Feedback on Question 4, CGT and gifts to charity

As with most of the other questions, the main reason for marks being dropped was the failure to attempt all parts of the question.

The first part of this question gave you details of a number of asset disposals, numbered i) to vi). Many students only provided answers for two or three of these. This severely limited the number of marks they could obtain.

The quickest way to obtain marks on this part of the question was to identify the assets which were exempt from CGT, such as:

  • cars
  • wasting chattels (including plant & machinery unless qualifying for capital allowances)
  • gilts
  • foreign currency for personal use
  • gambling winnings

or no gain/no loss transactions, such as:

  • transfers between spouses or civil partners
  • gifts of listed shares and land to charity

Correct answers to these won’t score you a lot of marks by individually, but they will get you off to a solid start and will prevent you wasting time doing unnecessary calculations.

The second part of the question asked you to calculate the capital gains tax payable for the year. The main reasons for losing marks here were:

  • calculating income tax rather than CGT
  • overlooking the Annual Exempt Amount (AEA)
  • not calculating the amount of basic rate band available. This does require you to do part of the income tax computation – calculating the taxable income after relief and allowances and the extended basic rate band – but there was no credit for working out the income tax liability)
  • not appreciating that any gain on the principal private residence was liable to CGT at a higher rate than other assets

There also appeared to be some confusion over the treatment of gifts to charity.

For a donation of cash, basic rate tax relief is given throught the Gift Aid scheme. Higher rate taxpayers get additional relief by extending the basic rate band by the grossed up amount of the cash donation.

For gifts of shares and land, relief from CGT is given by treating the gift as a no gain/no loss disposal. Income tax relief is given by deducting the market value of the shares or land from gross income before deducting the personal allowance.

There is a summary of the rules covering charitable donations on the GOV.UK website:

https://www.gov.uk/donating-to-charity/overview

David

 

 

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