assuming rollover relief is claimed.

14. Chris acquired a freehold commercial building in April 2002. In May 2003 he sold
the building for £100,000 and realised a gain of £56,360. In August 2006, another
freehold commercial building was bought for £140,000 and this was sold in November
2020 for
£380,000. All of the buildings were used for the purposes of a trade by Chris.
Calculate the chargeable gain that arises in the tax year 2020/21, assuming rollover relief
was claimed on the sale of the first building.

15. Jarvis bought a factory in September 2003 and in December 2020, wishing to move to
a more convenient location, he sold the factory for £750,000. The cost of the factory was
£635,000.
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Jarvis moved into a rented factory until March 2021 when he purchased and moved into a
new factory.
Calculate the amount of the gain which is chargeable, if any, on the sale of the original
factory and calculate the base cost of the new factory assuming the new factory was
purchased for: (a) £700,000 (b) 500,000

16. Robert acquired a freehold commercial building in April 2002 for £65,500. He only
used 60% of the freehold building for the purposes of his trade. The building was sold in
November 2020 for £162,000.
A replacement building was acquired in January 2020 for £180,000 and this was used
100% for trade purposes by Robert.
The replacement building was sold for £250,000 in May 2021.
Calculate the gain rolled over and the chargeable gains arising on the disposals in November
2020 and May 2021.

17. Hadley purchased a factory in November 1994 and not needing all the space, he let out
15% of it.
In August 2020 he sold the factory for £560,000 and realised a capital gain of £45,000.
In October 2020 Hadley bought another factory which he used 100% for business
purposes for £500,000 claiming ROR.
(a) Calculate the chargeable gain arising on the disposal in August 2020.
(b) Calculate the base cost of the new factory.

18. Cooper purchased a freehold factory in June 1992 for £250,000. In May 2019 he sold it
for £420,000 and in June 2019 bought fixed plant and machinery for £450,000. In March
2021, Cooper sold the fixed plant and machinery for £475,000.
Calculate the chargeable gains arising in the tax years 2019/20 and 2020/21 assuming
Cooper claims to roll over the gains where possible

19. Amir purchased a freehold factory in May 1994 and in May 2008 he sold it for £350,000
realising a capital gain of £150,000. In July 2010 Amir bought fixed plant and machinery for
£400,000. In March 2021 Amir sold the fixed plant and machinery for £500,000.
Calculate the chargeable gains arising in respect of the sale of the freehold factory and the
fixed plant and machinery, assuming Amir claims to roll over the gains where possible.
Clearly identify in which tax year the gains arise.

20. Kalid purchased a freehold building in September 1995 and sold it for £550,000 in May
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 2020, generating a capital gain of £290,000. He purchased a new building in February 2021
for £515,000. Assuming a claim for rollover relief is made, what amount of gain is chargeable
in the tax year 2020/21?
GIFT RELIEF (HOLDOVER RELIEF)
21. David bought an asset for £60,000 in June 2018. In
September 2020 he gifted it to Tommy, when its market value was £100,000. The asset
qualified for gift relief. Assuming David and Tommy make a claim for gift relief
calculate Tommy’s base cost of the asset.

22. Jones bought a business asset for £25,000 in August 2011. In

August 2020 he gave it to Smith, when its market value was £40,000. Jones and Smith
have made an election to holdover any gain arising. Show Jones’s capital gains tax position
on the gift to Smith and calculate Smith’s base cost in the asset.

23. Ronald bought a warehouse on 4 July 2009 for £20,000. He

gave the warehouse to his son,
Regan, on 1 September 2011 when the market value was £52,000. Ronald and Regan made
a joint election to holdover any gain arising. Regan sold the warehouse on
18 December 2020 for £95,000.
Calculate the gain ‘held over’ and the chargeable gain arising on the eventual disposal
by Regan in the tax year 2020/21.
(a) Calculate the gain eligible for GR and the base cost for Regan, assuming the same facts as
above, but Regan pays his father on 1 September 2010:
(i) £28,000 or
(ii) £18,000.

24. Alice bought an industrial storage unit which she used in her trade in May 2013 for
£120,000. She gave it to her brother, Adam, on 29 June 2018 when the market value was
£150,000. Alice and Adam made a joint election to holdover any gain arising. Adam sold the
unit on 1 May 2020 for £180,000.
(a) Calculate the gain ‘held over’ and the chargeable gain arising on the chargeable disposal
by Adam in the tax year 2020/21.
(b) Calculate the gain eligible for gift relief and the base cost for Adam if, instead of giving
the asset to Adam, Alice had sold it to him for £130,000.

25. David acquired a freehold commercial building in May 2012 for £160,000. He used 60%
of the freehold building in his trade for business purposes.
In September 2020 he gave the building to his son, Ben, when its market value was
£250,000. David and Ben signed an election to holdover the gain arising on the gift.
Calculate the gain held over and the chargeable gain arising on the gift of the building in
September 2020.

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 Lost Damaged Destroyed

1. Nadir purchased a capital asset for £15,000 on 1 April 1996, which was destroyed by fire on 31 July 2019.
The asset was not insured.
Calculate the allowable loss arising in the tax year 2020/21.

2. Padma purchased an antique table for £35,000 on 1 May 1998, which was destroyed by fire on 30 June
2019. She received insurance proceeds of £50,000 on 1 September 2019. She did not replace the table.
Calculate the chargeable gain arising in the tax year 2020/21.

3. Bill purchased an asset for £25,000 on 1 October 1996, which was destroyed by fire on 30 September
2019. He received compensation of £35,000 from his insurance company on 1 January 2020.
He purchased a replacement asset for £40,000 on 1 February 2020.
Calculate the base cost of the replacement asset.

4. Belinda purchased an antique necklace for £21,140 on 1 October 2002, which she lost on 30 June 2014.
She received compensation of £45,000 from her insurance company on 1 October 2014 and
purchased a replacement necklace for £50,000 on 1 November 2014.
She sold the replacement necklace for £65,000 on 1 March 2020.
Calculate the chargeable gain arising on the sale of the necklace on 1 March 2020.

5. Esa purchased a holiday cottage for £83,040 on 4 May 2007, which was destroyed in a hurricane
on 27 October 2018. He received insurance proceeds of £113,000 on 5 June 2019 and
purchased a replacement holiday apartment for £103,440.
Calculate gain, and find the base cost

6. Sasha purchased a painting on 1 April 2006 for £10,000. The painting was damaged on 1 May 2019
when it was worth £50,000. After the damage the painting was worth £25,000. On 1 July 2019
insurance proceeds of £30,000 were received, which were not used to restore the painting.
Calculate the chargeable gain arising in respect of the painting.

7. Sari purchased a commercial investment property on 1 May 2008 for £200,000. In June 2019
it was damaged by fire. On 1 August 2019 insurance proceeds of £100,000 were received.
On 1 September 2019 £110,000 was spent on restoring the property. After the restoration the
property was worth £500,000.
Calculate the revised base cost for CGT purposes of the property after it has been restored.

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