Terminal Loss and Relief:

- Terminal loss is a loss which arises in the business cessation time period

- Terminal loss relief can be adjusted from → Trading Income of last 3 years (36 months) on LIFO
basis (MPE).

- Although other options (like c/y, c/b from total income and/or gains) are also available for the
adjustment of Terminal Loss
 Assets

Chattel Non- Chattel

- Tangible - Intangible

- Moveable - Immoveable

Wasting Non-Wasting Wasting Non-Wasting

Chattel Chattel Non- Chattel Non- Chattel

- Useful life
- Useful life - Useful life - Useful life more than 50
less than 50 more than 50 less than 50 years
years years years

- Exempt from - There could - E.g. Patents, - Normal

CGT be 4 situations copyrights, calculations
Leasehold
Examples: Examples: Land Examples:
P&M Antiques & Arts Freehold land
Vases & Building
Old Paintings DP xxx Shares
Precious Metals Cost (xx) Goodwill
(Gold, Silver)
Gain xxx

Non-Wasting Chattel Original Cost * Remaining life

Total Life
S. # D.P Cost Treatment

1. < 6,000 < 6,000 Exempt

2. > 6,000 > 6,000 Normal

Calculations - Normal calculations

3. < 6,000 > 6,000 Ignore actual DP Or

&
Deemed DP 6,000 - 5/3 Rule

4. > 6,000 < 6,000 Lower of 5/3 (DP – 6,000

 Business Asset Disposal Relief (BADR)
This relief is available for individuals, when individual

- Disposing of complete business or part of business

- Share of partnership is sold

- Individual asset are being sold at time of business cessation (within 3 yrs of cessation)

- Disposing shares of - Company, in which person is

- Employee (part-time or full-time), and
- owns at least 5% of the ordinary shares (voting rights)

The assets must be owned for two years prior to date of disposal and must be business asset (not
available on investments)

This relief covers the first £1 Million of qualifying gains that an individual makes during their lifetime.
This gain is taxed at a lower CGT rate of 10% regardless of taxable income
Commercial Structure & Building Allowance (SBA):
- Relief is given as an annual straight-line allowance of 3% over a 33 1/3 years period (33 years
and 4 months period)

- SBA is only available where building or structure has been constructed on or after 29 October
2018 (For TX & ATX papers purposes, after 6 April 2020)

Key Features of SBA are:

- Offices, retail & wholesale premises, factories & warehouses can all qualify for SBA.

- The value of land is excluded.

- Expenditure which qualify for P&M, cannot also qualify for SBA and vice versa.

- Where an un-used building is purchased from a builder or developer, then qualifying

expenditure would be the price paid less the value of land.

- The building or structure must be used for a qualifying purpose/activity (such as trade or
property letting)

- The SBA can only be claimed from when the building or structure is bought into qualifying use. It
means, SBA would be time apportioned for the period when 1st bought into use. (Unlike P&M,
where capital allowances are always given for full accounting period).

- The separate SBA is given on each building or structure qualifying for relief.

- Relief is also given for the cost of subsequent improvement, or where a building is renovated or
converted.

Disposal of Building/Structure:

- There is no balancing allowance or charge.

- The allowances that have been claimed by the seller, are added to the Disposal Proceeds in
order to determine the chargeable gain or allowable loss arising on the sale.

- The purchaser of the building simply continues to claim 3% allowance based on original cost for
the remainder of the 33 1/3 years period.
 Research & Development (R&D)
- By definition, it is same as accounting definition

- Investing in research & development, is it good for the economy or not?

If yes, it means company is trying to bring the innovation in product, increasing efficiency, reducing
costs, improving processes, etc.

