p6 - interim

Interim Assessment

KAPLAN PUBLISHING of 16

ACCA INTERIM ASSESSMENT

Advanced

Taxation

JUNE 2009

QUESTION PAPER

Do not open this paper until instructed by the supervisor This question paper must not be removed from the examination hall

Time allowed Reading time: 15 minutes Writing time: 3 hours This paper is divided into two sections Section A BOTH questions are compulsory and MUST be

attempted Section B TWO questions ONLY to be attempted Tax rates and allowances are on pages 3 – 6

Kaplan Publishing/Kaplan Financial

ACCA P6 Advanced Taxation

© Kaplan Financial Limited, 2008 All rights reserved. No part of this examination may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without prior permission from Kaplan Publishing.

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Interim Assessment

Tax rates and allowances Some tax rates and allowances will be reproduced in the examination paper for Paper P6. In addition, other specific information necessary for candidates to answer individual questions will be given as part of the question.

Income tax %

Basic rate £1 – £34,800 20 Higher rate £34,801 and above 40

Personal allowances

£

Personal allowance 6,035 65 – 74 9,030 75 and over 9,180 Income limit for age related allowances 21,800

Car benefit percentage The base level of CO2 emissions is 135 grams per kilometre. Car fuel benefit The base figure for calculating the car fuel benefit is £16,900. Personal pension contribution limits

£

Annual allowance 235,000 Lifetime allowance 1,650,000

The maximum contribution that can qualify for tax relief without any earnings is £3,600. Authorised mileage allowance

All cars:

Up to 10,000 miles 40p Over 10,000 miles 25p



Capital allowances

Plant and machinery %

Writing-down allowance 20 Special rate expenditure Writing-down allowance 10 First-year allowance – Low emission motor cars (CO2 emissions of less than 110 grams per kilometre) (17 April 2002 to 31 March 2013)

100

Annual investment allowance £50,000

Industrial buildings Writing-down allowance 3

Corporation tax

Financial year 2006 2007 2008

Small companies rate 19% 20% 21% Full rate 30% 30% 28%

£ £ £

Small companies rate lower limit 300,000 300,000 300,000 Small companies rate upper limit 1,500,000 1,500,000 1,500,000 Marginal relief fraction Small companies rate 11/400 1/40 7/400

Marginal relief (M – P) × I/P × Marginal relief fraction

Value Added Tax £

Registration limit 67,000 Deregistration limit 65,000


Interim Assessment

Inheritance tax %

£1 – £312,000 Nil Excess 40

Capital gains tax

Annual exemption Individuals

£ 9,600

Rate of tax 18%

Entrepreneurs’ relief £1,000,000

National insurance contributions

(Not contracted out rates) %

Class 1 Employee £1 – £5,435 per year Nil £5,436 – £40,040 per year 11.0 £40,041 and above per year 1.0 Class 1 Employer £1 – £5,435 per year Nil £5,436 and above per year 12.8 Class 1A 12.8 Class 2 £2.30 per week Small earning exemption £4,825 Class 4 £1 – £5,435 per year Nil £5,436 – £40,040 per year 8.0 £40,041 and above per year 1.0

Rates of interest

Official rate of interest: 6.25% Rate of interest on underpaid tax: 7.5% (assumed) Rate of interest on overpaid tax: 3.0% (assumed)



Stamp Duty and Stamp Duty Land Tax

Ad Valorem Duty Rate

Residential property

£125,000 or less (1) Nil £125,001 – £250,000 1% £250,001 – £500,000 3% £500,001 or more 4%

(1) For non-residential property, the nil rate is extended to £150,000.

Shares 0.5%

Fixed duty £5

Calculations and workings need only be made to the nearest £. All apportionments may be made to the nearest month. All workings should be shown.


Interim Assessment

SECTION A

BOTH questions are compulsory and MUST be attempted QUESTION 1 Phil Mitchel, aged 47, died on 23 March 2009. At his death he owned the following assets: (1) 30% of the £1 ordinary shares in Queen Ltd, an unquoted trading company. The

remaining shares were held as follows: Phil’s wife 25% Phil’s son 10% Unconnected persons 35% Phil had originally acquired a 65% holding when he became a director of the

company in April 2006, for £650,000, but had gifted his wife’s shareholding to her on 10 July 2008 and his son’s shareholding to him on 20 July 2008.

The value of the shares have been agreed by HMRC as follows:

% holding July 2008 March 2009 £ £

65 2,100,000 2,250,000 55 1,450,000 1,500,000 40 850,000 900,000 30 650,000 700,000 25 500,000 550,000 10 150,000 175,000

10% of the assets of Queen Ltd are surplus cash balances (i.e. excepted assets). (2) 10,000 £1 ordinary share capital of Club Ltd, an unquoted trading company. The

value of these shares at 23 March 2009 has been agreed by HMRC at £100,000. Phil originally acquired these shares for £1,000 in October 2005. Club Ltd has issued 50,000 ordinary shares.

(3) Two properties – one used in the trade of Queen Ltd and the other used in the trade

of Club Ltd. The property used by Queen Ltd was acquired in April 2006 for £200,000 and was

valued in March 2009 at £750,000. The property used by Club Ltd was acquired in September 2006 for £100,000 and

valued in March 2009 at £175,000. At March 2009, there is an outstanding mortgage of £75,000 on the property used by Club Ltd.

(4) On 23 March 2009, other net assets are valued for IHT purposes at £650,000. This

figure is after taking account of the outstanding personal tax liabilities owed by Phil at this date.



Apart from the gifts of shares in Queen Ltd made to his wife and son, Phil has made the following cash gifts during his lifetime to his son:

Date Amount £

28.3.2003 46,000 20.6.2003 37,000 11.3.2004 18,000 3.3.2005 198,000

The 20 June 2003 gift was made on the occasion of the son’s marriage. Under the terms of his will, Phil left £312,000 in cash to his wife with the residue of his estate to his son. Phil’s son sold half of his shares in Queen Ltd in December 2009 for £550,000. Phil has never worked for Queen Ltd, and has made no other chargeable disposals in 2009/10. Required: (a) Explain the inheritance tax implications resulting from Phil’s death on 23 March 2009. Your answer should include a calculation of any inheritance tax liabilities arising, and

also an explanation of the basis for valuing his shares in Queen Ltd and of any reliefs which are available. (18 marks)

(b) (i) Explain the capital gains tax implications arising as a result of the gifts in July

2008, and the sale by Phil’s son in December 2009.

Your answer should include a calculation of any taxable gains arising, assuming that gift relief is not claimed.

