Julia Peake, Technical Manager, Nucleus, tackles three more types of questions which regularly are asked of the Nucleus technical team.
Q1. We are looking at surrendering an onshore bond, set up 10 years ago. The original investment amount was £150,000 but there was an uplift to the amount invested by the provider to £157,500.
For the purpose of calculating the chargeable gain, what figure should be used for the premium please, £150.000 or £157,500
Answer: Where extra value is added to the policy by the insurer, for example by allocation of bonus units, the premium to be included in total deductions is the actual amount paid by the policyholder, without taking the extra value into account.
IPTM7531 – Total deductions: premiums: commission arrangements – HMRC internal manual – GOV.UK.
This is also back up in IPTM3527 – Calculating gains: maturity, full surrender or assignment: commission rebated or reinvested as premium – HMRC internal manual – GOV.UK where it states:
A similar rule applies where instead of being rebated the commission is reinvested into the policy as additional premium. Then the amount of premium allowed in the gain calculation in ‘total deductions’ is restricted to the amount of premium paid by the policyholder and does not include the commission reinvested as additional premium.
Q2. A client holding a General Investment Account has sold an asset and is looking to use the bed and breakfasting rules to buy back the same asset within 30 days. When does the clock start counting, from the day the sell was placed or the day the trade settled?
Answer: Section 28 of The Taxation of Chargeable Gains Act 1992 tells us when an acquisition or disposal takes place for capital gains tax (CGT) purposes:
28 Time of disposal and acquisition where asset disposed of under contract.
(1) Subject to section 22(2), and subsection (2) below, where an asset is disposed of and acquired under a contract the time at which the disposal and acquisition is made is the time the contract is made (and not, if different, the time at which the asset is conveyed or transferred).
(2) If the contract is conditional (and in particular if it is conditional on the exercise of an option) the time at which the disposal and acquisition is made is the time when the condition is satisfied.
So, this suggests the disposal, in respect of trading shares and/or funds is when the contract is made and the settlement date is when the asset is transferred. Additionally please see HS284 Shares and Capital Gains Tax (2021) – GOV.UK (www.gov.uk) which explains how the rules for selling and the order works.
The client should discuss any disposal, timings, and tax due with their regulated tax adviser.
Q3. A client has significant capital gains tax losses registered with HMRC from previous years. He part-owns a residential property inherited from his father, until now this has been rented out but is now up for sale. Could you confirm if he can offset any gain by using his carry forward losses?
Answer: When it comes to losses and applying them, there are certain rules which need to be followed. Carried forward losses may be offset against gains in future years. Unlike current year losses it’s only necessary to offset sufficient carried forward losses against gains in excess of the annual exemption. Please see Capital Gains Tax: what you pay it on, rates and allowances: If you make a loss – GOV.UK.
You mention the part ownership he has in the property is an investment property and so no principal private relief will be attached and therefore will be subject to CGT after his annual exempt amount, and this will be charged at either 18% or 24% depending on the tax status of your client.
CGT on most sales of UK property needs to be paid within 60 days. The client can go online to help work out their gain considering all factors on this link: Tax when you sell property: Work out your gain – GOV.UK.
I would say that the client should speak to a regulated tax professional as well to work out the correct gain and ensure the taxes are paid correctly and on time.
See Julia’s previous Q&A article here: 3 topical technical questions – and answers
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