(c) Assuming that Stuart:(i) purchased 201,000 shares in Omega plc on 3 December 2005; and(ii) dies on 20 December 2007,calculate the potential inheritance tax (IHT) liability which would arise if Rebecca were to die on 1 March2008, and no further tax pla

题目

(c) Assuming that Stuart:

(i) purchased 201,000 shares in Omega plc on 3 December 2005; and

(ii) dies on 20 December 2007,

calculate the potential inheritance tax (IHT) liability which would arise if Rebecca were to die on 1 March

2008, and no further tax planning measures were taken.

Assume that all asset values remain unchanged and that the current rates of inheritance tax continue to

apply. (6 marks)


相似考题

2.(d) The management of Wonderland plc have become concerned about the increased level of operating costsassociated with its petrol-driven ferries and have made a strategic decision to dispose of these. They are nowconsidering entering into a contract with the Newman Steamship Company (NSC), a shipping organisation basedin Robynland. The contract would entail NSC providing transport to and from Cinola Island for all visitors to thezoo and circus.As a result of negotiations with NSC, the directors of Wonderland plc are considering two options whereby NSCwill become responsible for the transportation of visitors to and from Cinola Island with effect from 1 December2007 or 1 December 2008.Additional information is available as follows:(1) NSC would require Wonderland plc to pay for the necessary modifications to their steamships in order thatthey would satisfy marine regulations with regard to passenger transportation. The only firm which couldundertake this work is currently working to full capacity and would require a payment of £2,450,000 inorder to undertake the work necessary so that the ferries could be in operation by 1 December 2007. Thesame firm would require a payment of £1,725,000 in order to make the necessary modifications so thatthe ferries could be in operation by 1 December 2008. The government of Robynland would be willing topay a grant of 8% towards the cost of getting the ferries into operation by 1 December 2007, but would notbe willing to pay a grant in respect of any later date.(2) On 1 December 2002 Wonderland plc paid £500,000 to the Port Licencing Authority of Robynland. Thispayment was for a licence which entitles Wonderland plc to use all harbour facilities in Robynland duringthe five-year period ending 30 November 2007. The licence could be renewed on 1 December 2007 at acost of £150,000 per annum.(3) Redundancy payments would need to be paid in respect of loss of employment. These would amount to£1,200,000 if the contract with NSC commenced on 1 December 2007. This amount would reduce to£750,000 if the contract commenced on 1 December 2008.(4) Wonderland plc has a contract for the provision of petrol for its ferries which is due to expire on 30 November2008. Early termination of the contract would incur a penalty charge of £76,000. An emergency reservestock of petrol held by Wonderland plc, which cannot be used after 30 November 2007 due to marineregulations regarding the age of fuel, could be sold for £55,000 on 1 December 2007 but not on any datethereafter.(5) The ferries could be sold for £3,300,000 on 1 December 2007. If retained after 1 December 2007 theferries would require servicing during the year ending 30 November 2008 which would incur costsamounting to £150,000. The resale value of the ferries on 1 December 2008 would be £2,900,000.(6) Stock of consumable items which originally cost £150,000 could be sold on 1 December 2007 for£110,000 and on 1 December 2008 for £50,000.Required:(i) On purely financial grounds, advise whether the management of Wonderland plc should enter into acontract with NSC with effect from 1 December 2007 or 1 December 2008. You may ignore the timevalue of money. (9 marks)

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正确答案:

 

更多“(c) Assuming that Stuart:(i) purchased 201,000 shares in Omega plc on 3 December 2005; and(ii) dies on 20 December 2007,calculate the potential inheritance tax (IHT) liability which would arise if Rebecca were to die on 1 March2008, and no further tax pla”相关问题
  • 第1题:

    (b) Explain the capital gains tax (CGT) and inheritance tax (IHT) implications of Graeme gifting his remaining ‘T’

    ordinary shares at their current value either:

    (i) to his wife, Catherine; or

    (ii) to his son, Barry.