You should assume that the rates and allowances for 2008/09 apply throughout this part of the question. (8 marks)

(ii) Explain how your answer to part (b) (i) would be different if gift relief had been

claimed. You are not required to perform any calculations for this part. (4 marks)

(c) Explain whether any tax can be saved by entering into a deed of family arrangement.

Specify the conditions which need to be satisfied and the potential disadvantages in varying the terms of a will. (5 marks)

(Total: 35 marks)


Interim Assessment

QUESTION 2 Duncan McByte is a computer programmer currently living in Scotland. He has recently accepted the offer of a contract of employment with Mainframe plc (a large company worth over £50 million) for a period of three years commencing on 1 July 2008 and ceasing on 30 June 2011. Duncan will be based in London during the period of the contract. The remuneration package comprises: (1) A salary of £65,000 pa, together with a termination bonus of £40,000 upon

satisfactory completion of the three-year contract. (2) Mainframe plc is providing accommodation for Duncan in London. This is in an

apartment that was purchased in 1991 for £94,000 and was improved at a cost of £35,000 during 2002. The apartment has a rateable value of £6,700 and is currently valued at £170,000.

(3) Duncan is using his private motor car for business mileage. The motor car is leased

at a cost of £380 per month and the annual running costs, including fuel, are £1,800. He drives a total of 1,700 miles per month, of which 1,500 miles are for business purposes. Mainframe plc pays a mileage allowance of 30 pence per mile for business mileage. The relevant statutory rates are 40 pence per mile for the first 10,000 miles and 25 pence per mile thereafter.

(4) On 1 July 2008, Mainframe plc provided Duncan with a loan of £60,000 that he has

used to purchase a holiday cottage in France. The loan will be repaid by six half-yearly instalments of £10,000 commencing on 31 December 2008. The loan has an interest rate of 1% pa, therefore Duncan will have paid £425 interest in 2008/09.

(5) On 1 July 2008, Mainframe plc provided Duncan with a laptop for his personal use.

The laptop cost £1,200. (6) Mainframe plc will pay Duncan’s annual subscription of £125 pa to the Institute of

Chartered Computer Consultants, a sports club membership of £800 pa, an annual premium of £650 for liability insurance, and £1,200 pa for computer training courses that will keep him up-to-date with the latest software developments. These amounts will all be paid during January of each year.

(7) On 1 July 2008, Duncan was granted options to purchase 15,000 £1 ordinary shares

in Mainframe plc at their value on that date. The options were provided free and will be exercised by Duncan upon the termination of his contract on 30 June 2011. Mainframe plc’s shares were valued at £1.75 on 1 July 2008 and are forecast to be worth £5 by 30 June 2011.

Duncan’s options have been granted under a share option scheme approved by

HMRC which is operated by Mainframe plc. From 1 July 2008, Duncan has rented out his main residence in Scotland as furnished holiday accommodation. The forecast rental income for 2008/09, based on 22 weeks’ letting, is £18,000, of which 22.5% will be paid to a letting agency. Running costs will amount to £900. The house was furnished at a cost of £6,000 during June 2008. Duncan has a mortgage of £60,000 on which interest of £6,400 (gross) will be paid during 2008/09.



Required: (a) Explain the income tax and NIC implications for Duncan arising from his remuneration

package from Mainframe plc, and how the HMRC will collect the tax on the benefits provided.

Your answer should include calculations of the amounts assessable as employment

income for 2008/09. (17 marks) (b) Explain why it was beneficial for Duncan’s share options (see note (7)) to be granted

under a share option scheme approved by HMRC. (3 marks) (c) Advise Duncan of the property business profits that he will be assessed on for

2008/09. (5 marks) (Total: 25 marks)


Interim Assessment

SECTION B

TWO questions ONLY to be attempted QUESTION 3 Pierre, who is single and aged 49, owns the following freehold properties. Property 1 A house in Surrey that Pierre lives in for approximately seven months of the

year. This house was bought in June 1990 for £75,000 and is currently worth £200,000. The house comprises six main rooms of which two are currently let on a furnished basis to lodgers for aggregate annual rents of £6,320.

Associated utility and maintenance costs related to letting amount to £720 per

year. In addition Pierre pays interest of £4,000 per year on a loan taken out to buy this property.

Pierre has no plans to dispose of this property.

Property 2 A house in Yorkshire that Pierre lives in for the remaining part of the year. This house, which was bought on 1 July 2007 for £45,000, has a large garden extending to approximately 0·5 hectares. Pierre commenced living in this property on 1 July 2008. The property is currently worth £110,000.

Pierre sold part of the garden of this property to a developer in May 2008 for

£19,600 at which time the value of the remaining property was £80,000. This is the only disposal that Pierre has made in 2008/09. The developer has also indicated to Pierre that he would be interested in acquiring further portions of this property in the near future, possibly even the house itself.

Property 3 A commercial property let at an annual rent of £9,000. Pierre bought this

property in June 1993 for £50,000 and its current value is £100,000.

On 5 June 2008 the property was vacated by the former tenant. On 6 September 2008 Pierre signed a new lease with Franks Limited, an unconnected trading company. The new lease is for a term of 10 years. A premium of £10,000 was paid by Franks Limited.

In addition under the terms of the lease Franks Limited was required to carry

out structural improvements to the property which will add £10,000 to its value. Pierre undertook repair work to this property in 2008/09 amounting to £1,500.

Property 4 A commercial property let at an annual rent of £5,000. Pierre bought this

property in June 1997 for £35,000 and its current value is £65,000.

Pierre had some difficulty in letting this property in recent years. The property was vacant for nearly two years prior to his entering into a new lease with Les Amis Limited, an unconnected unquoted trading company, on 6 September 2008. To encourage Les Amis Limited to sign the lease Pierre had agreed to pay them £2,500 as a contribution towards advertising their new business. Pierre incurred advertising costs to find a new tenant of £1,000 and repairs of £3,000 in 2008/09.



Required: (a) Calculate Pierre’s property business income assessment for 2008/09. Your answer should include a consideration of any reliefs available in relation to

property 1 and include an explanation of the treatment of the inducement payment made in relation to property 4. (8 marks)

(b) Assuming that principal private residence relief is not available calculate any taxable

capital gain arising on the disposal of part of the garden of property 2 in May 2008 and advise what action could be taken in respect of this gain. (4 marks)

(c) Explain the potential Capital Gains tax implications arising from the proposed part or

entire disposal of the remainder of property 2. Your answer should include recommendations of any action that Pierre should take in

relation to this property. (8 marks) Detailed calculations are not required for this part of the question.

