Session 2020/2021 Exams Office Ref: First Sit
Module: Advanced Personal Taxation
Module Code: BAF-6-APT
Date: 21-05-2021
Time:
Submission:
Length: 2 hours
Instructions to Candidates
ANSWER ALL QUESTIONS
Tax tables are provided in the exam paper.
You have 2 hours to complete.
The solution should be in ONE word file. Any calculations done in Excel should be copied in the answer file.
TAX RATES 2020/21
The following tax rates and allowances to be used in answering the questions:
Rates of Income Tax
Basic rate £12,501 – £37,500 20%
Higher rate from £37,501 to £150,000 40%
Additional rate over £150,001 45%
If total taxable income < £17,000 – savings income is tax free Personal Savings Allowance – Basic Rate £1,000 Personal Savings Allowance – Higher Rate £500 Personal Savings Allowance – Additional Rate £0 Starting rate for savings 0% Starting rate limit for savings (if no NSI) £5,000 Dividend Allowance £2,000 Dividends are taxed at 7.5%, 32.5% and 38.1% Personal allowances £12,500 If adjusted net income exceeds £100,000 the basic personal allowance is reduced by one-half of the excess. Where adjusted net income is £125,000 or more, the personal allowance is reduced to zero. £1,250 may be transferable between certain spouses where both are basic rate taxpayers Property Income Rent a room relief £7,500 Car Benefit Zero emissions 0% *1 – 50 g/km (depending upon electric charge) 2% – 14% Electric range 130 miles or more 2% Electric range 70-129 miles 5% Electric range 40-69 miles 8% Electric range 30-39 miles 12% Electric range less than 30 miles 14% *51 g/km to 54 g/km 15% *55 g/km to 59 g/km 16% *60 g/km to 64 g/km 17% *65 g/km to 69 g/km 18% *70 g/km to 74 g/km 19% *75 g/km 20% * These percentages 2% lower in 2020-21 if car registered on or after 6 April 2020 51 g/km to 75 g/km – 76 g/km to 94 g/km – 95 g/km – Each additional 5 g/Km +1% Diesel engine 4% Maximum charge Car Fuel Scale Charge (amount used) 37% £24,500 Van Benefit £3,490 Van Fuel Benefit Rates of Interest £666 Official rate of interest NICs Class 2 2.25% Small profit threshold £6,475 Weekly contribution £3.05 Class 4 Lower profits limit £9,500 Upper profits limit £50,000 Rate between lower and upper limits 9% Rate beyond upper limit 2% Primary Class 1 NIC rates Weekly paid First £183 Next £779 (up to £962) Over £962 Nil 12% 2% Monthly paid First £792 Next £3,375 (up to £4,167) Over £4,167 Nil 12% 2% Weekly paid First £169 Over £169 Nil 13.8% Monthly paid First £792 Over £792 Nil 13.8% Secondary Class 1 NIC Rates Employment allowance (per employer) £4,000 Capital Allowances Writing Down Allowance per year Plant and Machinery main pool 18% Special rate pool (>110g/km) 6%
• Annual investment allowance is £200,000 after 1.1.2016 First Year Allowances on qualifying plant and
Low emission cars (<50 g/km)
Capital Gains Tax 100%
Annual exemption £12,000
Standard rate of CGT 10%
Higher rate of CGT
20%
Standard rate for property 18%
Higher rate for property 28%
machinery:
Corporation Tax – Financial Act 2019
FY 2020 TO 31.03.2021
Main rate 19%
Inheritance Tax
Rate on lifetime transfers 20%
Rate on death 40%
Lower rate
36%
Date of Transfer
6 April 2005 – 5 April 2006
Nil Rate Band
£0 – £275,000
6 April 2006 – 5 April 2007 £0 – £285,000
6 April 2007 – 5 April 2008 £0 – £300,000
6 April 2008 – 5 April 2009 £0 – £312,000
6 April 2009 – 5 April 2021
Main residence nil rate band 2020/2021 = £175,000
Taper Relief
Period between % Tax transfer and death Reduction
£0 – £325,000
0 – 3 years 0%
3 – 4 years 20%
4 – 5 years 40%
5 – 6 years 60%
6 – 7 years 80%
Value Added Tax
Standard rate 20%
Reduced rate 5%
Registration threshold £85,000
Deregistration threshold £83,000
Question 1
It is 3 June 2020.
Max and Lucy are in their mid-sixties and are planning to substantially reduce their business interests that they have built up over the years and move to Wentworth to concentrate on their major passion in life, golf.