    Your answer should be supported by relevant calculations and clearly identify the availability and effect of

    any reliefs (other than the CGT annual exemption) that might be used to reduce or defer any tax liabilities

    arising. (9 marks)


    正确答案:

     

  • 第2题:

    (ii) State, giving reasons, the tax reliefs in relation to inheritance tax (IHT) and capital gains tax (CGT) which

    would be available to Alasdair if he acquires the warehouse and leases it to Gallus & Co, rather than to

    an unconnected tenant. (4 marks)


    正确答案:
    (ii) Apart from the fact that Alasdair can keep an eye on his tenant, the main advantages are twofold:
    IHT: If the firm are the tenants, the property will be land and buildings used in a business carried on by a partnership
    in which the donor is a partner. Thus, Alasdair will be able to claim business property relief (BPR) at a rate of 50%
    so long as he remains a partner in the firm. However, this relief would not be available until Alasdair has owned
    the property for at least two years from his firm taking up the tenancy.
    CGT: As Alasdair is a partner in the firm using the building, it will also be a qualifying asset for the purposes of rollover
    relief on any gains arising from the disposal of the property. Assuming that Alasdair acquires a replacement asset
    which will be used in the trade, the gain on sale can be deferred against the tax base cost of the replacement asset.
    In the event that rollover relief cannot be used, any gains on disposal will be subject to business asset taper relief.

  • 第3题:

    (ii) State when the inheritance tax (IHT) calculated in (i) would be payable and by whom. (2 marks)


    正确答案:
    (ii) Inheritance tax administration
    The tax on Debbie’s estate (personalty and realty) would be paid by the personal representatives, usually an executor.
    Inheritance tax is due six months from the end of the month in which death occurred (31 December 2005) or the date
    on which probate is obtained (if earlier). However, an instalment option is available for certain assets, which includes
    land and buildings i.e. the residence whereby the tax can be paid in 10 equal annual instalments.

  • 第4题:

    (c) Without changing the advice you have given in (b), or varying the terms of Luke’s will, explain how Mabel

    could further reduce her eventual inheritance tax liability and quantify the tax saving that could be made.

    (3 marks)

    The increase in the retail prices index from April 1984 to April 1998 is 84%.

    You should assume that the rates and allowances for the tax year 2005/06 will continue to apply for the

    foreseeable future.


    正确答案:
    (c) Further advice
    Mabel should consider delaying one of the gifts until after 1 May 2007 such that it is made more than seven years after the
    gift to the discretionary trust. Both PETs would then be covered by the nil rate band resulting in a saving of inheritance tax
    of £6,720 (from (b)).
    Mabel should ensure that she uses her inheritance tax annual exemption of £3,000 every year by, say, making gifts of £1,500
    each year to both Bruce and Padma. The effect of this will be to save inheritance tax of £1,200 (£3,000 x 40%) every year.

  • 第5题:

    (b) Calculate the inheritance tax (IHT) liability arising as a result of Christopher’s death. (11 marks)


    正确答案:

     

  • 第6题:

    (ii) Calculate Paul’s tax liability if he exercises the share options in Memphis plc and subsequently sells the

    shares in Memphis plc immediately, as proposed, and show how he may reduce this tax liability.

    (4 marks)


    正确答案:

  • 第7题:

    (ii) Assuming the new structure is implemented with effect from 1 August 2006, calculate the level of

    management charge that should be made by Bold plc to Linden Limited for the year ended 31 July

    2007, so as to minimise the group’s overall corporation tax (CT) liability for that year. (2 marks)


    正确答案:
    (ii) For the year ended 31 July 2007, there will be two associated companies in the group. Bold plc will count as an
    associated company as it is not dormant throughout the period in question. As a result, the corporation tax limits will be
    divided by two (i.e. the number of associates) giving an upper limit of £750,000 (£1·5 million/2). As Linden Limited
    is anticipated to make profits of £1·4 million in the year to 31 July 2007 it will pay corporation tax at the rate of 30%.
    Bold plc can earn trading profits up to £150,000 (£300,000/2) and pay tax at the rate of 19%. It will therefore
    minimise the group’s corporation tax liability if maximum use is made of this small companies rate band, as it will save
    £16,500 (150,000 x (30% – 19%)) of corporation tax for the year to 31 July 2007. Bold plc should therefore make
    a management charge of sufficient size to give it profits for that year equal to £150,000.
    While the transfer pricing legislation no longer applies to small and medium sized enterprises, Bold plc should
    nevertheless ensure that there is evidence to support the actual charge made in terms of the services provided.

