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For the tax year 2017–18, Jane is a higher rate taxpayer but her husband Claude does not have any taxable income. During March 2018, Jane is going to dispose of a residential property, and this will result in a chargeable gain of £120,000.
If 50% ownership of the property is transferred to Claude prior to its disposal, this will enable his annual exempt amount and basic rate tax band for 2017–18 to be utilised. The CGT saving for the couple will be :
Annual exempt amount 11,300 at 28% 3,164
Lower rate tax saving 33,500 at 10% (28% – 18%) 3,350Can you please explain me the calculation over here .
Can you please also let me know which gains qualify for Entrepreneurs relief.
Thank you in advance.Firstly look in the notes for the qualifying business assets that qualify for entrepreneurs’ relief – basically on the disposal of an unincorporated trade or shares in a trading company where the individual owns a minimum 5% shareholding and has been an employee for the last months.
In the example you quote the answer has been computed by working “in the margin” as the examiner refers to, by looking at the difference between the 2 outcomes and computing the tax difference accordingly, rather than the much longer but still correct way of calculating the total tax liability under both alternatives and computing the difference between these 2 totals – the first method is much quicker in the exam!!
The proposal is to move 60,000 of the gain that would have been taxed at 28% in the hands of Jane to the other spouse. Claude has no gains and no income taxable for the year (why did she marry him!) so the first 11,300 of the gain will be covered by his AEA and therefore suffer no tax – hence by moving it to him = a saving of 28%. The next 33,500 of gains utilises Claude’s basic rate band and therefore will be taxed at 18% instead of 28% – a saving of 10% on that part of his 60,000 gain. The remaining gain will be in his higher rate band and therefore will also be taxed at 28% and so no marginal saving as compared to Jane
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