(Total: 20 marks)


Interim Assessment

QUESTION 4 Anwar Christopher, an entrepreneur, was born on 7 May 1956 and has lived in the UK for a number of years. He is domiciled in Pakistan. He is married to Wendy who is UK domiciled. Anwar’s sources of income and gains are summarised in the table below:

Source Bank to which credited Country in which bank situated

Bournecliffe House Abbeyminster UK

Christopher Care Ltd Abbeyminster UK

Initial Irrigation Ltd (Pakistan duties) National Bank of Pakistan Pakistan

Initial Irrigation Ltd (UK duties) National Bank of Pakistan Pakistan

National Airlines plc bonds Abbeyminster UK

Glucozade plc Ordinary shares Abbeyminster UK

Anwar has been operating Bournecliffe House in a sole trader capacity as a nursing home in an English south coast resort since he bought it on 1 August 1995. His tax adjusted trading profit for the final year of trading ended 31 July 2008 is £12,000.

Early in 2008, Anwar received an offer for Bournecliffe House from a developer which he accepted. Exchange of contracts took place on 1 May 2008 with completion on 1 August 2008. The chargeable gain arising on the disposal was £185,000. Anwar identified another nursing home in Central England called Peak View, which he bought through the medium of his solely owned UK registered limited company, Christopher Care Limited. The company completed the purchase on 1 August 2008 and commenced trading immediately. In addition to the net proceeds from the sale of Bournecliffe House Anwar had to raise a further £120,000 in order to effect the acquisition of Peak View. He achieved this by transferring £20,000 from his account with the National Bank of Pakistan and by borrowing £100,000 from the Abbeyminster Bank in the UK. The loan is a capital repayment loan. The interest paid and capital repaid during the year ended 5 April 2009 were £6,400 and £12,800 respectively. The interest was paid gross. Anwar pays himself director’s remuneration of £1,000 per month from Christopher Care Ltd. The tax deducted under PAYE from his director’s remuneration in the period to 5 April 2009 was £537. Anwar owns 30% of the shares in Initial Irrigation Limited (Initial). The company is based in Pakistan and Anwar is the technical director. Initial has two divisions, the agricultural division and the fountains division. The agricultural division operates exclusively in Asia whereas the fountains division operates exclusively in the UK. Anwar works for both divisions. He has a separate employment contract for each set of duties. His remuneration in respect of his Asian activities in Sterling equivalent terms is £23,000. His remuneration in respect of his UK duties is £7,000. The remuneration for both contracts is paid in Pakistan. The rate of tax suffered by Anwar on the income paid in Pakistan is 35%.



Anwar also owns a substantial estate in Peshawar, Pakistan which he and his extended family use as a holiday home. Anwar owns the following financial investments:

£800 of National Airlines plc 9.75% Convertible Capital Bonds 2010 (quoted in the UK) 1,000 Glucozade plc ordinary shares (registered in the UK)

Anwar received cash dividends of £270 from Glucozade plc in the year ended 5 April 2009. Anwar made a self assessment payment on account on 31 January 2009 of £2,600 and is due to make a second on 31 July 2009, also of £2,600. Required: (a) Explain how Anwar may be assessed to income tax in 2008/09 and advise which

basis he should choose. You do not need to do any calculations in this section. (6 marks) (b) Assuming Anwar chooses to pay tax on the arising basis, calculate his income tax

payable for the year ended 5 April 2009. (8 marks) (c) Calculate Anwar’s self assessment balancing payment for the year ended 5 April

2009 and the payments on account (if any) of his 2009/10 self assessment liability. (4 marks) (d) Explain the inheritance tax considerations that Anwar should take into account when

transferring property to Wendy. (2 marks) (Total: 20 marks)


Interim Assessment

QUESTION 5 Molly Mop is a 71 year old pensioner who has been made a widow as a result of the death of her husband, aged 69, on 7 April 2008 (you should assume that today’s date is 6 April 2009). Molly inherited all of her husband’s estate upon his death and now owns the following assets: (1) Her main residence, which is currently valued at £170,000. (2) 20,000 50p ordinary shares in Shawl plc, a ‘blue chip’ UK company quoted at 410p −

426p. Shawl plc regularly pays a dividend of 13.5p per share each year. (3) 45,000 £1 ordinary shares in Bit-Part Ltd, an unquoted trading company with a share

capital of 200,000 ordinary shares. Molly’s three children hold the other shares in the company equally. Bit-Part Ltd paid a dividend of 10p per share during 2008/09. Molly inherited all of these shares from her husband, who had originally acquired them at their par value in March 1987. The shares were valued at £160,000 on 7 April 2008, and are currently worth £236,250. Bit-Part Ltd has assets worth £1,050,000, of which £500,000 are investments in quoted shares.

(4) UK government stocks with an interest rate of 4% and a nominal value of £100,000.

These are currently quoted at 90 − 94p. (5) 25,000 units in Global Trust, a unit trust quoted in the UK at 210p – 218p. The trust is

aimed at capital growth, and therefore only paid a dividend of £450 (net) during 2008/09.

(6) Deposits of £150,000 in an ‘instant access’ account with the Brat and Bong Building

Society. This is a building society paying a high rate of interest of 5.50% per annum (gross) on this account.

(7) £10,000 in the National Savings Pensioners Guaranteed Income Bonds, which pays

a gross interest rate of 7%. (8) Molly has an ISA mini-account with the Welich Building Society. The balance on the

account is £3,210, of which £3,000 is capital. All interest was received during 2008/09.

(9) Molly invested £10,000 in a venture capital trust during 2008/09. During 2008/09, Molly received income of £1,800 (net) as a beneficiary of a discretionary trust. The trust holds cash of £65,200 held in a money market deposit account. Molly’s only other income is the UK National Insurance Retirement pension (£91 weekly) and a private pension of £12,200 per annum (gross). Her husband did not have any taxable income for 2008/09. Under the terms of her will, Molly has left all of her estate to her family. Her only previous lifetime gift of assets was a gift of £160,000 to a discretionary trust for the benefit of her children in June 2003.



Required: (a) Calculate the income tax payable/repayable for Molly for 2008/09. (9 marks) (b) Calculate the IHT liability that would arise if Molly were to die during April 2009. Your answer should indicate who is liable for the tax and by what date. (11 marks) You should assume that the tax rates and allowances for 2008/09 apply throughout. (Total: 20 marks)


Interim Assessment

ACCA

Paper P6

Advanced Taxation June 2009

Interim Assessment – Answers

To gain maximum benefit, do not refer to these answers until you have completed the interim assessment questions and submitted them for marking.