  • 第8题:

    (ii) Advise Andrew of the tax implications arising from the disposal of the 7% Government Stock, clearly

    identifying the tax year in which any liability will arise and how it will be paid. (3 marks)


    正确答案:
    (ii) Government stock is an exempt asset for the purposes of capital gains tax, however, as Andrew’s holding has a nominal
    value in excess of £5,000, a charge to income tax will arise under the accrued income scheme. This charge to income
    tax will arise in 2005/06, being the tax year in which the next interest payment following disposal falls due (20 April
    2005) and it will relate to the income accrued for the period 21 October 2004 to 14 March 2005 of £279 (145/182
    x £350). As interest on Government Stock is paid gross (unless the holder applies to receive it net), the tax due of £112
    (£279 x 40%) will be collected via the self-assessment system and as the interest was an ongoing source of income
    will be included within Andrew’s half yearly payments on account payable on 31 January and 31 July 2006.

  • 第9题:

    (c) (i) Explain the inheritance tax (IHT) implications and benefits of Alvaro Pelorus varying the terms of his

    father’s will such that part of Ray Pelorus’s estate is left to Vito and Sophie. State the date by which a

    deed of variation would need to be made in order for it to be valid; (3 marks)


    正确答案:
    (c) (i) Variation of Ray’s will
    The variation by Alvaro of Ray’s will, such that assets are left to Vito and Sophie, will not be regarded as a gift by Alvaro.
    Instead, provided the deed states that it is intended to be effective for IHT purposes, it will be as if Ray had left the assets
    to the children in his will.
    This strategy, known as skipping a generation, will have no effect on the IHT due on Ray’s death but will reduce the
    assets owned by Alvaro and thus his potential UK IHT liability. A deed of variation is more tax efficient than Alvaro
    making gifts to the children as such gifts would be PETs and IHT may be due if Alvaro were to die within seven years.
    The deed of variation must be entered into by 31 January 2009, i.e. within two years of the date of Ray’s death.

  • 第10题:

    5 Crusoe has contacted you following the death of his father, Noland. Crusoe has inherited the whole of his father’s

    estate and is seeking advice on his father’s capital gains tax position and the payment of inheritance tax following his

    death.

    The following information has been extracted from client files and from telephone conversations with Crusoe.

    Noland – personal information:

    – Divorcee whose only other relatives are his sister, Avril, and two grandchildren.

    – Died suddenly on 1 October 2007 without having made a will.

    – Under the laws of intestacy, the whole of his estate passes to Crusoe.

    Noland – income tax and capital gains tax:

    – Has been a basic rate taxpayer since the tax year 2000/01.

    – Sales of quoted shares resulted in:

    – Chargeable gains of £7,100 and allowable losses of £17,800 in the tax year 2007/08.

    – Chargeable gains of approximately £14,000 each tax year from 2000/01 to 2006/07.

    – None of the shares were held for long enough to qualify for taper relief.

    Noland – gifts made during lifetime:

    – On 1 December 1999 Noland gave his house to Crusoe.

    – Crusoe has allowed Noland to continue living in the house and has charged him rent of £120 per month

    since 1 December 1999. The market rent for the house would be £740 per month.

    – The house was worth £240,000 at the time of the gift and £310,000 on 1 October 2007.

    – On 1 November 2004 Noland transferred quoted shares worth £232,000 to a discretionary trust for the benefit

    of his grandchildren.

    Noland – probate values of assets held at death: £

    – Portfolio of quoted shares 370,000

    Shares in Kurb Ltd 38,400

    Chattels and cash 22,300

    Domestic liabilities including income tax payable (1,900)

    – It should be assumed that these values will not change for the foreseeable future.

    Kurb Ltd:

    – Unquoted trading company

    – Noland purchased the shares on 1 December 2005.

    Crusoe:

    – Long-standing personal tax client of your firm.

    – Married with two young children.

    – Successful investment banker with very high net worth.

    – Intends to gift the portfolio of quoted shares inherited from Noland to his aunt, Avril, who has very little personal

    wealth.

