Capital Gains Tax

Liam_Jenkins_99

Sonia and Steve are two taxpayers who made a capital gain in 2016/17 of £35,000 (non-residential property) before deducting their annual exempt amount.

They don't joint own the non-residential property.

Calculate the amount of capital gains tax payable (in whole pounds) by each individual.

1) Sonia with a Taxable Income of £18,500.

a) What is her gains chargeable at 10%?
b) What is her gains chargeable at 20%?
c) What is her total CGT payable?

2) Steve with a Taxable Income of £41,250.

a) What is his gains chargeable at 10%?
b) What is his gains chargeable at 20%?
c) What is his total CGT payable?

reader

I'm assuming Sonia and Steve jointly owned a non-residential property and made a gain of £35,000 when they sold it.

Therefore £35,000 gain for both of them in total.

Therefore £17,500 per person

Taxable gain is £17,500 - £11,100 = £6,400 per person

1) £6,400
b) £0
c) (£6,400 x 10%) + (£0 x 20%) = £640

2) £0
b) £6,400
c) £6,400 x 20% = £1,280

I have probably calculated the above incorrectly (based on my assumption at the beginning). Fortunately, I've done my exams so don't have to worry about this anymore. In real life, an accountant would be able to ask their clients (Sonia and Steve) for clarification.

Liam_Jenkins_99

It is wrong. Did you take the income tax into consideration?

Agnes123

Is CGT not seprate from incom tax?

Liam_Jenkins_99

I'm not sure.

Agnes123

I thought it was and it had better been as I've just sat my personal tax exam.

reader

CGT is a separate tax compared with income tax. However you have to take taxable income into account when determining how much of the capital gain is taxed at 10% and how much is taxed at 20%.

If basic rate band is available, the capital gain will be taxed at 10% to the extent of the available basic rate band. Any excess capital gain over and above the used basic rate band will be taxed at 20%.

If no basic rate band is available because it has been used up by income then the capital gain will be taxed at 20%. Therefore if someone is a higher rate tax payer they will pay CGT at 20%.

MarieNoelle

The question is badly formulated but I would say that Steve and Sonia are completely unrelated so they both have a £35,000 gain (less exemption that's £23,900 taxable gain).
So first calculate for each tax payer how much of the basic rate band is still available - the gain in that band will be taxed at 10%, anything above will be taxed at 20%.