- Then tax authority incentivize/promote by giving certain relief on the costs incurred on R&D

For tax purposes → Eligible Expenditure:

- Staff cost – relating to R&D (e.g., salaries, employer pension contribution, class 1 employer NIC
(benefits should not be included)
- Software & consumable items (fuel, power etc)
- Sub-contract work (agency cost) → small portion of whole R&D
- General overheads should not be included in eligible R&D expenditures
- Assets / expenses should not be considered → which not wholly & exclusively incurred for R&D
- Assets / expenses should only be considered → which wholly & exclusively incurred for R&D

Sub-contract work (agency cost) → Not outsourced

If conducted by company itself, then max 65% of the expenditure qualifies for eligible R&D expenditure
How the available relief on eligible expenditure of R&D works:

First thing to check whether the company is SME or a Large company:

SME Company Large Company

Define in question Define in question

Step 1:
- 230% of expenditure can be deducted

(Example: 10k expenditure incurred but - Claim a tax credit @13% of cost incurred
you can deduct 23k while calculating tax - This receipt is a taxable receipt for CT
adjusted trading profits) purposes

(Effectively, additional 130% of actual

expenditure you deducted)
Step 2: Example:
- After deducting 230% of expenditure, Large company incurs R&D of 100,000

if trading income is still calculated as +ve Trading income (Before R&D) =

figure, that’s ok, we can deduct exp in full 1,000,000
L: R&D =
If trading income is calculated as -ve (100,000)
figure Adjusted Trading Income = 900,000
Tax credit @ (13% of 100000) = 13,000
Then;
Total Income = 913,000
Option 1: (Surrender Option)
Surrender the loss to get repayment CTL = @ 19% X 913,000 = 173,470
@14.5%

Means, forfeit the loss, and get refund Effectively:

@14.5% from HMRC
Income @ 13%
Surrendable loss is the Lower of: Tax @ 19% (2.47%)
Net Benefit 10.53%
- 230% of R&D expenditure
- Trading loss, after current year claim

Option 2:
Adjust the loss normally (c/y, c/b, c/f)
 Part Disposal
- This concept is applicable when a person sold a part of an asset

- Cost of part sold is calculated as = M.V of part sold * original cost

M.V of whole asset

Transaction b/w Connected Persons and CGT

Always at Market Value (Gift Relief and Holdover Relief) + Business Asset

IHT in Installments (IHT payment → 6 months, from month end of death)

Non-Liquid Asset → Death Tax

For example, (property or unquoted shares), then taxpayer have options:

Option 1:

Take out loan to pay IHT. The interest on loan would be deducted from total income, as “Qualifying
Interest”.

Option 2:

Pay tax in 10 equal annual installments, first due on normal IHT due date, then annually thereafter, on
the same date.

However, if asset is sold within 10 years’ time, all remaining installments become payable immediately.
IR – 35: Personal Service Company:

Objectives & Consequences of PSC:

- The objective of IR – 35 (PSC) is that the whole income received from Co. A, would be
considered/treated as Employment Income for tax purposes, rather than dividend oe any other
source of income.

- Being treated as Employment Income → NICs applicable as well

Means, no concept of any other income

For Person & Co.

Amount received in the tax year XX

Less: Statutory deduction (5% of amount received) (X)

NICs paid by employer (X)
Pension contributions by employer (X)
Salary paid by employer (X)

Deemed salary including employer’s NICS YY

(Deemed Gross Cash Earnings Available in Co)

Less: Employer’s NICs (YY * 13.8/133.8) (X)

Ignore any dividends paid by PSC NIL
Deemed Salary ZZ
UK Tax Implication on Foreign Income:

UK Resident + UK Domiciled (PR – Permanent Residency)

➢ UK Income Tax → on Worldwide Income
➢ UK CGT → on Worldwide Gains
➢ UK IHT → on Worldwide Assets

UK Source Income → Always subject to UK Income Tax

UK Assets → Always subject to UK IHT

Foreign Assets → Subject to UK IHT if person meets UK Domicile Status

Foreign Income Subject to UK Income Tax or Not?

UK IT on Overseas Investment Income and Trading Income

On arising / accrual basis