    Required:

    (a) Prepare explanatory notes together with relevant supporting calculations in order to quantify the tax relief

    potentially available in respect of Noland’s capital losses realised in 2007/08. (4 marks)


    正确答案:

     

  • 第11题:

    1 Stuart is a self-employed business consultant aged 58. He is married to Rebecca, aged 55. They have one child,

    Sam, who is aged 24 and single.

    In November 2005 Stuart sold a house in Plymouth for £422,100. Stuart had inherited the house on the death of

    his mother on 1 May 1994 when it had a probate value of £185,000. The subsequent pattern of occupation was as

    follows:

    1 May 1994 to 28 February 1995 occupied by Stuart and Rebecca as main residence

    1 March 1995 to 31 December 1998 unoccupied

    1 January 1999 to 31 March 2001 let out (unfurnished)

    1 April 2001 to 30 November 2001 occupied by Stuart and Rebecca

    1 December 2001 to 30 November 2005 used occasionally as second home

    Both Stuart and Rebecca had lived in London from March 1995 onwards. On 1 March 2001 Stuart and Rebecca

    bought a house in London in their joint names. On 1 January 2002 they elected for their London house to be their

    principal private residence with effect from that date, up until that point the Plymouth property had been their principal

    private residence.

    No other capital disposals were made by Stuart in the tax year 2005/06. He has £29,500 of capital losses brought

    forward from previous years.

    Stuart intends to invest the gross sale proceeds from the sale of the Plymouth house, and is considering two

    investment options, both of which he believes will provide equal risk and returns. These are as follows:

    (1) acquiring shares in Omikron plc; or

    (2) acquiring further shares in Omega plc.

    Notes:

    1. Omikron plc is a listed UK trading company, with 50,250,000 shares in issue. Its shares currently trade at 42p

    per share.

    2. Stuart and Rebecca helped start up the company, which was then Omega Ltd. The company was formed on

    1 June 1990, when they each bought 24,000 shares for £1 per share. The company became listed on 1 May

    1997. On this date their holding was subdivided, with each of them receiving 100 shares in Omega plc for each

    share held in Omega Ltd. The issued share capital of Omega plc is currently 10,000,000 shares. The share price

    is quoted at 208p – 216p with marked bargains at 207p, 211p, and 215p.

    Stuart and Rebecca’s assets (following the sale of the Plymouth house but before any investment of the proceeds) are

    as follows:

    Assets Stuart Rebecca

    £ £

    Family house in London 450,000 450,000

    Cash from property sale 422,100 –

    Cash deposits 165,000 165,000

    Portfolio of quoted investments – 250,000

    Shares in Omega plc see above see above

    Life insurance policy note 1 note 1

    Note:

    1. The life insurance policy will pay out a sum of £200,000 on the death of the first spouse to die.

    Stuart has recently been diagnosed with a serious illness. He is expected to live for another two or three years only.

    He is concerned about the possible inheritance tax that will arise on his death. Both he and Rebecca have wills whose

    terms transfer all assets to the surviving spouse. Rebecca is in good health.

    Neither Stuart nor Rebecca has made any previous chargeable lifetime transfers for the purposes of inheritance tax.

    Required:

    (a) Calculate the taxable capital gain on the sale of the Plymouth house in November 2005 (9 marks)


    正确答案:

     

    Note that the last 36 months count as deemed occupation, as the house was Stuart’s principal private residence (PPR)
    at some point during his period of ownership.
    The first 36 months of the period from 1 March 1995 to 31 March 2001 qualifies as a deemed occupation period as
    Stuart and Rebecca returned to occupy the property on 1 April 2001. The remainder of the period will be treated as a
    period of absence, although letting relief is available for part of the period (see below).
    The exempt element of the gain is the proportion during which the property was occupied, real or deemed. This is
    £138,665 (90/139 x £214,160).
    (2) The chargeable gain is restricted for the period that the property was let out. This is restricted to the lowest of the
    following:
    (i) the gain attributable to the letting period (27/139 x 214,160) = £41,599
    (ii) £40,000
    (iii) the total exempt PPR gain = £138,665
    i.e. £40,000.
    (3) The taper relief is effectively wasted, having restricted losses b/f to preserve the annual exemption.

  • 第12题:

    (c) (i) Calculate Benny’s capital gains tax liability for 2006/07. (6 marks)


    正确答案:

     

  • 第13题:

    (c) Assuming that Joanne registers for value added tax (VAT) with effect from 1 April 2006:

    (i) Calculate her income tax (IT) and capital gains tax (CGT) payable for the year of assessment 2005/06.