KAPLAN PUBLISHING Page 1 of 30


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Page 2 of 30 KAPLAN PUBLISHING

Interim Assessment

ANSWER 1

Marks

(a) Inheritance tax implications of Phil’s death As a result of Phil’s death on 23 March 2009, IHT will arise on:

(i) any potentially exempt transfers (PETs) becoming chargeable as a consequence of his death within seven years of the date of the gift.

(ii) his estate at death. IHT on PETs becoming chargeable on death (1) Cash transfers to Phil’s son in 2003, 2004 and 2005 being a

transfer from one individual to another individual will be regarded as PETs when made, but will now become chargeable as death has occurred within seven years.

(2) Transfer to Phil’s wife in July 2008. This transfer will be an

exempt transfer for IHT purposes which means no IHT at the date of the gift or when Phil dies.

(3) Transfer to Phil’s son in July 2008. This transfer to his son being

a transfer from one individual to another will be regarded as a PET when made, but will now become chargeable as death has occurred within seven years of July 2008.

The transfer will be valued using the related property rules with

Phil’s wife’s 25% shareholding counting as related property. As Phil’s son still holds the shares in March 2009, business

property relief (BPR) will be available at 100%. The BPR must be restricted where the company has assets that are held for investment purposes. Therefore only 90% of the value is eligible for relief.

There is no IHT due on the gifts in 2003, 2004 and in 2005 as they are covered by the nil rate band of £312,000, as shown below:

½

½ 1 1 1 1 1

6 marks c/f



Marks

6 marks b/f

IHT on lifetime gifts as a result of Phil’s death

Gross Chargeable

amount

IHT

£ £ £

28.3.03 PET Transfer of value 46,000 AE 02/03 (3,000) AE 01/02 (3,000)_______

Chargeable amount 40,000 _______ 40,000 Nil ______ 20.6.03 PET Transfer of value 37,000 ME (5,000) AE 03/04 (3,000) AE 02/03 − used (Nil) _______

Chargeable amount 29,000 _______ 29,000 Nil ______ 11.3.04 PET Transfer of value 18,000 AEs – already used (Nil) _______

Chargeable amount 18,000 _______ 18,000 Nil ______ 3.3.05 PET Transfer of value 198,000 AE 04/05 (3,000) AE 03/04 (Nil) _______

Chargeable amount 195,000 _______ 195,000 ______ Nil ______ Covered by nil rate band 282,000 ______

1 0.7.08 Interspouse gift – exempt

1

½ ½

½

½

9 marks c/f


Interim Assessment

Marks

9 marks b/f

PET − 20.7.08 £ £

Transfer of value (W1) 501,399 BPR (100% × £501,399 × 90%) (451,259) 1 AE 08/09 (3,000) AE 07/08 (3,000)_______ ½

Gross chargeable amount 44,140 NRB at death 312,000 Gross chargeable amount in seven years before this gift (include PETs which become chargeable on death)

(20.7.01 – 20.7.08) (£282,000 above) (282,000) _______

NRB available (30,000)_______ ½

Taxable amount 14,140 _______

£ IHT due on death (£14,140 x 40%) 5,656 ½ Less Taper relief (20.7.08 to 23.3.09) (< 3 years)

(Nil)

½

Less IHT paid in lifetime (PET) (Nil) _______ ½

IHT payable on death 5,656 _______

Due date (six months from end of the month of death) 30.9.09 ½

13 marks c/f



Marks

13 marks b/f

Phil: Death estate computation

£ £

Shares in Queen Ltd (W2) 818,182 Less: BPR (100% × £818,182 × 90%) (736,364)_______

81,818 Shares in Club Ltd 100,000 Less: BPR (100% × £100,000) (100,000)_______

Nil Property used by Queen Ltd (Note 1) 750,000 Less: BPR at 50% (375,000)_______

375,000 Property used by Club Ltd (Note 2) 175,000 Less: Outstanding mortgage (75,000)_______

100,000 Other assets 650,000 ________ 1,206,818 Less: Exempt legacies (Note 3) (312,000)________

Gross chargeable estate 894,818

NRB at death 312,000 Gross chargeable amount in seven years before death (23.3.02 – 23.3.09) (£282,000 above + £44,140)

(326,140)_______

NRB available (Nil) ________ Taxable amount 894,818 ________

IHT (£894,818 x 40%) 357,927 ________

Payable by Executors Notes: (1) Queen Ltd is controlled by Phil and his wife, therefore the

property used by this company will therefore qualify for BPR at the rate of 50%.

(2) Club Ltd is not controlled by Phil, this property will therefore not qualify for BPR.

(3) The exempt legacy is £312,000 given the confines of the syllabus. In fact, where there is an exempt legacy and business property is left in the residue of an estate, the legacy is abated. However, this complication is not within the P6 syllabus.

1

½

1

½

1

½

½

½

18½ marks c/f


Interim Assessment

Marks

18½ marks b/f

Workings (1) Shares in Queen Ltd – Valuation at July 2008

Before After

Phil 40% (10%) 30% Wife 25% ____ 25% ____ 65% ____ 55% ____ Value of holding £2,100,000 £1,450,000

£

Value before (£2,100,000 × 6540 ) 1,292,308

Value after (£1,450,000 × 5530 ) (790,909)________

Diminution in value = transfer of value 501,399 ________ (2) Shares in Queen Ltd – Valuation at 23 March 2009

At 23.3.09

Phil 30% Wife 25% ____ 55% ____ Valuation of 55% holding £1,500,000 Value of Phil’s shares ( 55

30 × £1,500,000) £818,182

1

½

½

½

21 marks available

_________ Max 18 marks _________



Marks

(b) (i) Capital gains tax implications

Disposal to Phil’s wife on 10 July 2008 As an inter-spouse gift, this will be treated as a no gain/no loss

disposal and will not give rise to a chargeable gain. Disposal to Phil’s son on 20 July 2008 This is a disposal to a connected person and therefore market

value will be used to give the deemed proceeds figure. 2008/09

£

Market value 150,000 Less: Cost (650,000/65%) × 10% (100,000)_______

Gain before reliefs 50,000 As Phil worked for the company and held at least 5% of the shares for at least 12 months, he will qualify for Entrepreneurs’ relief. (Note)

Entrepreneurs’ relief (£50,000 x 4/9) (22,222) _______

Chargeable gain 27,778 Less: Annual exemption (Note) (9,600) _______ Taxable gain assessable on Phil 18,178 _______

Cost of shares to son = £150,000 (market value of 10% interest in July 2008)

Note: Entrepreneurs’ relief is only available for shares in

trading companies. A trading company with investments will qualify if the investments are not substantial. HMRC regard 20% to be substantial, therefore Queen Ltd will qualify as a trading company as its investments only represent 10% of its total assets.

