Advanced personal taxation
Calculate and explain the potential capital gains tax liability on the proposed disposal of Copy
It. Use 2020/21 rates to illustrate your answer.
(8 marks)
2. Prepare notes explaining the reliefs available to Mrs Porter for exempting/deferring the gain.
(17 marks)
(Total 25 marks)
Appendix — Proposed disposal of Copy It
Mrs Porter has received an offer of £210,000 for Copy It, which has been allocated as follows:£ Freehold premises 166,000 Goodwill 16,000
Motor cars 24,000
Stock 3,000
Working capital 1,000
210,000
The sale is expected to complete in October 2020.
The original cost of the business comprised the cost of the freehold premises,which were purchased in April 1988 at a cost of £40,000 plus legal expenses of £800.
Mrs Porter anticipates making no other chargeable gains in the year to 5 April 2021.
Question 2
Deirdre died on 26 December 2020. She is survived by her husband. The following information has been extracted from her tax file.
The value of her estate at 26 December 2020 was as follows:
£
Half share in family house 130,000
Listed investments 163,000
Endowment policies 43,000
Personal chattels 10,000
Bank balance 37,000
By her will, Deirdre had left £5,000 to each of her two grandchildren. Deirdre left to her husband the family home, a £25,000 legacy and the personal chattels.
She also left £30,000 of her estate to charity. The listed investments were sold on 23 April 2021 for £169,000 less expenses of £2,000.
Deirdre had made chargeable lifetime transfers of £301,000 in total in the previous seven
years.
Required:
Calculate the inheritance tax due on Deirdre’s estate.
show the minimum level of charitable donations needed to qualify
Deirdre to claim lower rate of estate tax.
State the date by which the return should be submitted and the
payment/interest date(s). (25 marks)
Question 3
Mr Bread is a baker who has been trading for many years and draws up accounts
to 31 May each year. Mr Bread’s recent trading results are:
£
Year to 31 May 2018 4,000
Year to 31 May 2019 8,900
Year to 31 May 2020 (11,700)
Year to 31 May 2021 (estimate) 3,240
Mr Bread also has property income of £1,850 each year.
In 2020/21, Mr Bread has a capital gain of £64,000. He has available capital losses of £6,000.
Required:
1. Evaluate the options available to Mr Bread to utilise the £11,700 trading loss;
(10 marks)
2. Recommend the most tax efficient loss relief; and (5 marks)
3. Apply the best relief, calculate the income tax payable and state the net capital gains for the years in question. Do not calculate the capital gains
liability. (10 marks)
Total 25 marks
Question 4
It is September 2018.
You are a CA who has recently set up in practice on your own. Jim Brown, one of your old school friends, has come up to you for some advice.
Jim is a dentist who was employed by a large dental practice for five years and then set up his own dental surgery commencing on 2 January 2018.
Jim has prepared draft profit figures for the first four quarters and forecast profits for subsequent quarters. These are set out in the Appendix.
Based on these figures Jim would like to know what date he should draw up accounts.
He is considering drawing up his first set of accounts either for the 15 months to 31 March 2019 or for the 18 months to 30 June 2019. All accounts thereafter would be on an annual basis.
He has asked you to write to him explaining which of these dates you would recommend.
Required:
Write a letter to Jim advising him of the most suitable balance sheet date for his business,showing taxable profits for all relevant tax years under each alternative.
(25 marks