    You are not required to calculate any national insurance liabilities in this sub-part. (6 marks)


    正确答案:

     

  • 第14题:

    (b) (i) Calculate the inheritance tax (IHT) that will be payable if Debbie were to die today (8 June 2005).

    Assume that no tax planning measures are taken and that there has been no change in the value of any

    of the assets since David’s death. (4 marks)


    正确答案:

     

  • 第15题:

    (b) Mabel has two objectives when making the gifts to Bruce and Padma:

    (1) To pay no tax on any gift in her lifetime; and

    (2) To reduce the eventual liability to inheritance tax on her death.

    Advise Mabel which item to gift to Bruce and to Padma in order to satisfy her objectives. Give reasons for

    your advice.

    Your advice should include a computation of the inheritance tax saved as a result of the two gifts, on the

    assumption that Mabel dies on 30 June 2011. (10 marks)


    正确答案:

     

  • 第16题:

    (d) Explain how Gloria would be taxed in the UK on the dividends paid by Bubble Inc and the capital gains tax

    and inheritance tax implications of a future disposal of the shares. Clearly state, giving reasons, whether or

    not the payment made to Eric is allowable for capital gains tax purposes. (9 marks)

    You should assume that the rates and allowances for the tax year 2005/06 apply throughout this question.


    正确答案:
    (d) UK tax implications of shares in Bubble Inc
    Income tax
    Gloria is UK resident and is therefore subject to income tax on her worldwide income. However, because she is non-UK
    domiciled, she will only be taxed on the foreign dividends she brings into the UK.
    Dividends brought into the UK will be grossed up for any tax paid in Oceania. The gross amount is taxed at 10% if it falls
    into the starting or basic rate band and at 321/2% if it falls into the higher rate band. The tax suffered in Oceania is available
    for offset against the UK tax liability. The offset is restricted to a maximum of the UK tax on the dividend income.
    Capital gains tax
    Individuals are subject to capital gains tax on worldwide assets if they are resident or ordinarily resident in the UK. However,
    because Gloria is non-UK domiciled and the shares are situated abroad, the gain is only taxable to the extent that the sales
    proceeds are brought into the UK. Any tax suffered in Oceania in respect of the gain is available for offset against the UK
    capital gains tax liability arising on the shares.
    Any loss arising on the disposal of the shares would not be available for relief in the UK.
    In computing a capital gain or allowable loss, a deduction is available for the incidental costs of acquisition. However, to be
    allowable, such costs must be incurred wholly and exclusively for the purposes of acquiring the asset. The fee paid to Eric
    related to general investment advice and not to the acquisition of the shares and therefore, would not be deductible in
    computing the gain.
    Taper relief will be at non-business asset rates as Bubble Inc is an investment company.
    Inheritance tax
    Assets situated abroad owned by non-UK domiciled individuals are excluded property for the purposes of inheritance tax.
    However, Gloria will be deemed to be UK domiciled (for the purposes of inheritance tax only) if she has been resident in the
    UK for 17 out of the 20 tax years ending with the year in which the disposal occurs.
    Gloria has been running a business in the UK since June 1992 and would therefore, appear to have been resident for at least
    15 tax years (1992/93 to 2006/07 inclusive).
    If Gloria is deemed to be UK domiciled such that the shares in Bubble Inc are not excluded property, business property relief
    will not be available because Bubble Inc is an investment company.

  • 第17题:

    (ii) Assuming the relief in (i) is available, advise Sharon on the maximum amount of cash she could receive

    on incorporation, without triggering a capital gains tax (CGT) liability. (3 marks)


    正确答案:
    (ii) As Sharon is entitled to the full rate of business asset taper relief, any gain will be reduced by 75%. The position is
    maximised where the chargeable gain equals Sharon’s unused capital gains tax annual exemption of £8,500. Thus,
    before taper relief, the gain she requires is £34,000 (1/0·25 x £8,500).
    The amount to be held over is therefore £46,000 (80,000 – 34,000). Where part of the consideration is in the form
    of cash, the gain eligible for incorporation relief is calculated using the formula:
    Gain deferred           =                    Gain x value of shares issued/total consideration
    The formula is        manipulated on the following basis:
    £46,000                    =                     £80,000 x (shares/120,000)
    Shares/120,000     =                     £46,000/80,000
    Shares                     =                     £46,000 x 120,000/80,000
    i.e. £69,000.
    As the total consideration is £120,000, this means that Sharon can take £51,000 (£120,000 – £69,000) in cash
    without any CGT consequences.