Details of their proposed transactions during 2020/21 are included within the appendix. Neither Max nor Lucy propose to make any other capital transactions during 2020/21 and are both higher-rate taxpayers.
Required:
Evaluate any chargeable gains reliefs that may be available and calculate the CGT payable for both Max and Lucy for 2020/21.
(50 marks)
You should assume that the CGT annual exempt amount for 2020/21 is £12,300.
Appendix
Details of Max and Lucy’s proposed capital transactions during 2020/21
Max plans to gift his advertising business, which he has run for many years, to his daughter in August 2020, but decides to sell the building of the business to her for £75,000. Details of the assets of the business are:
Value at
Cost August 2020
£ £
Building 60,000 150,000
Goodwill 0 70,000
Plant and machinery 7,500 5,000
Net current assets 33,000 35,000
Max has received an offer for £2.5m for his 100% shareholding in a publishing company which he acquired for £200,000 in 2001. Max has been a director of the company since that date. The sale is likely to be completed sometime in September 2020. Extracts of the balance sheet of the company in September 2020 are expected to be:
£
Freehold premises 1,100,000
Goodwill 875,000
Plant and machinery 55,000
Investment in another publishing company 70,000
Net current assets 180,000
2,280,000
Max is keen to continue with his golf equipment retail shops, but due to him relocating to Wentworth, proposes to sell his local shop in Durham for £270,000 in September 2020, having acquired its freehold in 2000 for
£30,000. Max had already acquired a new small freehold shop in Wentworth for £230,000 in December 2019.
Lucy has run a successful engineering business for many years and proposes to incorporate the business into a limited company in September 2020. The market values of assets are expected to be in September 2020:
£
Workshop (cost £89,000) 130,000
Goodwill (no cost) 80,000
Plant and equipment (cost 20,000
£35,000)
Company car (cost £10,000) 5,000
Net current assets 32,000
267,000
In exchange for the engineering business, Lucy receives cash of £25,000 with the remainder of the consideration in shares.
Max and Lucy jointly own a house in Durham which they acquired on 1 June 1992 for £43,000. They sold the house on 31 May 2020 for £650,000 after being for sale for four years. During their ownership, the following occurred:
1 June 1992 – 30 Nov 2000 Lived in house
1 Dec 2000 – 30 April 2002 Lived abroad with the house empty
1 May 2002 – 31 Jan 2006 Lived in house
1 Feb 2006 – 31 July 2009 Lived abroad with house let out
1 Aug 2009 – 31 May 2015 Lived in house
1 June 2015 – 31 May 2020 House empty
Question 2
Kirsty’s father, Fred died on 19 February 2020, leaving a sizeable estate. She needs to know who is liable for any tax as a result of his death and the due dates.
Details of Kirsty’s father’s estate:
Personal details
Kirsty’s father, Fred, was 59 when he died. He was married to Linda who is aged 54 and in good health. Kirsty is an only child.
Recent gifts
Fred made a chargeable transfer four years before his death valued at £311,000.
Estate on death
On his death, Fred’s estate comprised the following assets:
£
Family home 700,000
Sole trade business started Jan 2005 236,000
Quoted share portfolio 340,000
Cash 260,000
Painting (see below) 45,000
Personal chattels 100,000
1,681,000
Fred and Linda own a set of two paintings each individually valued at £45,000. Their combined value is £120,000.
Fred’s will stipulates that his personal chattels will pass to his wife Linda.
All other assets will pass to Kirsty.
Required:
Calculate the tax due on Fred’s estate as a result of his death. State the payment date and who is liable for the tax. (25 marks)
Question 3
Mr W Payne, a glazier, has been in business for many years and makes up accounts each year to 30 June. His latest agreed tax-adjusted trading figure is:
Year ended 30 June 2019 (£23,000) loss
His estimated profit for the year ended 30 June 2020 is £33,600.
Mr Payne has a portfolio of shares in UK companies. His dividend income is:
2019/20 £25,000
2020/21 £20,000
Required:
Calculate the final tax payable/repayable (after tax suffered at source) for 2019/20 and 2020/21 under two separate scenarios:
Relief under s64 is claimed in 2019/20 (ignoring any prior year claims), that is, make a current year claim; and
No relief under s64 is claimed in 2019/20, that is, carry forward all of the trading loss.
Advise Mr Payne which option is better.
You may assume that 2019/20 rates can be used for 2020/21. (25 marks)
Note:
You may wish to consider which scenario will provide the best results based on your knowledge of the tax rules before performing all calculations. The calculations can then be used to prove your recommendation.