As Phil’s only other lifetime gifts are cash and are

therefore exempt from CGT, all of the annual exemption is available.

1 1

1 1

1

5 marks c/f


Interim Assessment

Marks Disposal of son’s shares in December 2009

The disposal by Phil’s son in December 2009 will be of a 20% holding from a 40% holding (10% gifted by his father in July 2008 and 30% inherited from his father in March 2009).

The shares will be pooled, and the cost of the shares sold will

be taken as half of the total cost. 2009/10

£

Disposal of 20% holding from pool

SP 550,000 Less: Cost (W) (484,091)

_______ Chargeable gain

65,909

Less: Annual exemption

(9,600) _______

Taxable gain

56,309

(W) Share pool Acquisitions No of shares Cost

£ July 2008 10% 150,000 March 2009 30%

_______ 818,182 _______

40% 968,182 Disposal 20/40 (20%)

_______ (484,091) _______

Pool c/f 20% 484,091

5 marks b/f 1

½

1

½

½ 1

9½ marks

available _________ Max 8 marks _________



(ii) If gift relief is claimed

Disposal to Phil’s son on 20 July 2008

• The gain before Entrepreneurs’ relief of £50,000 would have been deferred against the base cost of the shares to the son.

• No chargeable gain would arise on Phil in 2008/09.

Phil’s Entrepreneurs’ relief on the shares would be lost.

• Phil’s annual exemption for 2008/09 would be wasted. • The base cost of the shares to the son would be

£100,000 (£150,000 market value − £50,000 gain).

Note: Gift relief is not restricted by CBA/CA as although surplus cash balances are excepted assets for IHT purposes, cash is an exempt asset for CGT.

Disposal of son’s shares in December 2009 Disposal of 20% holding from share pool

• The base cost of the shares acquired in July 2008 and

thus the total pool cost would be £50,000 lower. This would reduce the base cost for the shares sold by £25,000 (half of £50,000), and therefore the gain arising on the disposal would be correspondingly higher.

• Where gift relief is claimed on a lifetime gift, any IHT

payable as a result of the gift is an allowable deduction in the capital gain computation when the donee sells the asset.

• The son can therefore deduct £5,656 (part (a)) from the

gain. • However, as there will be no Entrepreneurs’ relief on

the disposal by the son, the total gains with the gift relief will be higher.

• It is therefore advisable for gift relief not to be claimed

in this instance.

Marks

½ for each valid point

(Max 4 marks)

_________4 marks _________


Interim Assessment

(c) Deed of family arrangement

Tax saving

Phil is survived by his wife and son. He has left £312,000 to his wife which is an exempt legacy, but the remainder of the estate is chargeable. IHT on Phil’s estate can be saved if his will is varied to leave more assets to the wife. All of the assets could be left to the wife and no IHT would be payable on Phil’s death. Phil’s wife could then make lifetime gifts to her son in the future to pass on both Phil’s and her assets. Lifetime gifts can be planned to ensure the maximum use of exemptions such as the normal expenditure out of income and annual exemptions. As these gifts will be PETs, there will be no IHT payable if the spouse lives for seven years after the gifts. However, even if she dies within seven years, IHT will have been saved as the value of the gift is frozen at the time of the gift and taper relief is available after three years.

Potential disadvantages in varying the terms

The use of a deed of family arrangement is a useful tax planning tool. However, care should be taken in varying the terms of a will in favour of an exempt person, where the intention is for that person to subsequently gift assets to the original beneficiary of the will. HMRC may challenge the variation where they believe that there is a series of associated operations put in place to deliberately avoid a tax liability. In addition, in entering into a deed of family arrangement, the son must formally relinquish his right to his inheritance in favour of his mother. He must do so voluntarily and with no expectation or right of any future consideration (i.e. a promise of future gifts). He must therefore be happy to give up his right and trust his mother to pass the assets to him in the future either during her lifetime or on her death.

Marks


(Max 5 marks)



Conditions required for a valid deed of family arrangement

The deed must:

• Be in writing and signed by all beneficiaries that are affected by the deed.

• Not be made for any consideration. • Be executed within two years of death. • State that it is intended to be effective for tax (IHT and/or CGT)

purposes.

Marks


___________ Max 5 marks _________


Interim Assessment

ANSWER 2

Marks

(a) Income tax and NIC implications of remuneration package Duncan earns over £8,500 p.a. and is therefore a P11D employee. Salary and termination bonus The salary will be assessed as employment income on the receipts

basis. The termination bonus of £40,000 will be taxable in full since Duncan is contractually entitled to it. It is taxable in the tax year in which Duncan receives it, 2011/12.

Duncan’s NIC liability for 2008/09 will be:

£

(£40,040 − £5,435) at 11% × 129 2,855

(£65,000 − £40,040) at 1% × 129 187 _____

3,042 _____ There are no NIC implications as regards any other aspect of the

remuneration package. Living accommodation Duncan will be assessed on the benefit of the living accommodation

provided to him. There will be an additional benefit based on the market value of £170,000, since the apartment cost in excess of £75,000 and was purchased more than six years before first being provided.

The benefits assessed in 2008/09 will be:

£

Rateable value (£6,700 × 129 ) 5,025

Additional benefit ((£170,000 − £75,000 = £95,000) at 6.25% × 12

9 )

4,453 ______ 9,478 ______

Mileage allowance The mileage allowance received will be tax free. Duncan travelled

13,500 (1,500 × 9 months) business miles in 2008/09.

1

1

½ 1

½

1

½

5½ marks c/f



Marks

5½ marks b/f

Duncan can make the following expense claim for 2008/09:

£

10,000 miles at 40p 4,000 3,500 ______ miles at 25p 875

13,500 ______ ______ 4,875 Mileage allowance (13,500 at 30p) (4,050)______

Allowable deduction 825 ______

½ ½

½

As Duncan only receives £4,050 from his employers towards his business miles for 2008/09 and HMRC mileage allowance gives tax relief for £4,875, the difference of £825 will reduce his employment income and his income tax liability for 2008/09.

Beneficial loan

Duncan will be assessed on the difference between the interest paid on the loan and the official rate of interest.

Based on the ‘average’ method, the taxable benefit for 2008/09 is as follows:

Interest at official rate £

2

£50,000£60,000 + × 6.25% × 129 2,578

Less: Interest paid (425)_____

2,153 _____

Based on the ‘precise’ method, the taxable benefit for 2008/09 is as follows: £ 1 July 2008 to 31 December 2008 £60,000 × 6.25% × 12

6 1,875 1 January 2009 to 6 April 2009 £50,000 × 6.25% × 12

3 781 _____ 2,656 Less: Interest paid (425)_____

2,231 _____

Duncan will not elect for the precise basis as he will have a higher assessable benefit.