  • 第18题:

    (c) Explain the capital gains tax (CGT) and income tax (IT) issues Paul and Sharon should consider in deciding

    which form. of trust to set up for Gisella and Gavin. You are not required to consider inheritance tax (IHT) or

    stamp duty land tax (SDLT) issues. (10 marks)

    You should assume that the tax rates and allowances for the tax year 2005/06 apply throughout this question.


    正确答案:
    (c) As the trust is created in the settlors’ (Paul and Sharon’s) lifetime its creation will constitute a chargeable disposal for capital
    gains tax. Also, as the settlors and trustees are connected persons, the disposal will be deemed to be at market value, resulting
    in a chargeable gain of £80,000 (160,000 – 80,000). No taper relief will be available as the property is a non-business
    asset, and has been held for less than three years, but annual exemptions of £17,000 (2 x £8,500) will be available.
    However, in the case of a discretionary trust, gift hold over relief will be available. This is because the gift will constitute a
    chargeable lifetime transfer and because there is an immediate charge to inheritance tax (even though no tax is payable due
    to the nil rate band) relief is available if a specific accumulation and maintenance trust is used, as in this case the gift will
    qualify as a potentially exempt transfer and so gift relief would only be available in respect of business assets. The use of a
    basic discretionary trust will thus facilitate the deferral of an immediate capital gains tax charge of £25,200 (63,000 x 40%).
    If/when the property is disposed of, however, the trustees will pay capital gains tax on the deferred gain at the trust income
    tax rate of 40%, and have an annual exemption of only £4,250 (50% of the normal individual rate) available to them. The
    40% rate of tax and lower annual exemption rate also apply to chargeable gains arising in a specific accumulation and
    maintenance trust, as well as a basic discretionary trust.
    A chargeable disposal between connected persons will also arise for the purposes of capital gains tax if/when the property
    vests in a beneficiary, i.e. one or more of the beneficiaries becomes absolutely entitled to all or part of the income or capital
    of the trust. Gift hold over relief will again be available on all assets in the case of a discretionary trust, but only on business
    assets in the case of an accumulation and maintenance trust, except where a beneficiary becomes entitled to both income
    and capital at the same time.
    The trust will have taxable property income in the form. of net rents from its creation and in future years is also likely to have
    other investment income, probably in the form. of interest, to the extent that monies are retained in the trust. Whichever form
    of trust is used, the trustees will pay tax at the standard trust rate of 40% on income other than dividend income (32·5%),
    except to the extent of (1) the first £500 of taxable income, which is taxed at the rate that would otherwise apply to such
    income (i.e. 22% for non-savings (rental) income, 20% for savings income (interest) and 10% for dividends) but, only to the
    extent that it is not distributed; and (2) the legitimate trust management expenses, which are offsettable for the purposes of
    the higher trust tax rates against the income with the lowest rate(s) of normal tax and so bear tax only at that rate. The higher
    trust tax rate always applies to income that is distributed, other than to the extent that it has been treated as the settlor’s
    income, and taxed at that settlor’s marginal tax rate.
    As Paul and Sharon intend to create a trust for their unmarried minor (under 18) children, then even if the trust specifically
    excludes them from any benefit under the trust, the trust income will be treated as theirs for income tax purposes to the extent
    that it constitutes income paid for on behalf (including maintenance payments) of Gisella and Gavin; except where (1) the
    total income arising does not exceed £100 gross per annum, and (2) income is held for the benefit of a child under an
    accumulation and maintenance settlement, to the extent that it is not paid out.

  • 第19题:

    (b) For this part, assume today’s date is 1 May 2010.

