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Dear Tutor
I do under the question and answer but I dont under why need to minus 12,000, how and where does this figure come from, why not just deduct from the 16,350. Please assist and thank in advance.
Q. During March 2021, Dembe is going to sell a residential propery and this will result in a chargeable gain of 67,000 if she makes the disposal
Dembe wants to know whether it would be beneficial to transfer the propery to Kato, her husband, as a no gain / no loss transfer prior to it being sold during Marcg 2021. The transfer from Dembe to Kato will cost 2,000 in additional legal fees, and this cost will reduce the chargeable gain to 65,000 if the disposal is made by Kato.
Dembe has already made other disposal during the tax year 2020/21 which have utilised her annual exempt amount. Kato however, has not yet made any disposal.
Kato taxable income for the tax year is 21,150
Asnwer:
Disposal by Dembe
67000 at 28% 18,760
Disposal made by Kato
16,300 (37,500 -21,150 )@ 18% 2,943
336,650(65,000-12,000-16350 ) at 28% 10,262 (13,205)Capital gain tax Saving 5,555
Additional legal fees (2,000)
Overall Saving 3,555I’m confused as per the further deduction of additional legal fees. I thought it had initially been deducted in the revised CG figure of 65,000. Why the need to deduct it further ?
Your 12,000 is AEA.
65,000 – 12,000 (not mentioned that Kato already used his AEA) – 16,350 (37,500 – 21,150)I think legal fees should not have been deducted in CGT computation (they are not related with disposal or with asset directly). They are incurred for tax avoidance purposes, therefore tax savings are just lower.
Firstly my apologies for not being available until now to answer your question.
The deduction of 12,000 should be 12,300 for the tax year 2020/21 and is the AE which has not not been used by Kato.
The question asked is whether it would be beneficial to transfer the asset to Kato (which would be on a no gain / no loss basis)
Therefore the answer is whichever route achieves the highest net cash receipt to the couple – if Dembe sells the net cash receipt will be the net proceeds of 67,000 less the CGT of 18,760 leaving 48,240
If Kato sells then his net proceeds will be 65,000 less his tax liability of 13,205 leaving a net cash receipt of 51,795Therefore 51,795 – 48,240 = 3,555 increase in net cash receipt if Kato sells.
Clearly the saving would be slightly higher if the correct AE for 2020/21 had been used
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