1 1

1

1

11 marks c/f


Interim Assessment

Marks 11 marks

b/f HMRC are unlikely to insist on the precise basis applying as the

difference in the two methods is not material and there is no evidence of deliberate manipulation of the repayments to affect the assessable benefit.

The loan benefit for 2008/09 is therefore £2,153.

Use of computer

Duncan must pay income tax on the benefit of the use of the computer of £180 (£1,200 × 20% × 12

9 ) (see tutorial note).

Other payments

Only the cost of the sports club membership of £800 will be assessed as a taxable benefit on Duncan for 2008/09.

The subscription of £125 will be assessed, but a corresponding

expense deduction can then be claimed since it is a professional subscription.

No taxable benefit arises in respect of the payment of liability insurance

or the cost of work-related training.

Share options

No employment income charge will arise either at the time of grant or upon the exercise of the options as the options have been granted under an approved scheme.

The exemption is available since the total market value of Duncan’s

options at the time of grant (15,000 × £1.75 = £26,250) does not exceed £30,000, and the options will not be exercised less than three years from the time of grant.

1

½

½

½

1 1

½

Employment income summary − 2008/09 £

Salary (£65,000 × 129 ) 48,750

Accommodation benefit 9,478 Loan benefit 2,153 Use of computer benefit 180 Sports club membership 800 ICCC membership 125 ______ 61,486 Less: Allowable expenses Mileage allowance deficit (825) Subscription to professional body (125)______

Employment income 60,536 ______

1

17 marks c/f



Marks

17 marks b/f

Collection of tax on benefits The income tax on Duncan’s benefits for 2008/09 will be collected

under the self-assessment regime, and will be payable by 31 January 2010.

In the second tax year 2009/10, the income tax will be collected through

the PAYE system by adjusting Duncan’s tax code. It is likely that Duncan will have a negative code, which will be indicated by the letter K appearing in front of the code.

½

½

Tutorial note:

If an employer provides a computer for private use at home after 6 April 2006, a taxable benefit for the private use will apply and is calculated in the normal way as outlined above.

Prior to 2006/07 the first £500 of benefit on the use of a computer was

exempt. The £500 exemption no longer applies to the provision of new computers, but is still available in respect of arrangements where the computer was first made available to the employee before 6 April 2006.

_________

Max 17 marks _________

(b) Benefit of an approved share option scheme If the share options had not been granted under the company share

option scheme, an employment income charge will arise at the time that the share options are exercised.

This charge on 30 June 2011 would be based on the market value at

that date less the amount paid for the shares. The total assessment would therefore have been £48,750 [15,000 × £3.25 (£5.00 − £1.75)].

Granting the options under the company share option scheme is

therefore beneficial since:

(i) the tax liability is postponed until such time as the shares are actually disposed of, and

(ii) the resulting CGT liability on the disposal will be lower than the

income tax liability based on the above employment income assessment due to the availability of the annual exemption for CGT and the 18% rate of tax..

1 1

1 1

_________Max 3 marks _________


Interim Assessment

Marks

(c) Property business profits Duncan’s letting of his main residence should qualify to be treated as a

trade under the furnished holiday letting rules. It is to be let for 154 days (22 × 7 days), so that it is both available for

letting for at least 140 days and it will be let for at least 70 days. The assessment is therefore calculated using the trading income rules

and capital allowances on plant and machinery will therefore be available.

Duncan can also deduct the interest in calculating the profits from

renting. His profit for 2008/09 will be as follows:

£ £

Rental income 18,000 Expenses Letting agency (£18,000 × 22.5%) 4,050 Running costs 900 Interest (£6,400 × 12

9 ) 4,800

Capital allowances (£6,000 × 100%) 6,000 _____

(15,750)______

Property business profits 2,250 ______

2

½

½

½ ½ ½ ½

_________Max 5 marks _________



ANSWER 3 (a) Property business income assessment – 2008/09

Property 1 (Note 1)

3 (Note 2)

4 (Note 3)

Total

£ £ £ £ Income 2,070 23,150 2,917 28,137 Less Expenses: (Nil) ______ (1,500) ______ (4,000) ______ (5,500) ______ Net rental 2,070 ______ 21,650 ______ (1,083) ______ 22,637 ______

Pierre’s property business income assessment for 2008/09 is £22,637.

Notes:

1 Property 1

As Pierre is renting part of his main residence on a furnished basis ‘rent a room’ relief is available. Total exemption of this income will not, however, be possible because his gross rents from this source exceed the limit of £4,250. Pierre will therefore have the option of either: (i) Claiming rent-a-room relief and being taxed on the

excess rents over £4,250 i.e. £2,070 (£6,320 – £4,250); or

(ii) Being taxed on this rental income in the ‘normal’ way

(i.e. rents less allowable expenses) as follows:

£ Rents 6,320

Less: Expenses (720)

Interest (1,333)______ (i.e. 2/6 × £4,000)

4,267 ______

Pierre should, therefore, make the necessary election for ‘rent a room relief’ by 31 January 2011 (i.e. 12 months from the 31 January following the end of the relevant tax year).

It should be noted that the nomination of property 2 as his main residence for PPR purposes should not prevent property 1 being treated as his main residence for rent a room relief purposes. This is because the CGT nomination is specifically stated to be for PPR purposes only.

Marks

(see notes)

1

1

1

½ 1

1

5½ marks c/f


Interim Assessment

2 Property 3 £

£9,000 × 2/12 1,500 £9,000 × 7/12 5,250 Premium (see below) 16,400

–––––– 23,150 ––––––

Total premium = cash received of £10,000 plus the £10,000 increase in value arising from structural improvements = £20,000.

£

Premium 20,000 Less: £20,000 × 2% × (10 – 1) (3,600) –––––– Assessable premium 16,400

––––––

3 Property 4 Rent from 6 September 2008: £ £5,000 × 7/12 2,917

–––––

The inducement payment is likely to be caught by the reverse premium legislation and will therefore be taxed as a trading receipt of Les Amis Limited in that company’s corporation tax computations.

