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KPMG’s Tax Business School®

Capital Gains Tax Case Study

Part C - Points of discussion

Disposal of Chest

a) Edward is a higher rate taxpayer. He has already made several disposals during the year and made gains in excess of the annual exempt amount. Any chargeable gains made by him are taxed at 40%. Anne Maxwell has only a small amount of investment income and still has available her annual exempt amount to set against any gains. For this reason Edward was advised to give the antique chest to Anne.

b) The gift of the chest to Anne Maxwell is a transfer between spouses. Such a transfer is treated as a no gain/ no loss disposal under TCGA 1992 s.58. No CGT liability arises to Edward Maxwell on this disposal.

c) On the subsequent sale by Anne Maxwell, a chargeable gain does arise. Anne is able to claim marginal relief to reduce the chargeable gain. The ‘cost’ of the chest to Anne is the ‘transfer value’ when Edward made the gift to her.

Transfer value is the indexed cost:

£

Base cost to Edward in August 2000 4,500

Transfer Value in June 2001 4,500

No indexation allowance is due as it was acquired by Edward after April 1998.


Anne’s chargeable gain in November 2001:

Cost

£

Proceeds 7,000

Less: Allowable expenditure

Transfer value (4,500)

Unindexed Gain 2,500

Indexation allowance n/a

Chargeable gain before taper relief £2,500

s262(2) TCGA 1992 - marginal chattel relief for Anne

Where the consideration for a disposal exceeds £6,000 the gain is not exempt, but the amount charged to tax may be lower. The amount is the lower of :

£

(i) Chargeable gain as computed as above 2,500

(ii) 5/3 x (7,000 - 6,000) 1,667

Therefore Anne Maxwell’s chargeable gain before taper relief is £1,667.

The chest is a non-business asset for taper relief purposes - therefore taper percentage = 100% (August 2000 - November 2001 (see part d) = 1 complete year - no bonus year in point). The gain will not be tapered.

The gain of £1,667 should be covered by her annual exempt amount.

d) The qualifying holding period where there has been a no gain/no loss transfer between husband and wife is the combined period of ownership (para 15 Sch A1 TCGA 1992).

Andy Lymer 2002/capital gains tax/CSAc-02/08/01