R03 CGT disposals, exemptions and computing gains: free practice questions

1. Question 1 of 5

   Which of the following is NOT a disposal for capital gains tax?

   Option A: Receiving insurance money for a damaged paintingOption B: Mortgaging a property as security for a loanOption C: Giving shares to a friend as a birthday presentOption D: Swapping one investment property for another one

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   The answer is B: Mortgaging a property as security for a loan

   A disposal covers any transfer of ownership or capital sum derived from an asset: sales, gifts, exchanges, compensation and insurance receipts. Using an asset as security for a debt isn't a disposal.

   Why the other options are wrong

   A

   A capital sum derived from an asset is a disposal.

   C

   Gifts are disposals, valued at market value.

   D

   Exchanges of property are disposals for CGT.

2. Question 2 of 5

   Kate sells a cottage worth £150,000 to her son for £90,000. What disposal proceeds does she use?

   Option A: Nil, as sales within a family are not disposalsOption B: £90,000, the price that her son actually paidOption C: £150,000, as he is a connected personOption D: £120,000, the average of the price paid and value

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   The answer is C: £150,000, as he is a connected person

   A disposal to a connected person, such as a child, isn't at arm's length, so market value (£150,000) is used for Kate's proceeds and as her son's base cost.

   Why the other options are wrong

   A

   Family transactions are disposals, at market value.

   B

   Market value replaces the actual price between connected persons.

   D

   There's no averaging; market value is used.

3. Question 3 of 5

   Ray sells an antique clock for £9,000. It cost him £2,000. What is the chargeable gain?

   Option A: NilOption B: £3,000Option C: £5,000Option D: £7,000

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   The answer is C: £5,000

   Actual gain = £9,000 − £2,000 = £7,000. The cap is 5/3 × (£9,000 − £6,000) = £5,000. The lower figure, £5,000, is chargeable.

   Why the other options are wrong

   A

   Chattels are only fully exempt if sold for £6,000 or less.

   B

   That's the excess over £6,000; the cap is five-thirds of it.

   D

   The gain is capped at five-thirds of the excess over £6,000.

4. Question 4 of 5

   Which period of absence is NOT treated as occupation for private residence relief?

   Option A: Working abroad for six years, with residence before and afterOption B: The final nine months of ownershipOption C: Living elsewhere by choice for the five years just before the saleOption D: Working elsewhere in the UK for four years, living there before and after

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   The answer is C: Living elsewhere by choice for the five years just before the sale

   Ignored absences include up to a year's delay before moving in, up to three years for any reason, up to four years working elsewhere in the UK and any period working abroad (each preceded and followed by residence), and the final nine months.

   Why the other options are wrong

   A

   Any period working abroad can qualify.

   B

   The last nine months always count if it was once the main residence.

   D

   Up to four years of UK employment elsewhere is ignored.

5. Question 5 of 5

   Which cost is NOT deductible in computing a capital gain on a let property?

   Option A: Estate agent's fees on the saleOption B: Repairs that were deductible against rental incomeOption C: The cost of adding a conservatoryOption D: Stamp duty land tax paid on the purchase

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   The answer is B: Repairs that were deductible against rental income

   Expenditure deductible against income, such as repairs, isn't allowed in the CGT computation. Enhancement costs and incidental costs of buying and selling are allowed. Individuals get no indexation allowance.

   Why the other options are wrong

   A

   Incidental costs of sale are deductible.

   C

   Enhancement expenditure is deductible.

   D

   SDLT on acquisition is an allowable cost.

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