(b) Capital gain on disposal of the garden – Property 2

£ Sale proceeds

19,600

Less: Deemed cost of part disposed of

££80,000 +£19,600

£19,600×45,000

(8,855)

––––– Chargeable gain 10,745 Less Annual exemption (9,600) ––––– Taxable gain 1,145 –––––

Marks 5½ marks

b/f

½ ½

2

1

_________ Max 8 marks _________

1½

½

2 marks c/f



However, this disposal will qualify as a ‘small land disposal’ as the proceeds are not more than 20% of property value before disposal and, are less than £20,000. Pierre may therefore elect to deduct the sale proceeds from the £45,000 original cost to give a base cost for future disposal purposes of £25,400 (£45,000 – £19,600). Whether Pierre wishes to make the election will depend on his future disposal plans. The election will save on CGT on the taxable gain of £1,145 giving a CGT saving of £206 (£1,145 x 18%).

(c) Property 2

Principal Private Residence Relief (‘PPR’) An individual is entitled to PPR relief in respect of only one residence. It is important therefore that Pierre makes an election to nominate which of his two residences will be treated as his main residence for the purposes of this relief. Such an election needs to be made within two years of the acquisition of the second property (i.e. in Pierre’s case by 30 June 2009). The two-year period runs from the acquisition of the property and not from the first date that the second property started being used as a residence. In the absence of such an election HMRC will decide for Pierre which property is to be treated as his main residence. There is a danger that they will select property 1 because Pierre seems to live in this property for more time than property 2. This could be detrimental to Pierre as his current plan is to retain property 1 and dispose, either partially or entirely, of property 2. If a nomination for property 2 is made and accepted by HMRC it will run from the time Pierre started using this property as a residence (i.e. from 1 July 2008) to the date the property is disposed or a further election/variation of original election is made.

Marks 2 marks b/f

1

1

1 _________

Max 4 marks _________

1 mark for each valid

point

(Max 8 marks)


Interim Assessment

The implication for property 1 is that this nominated period will be a chargeable period of occupation for determining any potential future gain on a disposal of this property. Pierre will therefore have to balance this against any short term CGT savings that he may make on a disposal of property 2. It should further be noted that HMRC could reject the nomination of property 2 if, for example, they considered that this property was simply acquired for the purposes of resale or is being used as temporary accommodation. Future Disposals With regard to the future proposed disposal(s) Pierre will need to carefully consider the order in which he sells any further portions of this property. The following possibilities appear to exist.

1 Sells the house and retains a portion of the garden for future

sale

Whilst it is likely that the sale of the house itself would qualify for the PPR exemption (subject to any restrictions for non-occupation as main residence), case law has determined that the subsequent sale of any residual land would not qualify for PPR relief. This is because at this point the land no longer forms part of a main residence. A future chargeable gain is therefore likely to arise. There is the further issue that if the house is sold by 30 June 2010 (i.e. within 36 months of acquisition) there will be no restriction of the PPR exemption. This is because, providing there has been some actual occupation (which there has), the last 36 months of ownership of the property will always be taken as deemed occupation (if not already actual occupation) and therefore exempted. This may well, therefore, entirely cover both the gain on the disposal of the house and the earlier part disposal referred to above.

2 Sells a portion of the garden and retains the house for future sale.

In this case the PPR exemption is likely to apply to the disposal of part of the garden (being less than 0.5 hectares) and also any eventual disposal of the house itself (again subject to any restrictions for non-occupation as main residence). If Pierre has any choice this is therefore likely to be the preferred sequence.

Marks


point

(Max 8 marks)

_________ Max 8 marks _________



ANSWER 4

Marks

(a) Options for assessment to income tax – non-UK domiciles For 2008/09 Anwar is resident and ordinarily resident in the UK, but not UK domiciled. He has been resident and ordinarily resident for more than 7 out of the previous 9 tax years and so is assessed to income tax as follows: Arising basis

• All UK income on an arising basis • Overseas income on an arising basis with full personal

allowances available (as his unremitted overseas income exceeds £2,000)

• This means that all of the £23,000 overseas earnings would be taxed in the UK

• Alternatively, Anwar can elect to use the remittance basis Remittance basis • If the remittance basis is claimed, he will still be assessed on

his UK income on an arising basis, but his overseas income will only be assessed if remitted to the UK.

• This means that Anwar would only be assessed on the £20,000 transferred from his foreign bank account, not the full £23,000 earned

• However, there will be no personal allowance available or annual exemption for CGT

• Christopher will also have to pay a £30,000 remittance basis charge.

Conclusion Anwar should not claim the remittance basis for 2008/09 as this will clearly result in a much higher tax charge.


point

(Max 6 marks)

_________ 6 marks _________


Interim Assessment

(b) Income tax computation for the year ended 5 April 2009 Marks

Total income

Other income

Savings income

Dividend income

£ £ £ £

Trading income 12,000 12,000 Employment income − Christopher Ltd 8,000 8,000 − Initial Ltd (UK duties)

7,000

7,000

(Pakistan duties) 23,000 23,000 Interest − National Airlines

(£800 x 9.75%)

78

78

Glucozade dividends (£270 × 100/90) 300 ______ ______ __ 300 ___

Total income 50,378 50,000 78 300 Less Interest paid (Note) (6,400) ______ (6,400) ______ __ ___ Net income 43,978 43,600 78 300 Less PA (6,035) ______ (6,035) ______ __ ___ Taxable income

37,943 ______ 37,565 ______ 78 __ 300 ___

½

½

½ ½

½

½

1

½

Income tax

£ £

34,800 at 20% (other income) 6,960 2,765 a______ t 40% (other income) 1,106 _____

37,565 8,066 78 at 40% (savings) 31

300 a______ t 32.5% (dividends) 98

37,943 ______ _____ 8,195 Less: Double tax relief (working below) (6,636)_____

Income tax liability 1,559 Less: UK tax deducted at source Dividends (£300 × 10%) (30) Interest (£78 × 20%) (16) PAYE (537)_____

Income tax payable 976 _____

1½ (see W)

½ ½ ½

Note: The loan interest paid to Abbeyminster Bank is paid for a qualifying purpose, the making of a loan to a close company in which Anwar has a material interest. The interest payable to Abbeyminster is therefore eligible for relief as a deductible payment.

7½ Marks c/f



Working: Double taxation relief Double tax relief is available on the Pakistan source income on the basis of the lower of the Pakistan tax suffered or the UK tax on the Pakistan income, treating the Pakistan income as the top slice.

The UK tax excluding the Pakistan income is calculated as follows:

Marks 7½

Marks b/f

£

Other income (£37,565 − £30,000) 7,565 Savings income 78 Dividend income 300 _____ Revised taxable income 7,943 _____ Income tax £ 7,565 at 20% (other income) 1,513

78 at 20% (savings) 16 300 a_____ t 10% (dividends) 30 _____

7,943 _____ 1,559 _____

1 1

UK tax on Pakistan income (£8,195 – £1,559) = £6,636 Pakistan tax suffered = £30,000 × 35% = £10,500 DTR is therefore £6,636

½

_________

Max 8 marks _________


Interim Assessment

(c) Self assessment balancing payment for the year ended 5 April

2009

Marks

£ £

Income tax payable (part (b)) 976 Class 4 NIC liability (£12,000 − £5,435) × 8% 525 _____ 1,501 Chargeable gain (per question) 185,000 Less Annual exemption (9,600)______

Taxable gain 175,400 ______

Capital gains tax payable £175,400 at 18% 31,572 ______ Total tax payable 33,073 Less Payments on account 31.1.2009 (2,600) 31.7.2009 (2,600)______

Balancing payment due 31.1.2010 27,873 ______

½ 1

½

½

½ ½

Payments on account due for 2009/10:

As less than 20% of the preceding year’s income tax liability was paid by assessment, no payments on account are required for 2009/10.

Note: Self assessment payments on account are based on the

previous year’s self assessment liability ignoring capital gains tax (i.e. income tax and Class 4 National Insurance only).

½

_________ 4 marks _________



Marks (d) Inheritance tax consequences of transferring property to spouse

As Anwar is not domiciled in the UK, the property he owns that is located outside the UK is excluded property.

Providing he transfers such property to another non UK domiciled person there is no UK inheritance tax charge. If, however, he were to transfer such property to Wendy, who is UK domiciled, the property becomes chargeable to inheritance tax in the UK when she subsequently transfers it.

Anwar should not therefore transfer any of his overseas assets (e.g. his interest in the Peshawar estate) to Wendy.

Anwar’s UK situated assets are chargeable to UK inheritance tax in any event. Note: There is no limit to the value of assets Anwar can transfer to

Wendy (i.e. non-UK domiciled individual transfer to UK domiciled individual). The spouse exemption is only limited to £55,000 where a UK domiciled spouse transfers property to a non UK domiciled spouse. This is because the property transferred would become foreign property owned by a non-UK domiciled individual and it would thereby become excluded property.

½ mark for each valid

point

(Max 2 marks)

________ 2 marks ________


Interim Assessment

ANSWER 5 Marks (a) Molly Mop : Income tax computation − 2008/09

£ £ Earned income State pension (£91 × 52) 4,732 Private pension 12,200 Savings income Interest on government stocks (£100,000 × 4%) 4,000 Bank interest (£150,000 × 5.5%) 8,250 Interest on pensioners income bonds (£10,000 × 7%)

700

Interest on ISAs (exempt) Nil ______

12,950 Other investment income Trust income (£1,800 × 100/60) 3,000 Dividend income Shawl plc (20,000 × 13.5p × 100/90) 3,000 Bit-Part Ltd (45,000 × 10p × 100/90) 5,000 Global Trust (450 × 100/90) 500 ______

8,500 ______ Total income 41,382 Less: PAA (Note) (6,035) ______ Taxable income 35,347 ______

Analysis of income:

Dividends Savings Other income £8,500 _______ £12,950 _______ (£35,347 − £8,500 − £12,950) = £13,897

______

Income tax £ £

13,897 × 20% (other income) 2,779 12,950 × 20% (savings) 2,590

7,953 ______ × 10% (dividends) 795

34,800 547 ______ × 32.5% (dividends) 178

35,347 ______ ______ 6,342 Less: VCT relief (£10,000 × 30%) (3,000)______

Income tax liability 3,342 Less: Dividends (£8,500 × 10%) (850) Savings (£8,250 × 20%) (1,650) Trust income (£3,000 × 40%) (1,200)______

Income tax repayable (358)______

½ ½

½ ½

½

½

½

½ ½ ½

½

½

1½ ½

½ ½

9 marks c/f



Marks

9 marks b/f

Note: Molly’s level of total income results in her PAA being fully abated to the normal personal allowance.

________

Max 9 marks ________

(b) Inheritance tax liability as a result of Molly’s death in April 2009 Lifetime gifts

£

CLT – June 2003 Transfer of value 160,000 AE 2003/04 (3,000) AE 2002/03 (3,000)_______

Net chargeable amount

154,000 _______

No inheritance tax is payable during Molly’s lifetime on this gift, nor on her death, as the gift is covered by the nil rate band of £312,000. The gross chargeable amount to carry forward is therefore £154,000 (£154,000 + £Nil).

1

1 mark c/f


Interim Assessment

Marks

1 mark b/f

Death estate

£ £

Main residence 170,000 Ordinary shares in Shawl plc (20,000 × 4.14 (410 + ¼ × (426 − 410)) 82,800 Ordinary shares in Bit-Part Ltd 236,250 BPR (100%) (Note) (123,750)_______

112,500 UK government stocks 100,000 × 91p (90 + ¼ × (94 − 90)) 91,000 Units in Global Trust (25,000 × 2.10) 52,500 Building society deposits 150,000 National savings bond 10,000 Shares in VCT 10,000 ISA account 3,210 Income tax repayable (part (a)) 358 _______ Gross chargeable estate 682,368 NRB at death 312,000

Gross chargeable amount in seven years before death (April 2002 – April 2009)

(154,000)_______

NRB available (158,000)_______

Taxable amount 524,368 _______ IHT (£524,368 x 40%) 209,747 _______ Estate rate = £209,747/£682,368 × 100 = 30.738% Note: Business property relief (BPR) at the rate of 100% is available

in respect of the business asset element of the 45,000 ordinary shares in Bit-Part Ltd as they are a holding in an unquoted company. Although Molly has owned the shares for less than two years, they were acquired upon her husband’s death and would have qualified for business property relief at that date. The amount of BPR is restricted for excepted assets as follows:

£236,250 × £1,050,000£550,000 = £123,750

½

½ ½ 1

½ ½ ½ ½ ½ ½ ½

½

½

½

1

½

10 marks c/f



Marks

IHT is payable as follows:

10 marks b/f

IHT of £209,747 is payable by the executors, of which £52,255 (£170,000 × 30.738%) in relation to the main residence can be paid in instalments (see tutorial note).

The IHT not payable by instalments would be due on the earlier of 31 October 2009 or the delivery of the account by the personal representatives.

The IHT payable by instalments would be due in ten equal annual instalments commencing on 31 October 2009.

Tutorial note: The IHT in relation to the Bit-Part Ltd unquoted shares will also be able to be paid by instalments, as they satisfy the detailed specific conditions in the IHT instalment option legislation. However, knowledge of this level of detail is not required in the examination.

1 1 ½

½

13 marks available ________

Max 11 marks ________


p6 - interim

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