    Bill and Ben decided not to sell their company, and instead expanded the business themselves. Ben, however,

    is now pursuing other interests, and is no longer involved with the day to day activities of Flower Limited. Bill

    believes that the company would be better off without Ben as a voting shareholder, and wishes to buy Ben’s

    shares. However, Bill does not have sufficient funds to buy the shares himself, and so is wondering if the

    company could acquire the shares instead.

    The proposed price for Ben’s shares would be £500,000. Both Bill and Ben pay income tax at the higher rate.

    Required:

    Write a letter to Ben:

    (1) stating the income tax (IT) and/or capital gains tax (CGT) implications for Ben if Flower Limited were to

    repurchase his 50% holding of ordinary shares, immediately in May 2010; and

    (2) advising him of any available planning options that might improve this tax position. Clearly explain any

    conditions which must be satisfied and quantify the tax savings which may result.

    (13 marks)

    Assume that the corporation tax rates for the financial year 2005 and the income tax rates and allowances

    for the tax year 2005/06 apply throughout this question.


    正确答案:

    (b) [Ben’s address]                                                                                                     [Firm’s address]
    Dear Ben                                                                                                                              [Date]
    A company purchase of own shares can be subject to capital gains treatment if certain conditions are satisfied. However, one
    of these conditions is that the shares in question must have been held for a minimum period of five years. As at 1 May 2010,
    your shares in Flower Limited have only been held for four years and ten months. As a result, the capital gains treatment will
    not apply.
    In the absence of capital gains treatment, the position on a company repurchase of its own shares is that the payment will
    be treated as an income distribution (i.e. a dividend) in the hands of the recipient. The distribution element is calculated as
    the proceeds received for the shares less the price paid for them. On the basis that the purchase price is £500,000, then the
    element of distribution will be £499,500 (500,000 – 500). This would be taxed as follows:

  • 第20题:

    1 Alvaro Pelorus is 47 years old and married to Maria. The couple have two children, Vito and Sophie, aged 22 and

    19 years respectively. Alvaro and Maria have lived in the country of Koruba since 1982. On 1 July 2005 the family

    moved to the UK to be near Alvaro’s father, Ray, who was very ill. Alvaro and Maria are UK resident, but not ordinarily

    resident in the tax years 2005/06 and 2006/07. They are both domiciled in the country of Koruba.

    On 1 February 2007 Ray Pelorus died. He was UK domiciled, having lived in the UK for the whole of his life. For the

    purposes of inheritance tax, his death estate consisted of UK assets, valued at £870,000 after deduction of all

    available reliefs, and a house in the country of Pacifica valued at £94,000. The executors of Ray’s estate have paid

    Pacifican inheritance tax of £1,800 and legal fees of £7,700 in respect of the sale of the Pacifican house. Ray left

    the whole of his estate to Alvaro.

    Ray had made two gifts during his lifetime:

    (i) 1 May 2003: He gave Alvaro 95 acres of farm land situated in the UK. The market value of the land was

    £245,000, although its agricultural value was only £120,000. Ray had acquired the land on

    1 January 1996 and granted an agricultural tenancy on that date. Alvaro continues to own the

    land as at today’s date and it is still subject to the agricultural tenancy.

    (ii) 1 August 2005: He gave Alvaro 6,000 shares valued at £183,000 in Pinger Ltd, a UK resident trading

    company. Gift relief was claimed in respect of this gift. Ray had acquired 14,000 shares in

    Pinger Ltd on 1 April 1997 for £54,600.

    You may assume that Alvaro is a higher rate taxpayer for the tax years 2005/06 and 2006/07. In 2006/07 he made

    the following disposals of assets:

    (i) On 1 July 2006 he sold the 6,000 shares in Pinger Ltd for £228,000.

    (ii) On 1 September 2006 he sold 2,350 shares in Lapis Inc, a company resident in Koruba, for £8,270. Alvaro

    had purchased 5,500 shares in the company on 1 September 2002 for £25,950.

    (iii) On 1 December 2006 he transferred shares with a market value of £74,000 in Quad plc, a UK quoted company,

    to a UK resident discretionary trust for the benefit of Vito and Sophie. Alvaro had purchased these shares on

    1 January 2006 for £59,500.

    Alvaro has not made any other transfers of value for the purposes of UK inheritance tax. He owns the family house

    in the UK as well as shares in UK and Koruban companies and commercial rental property in the country of Koruba.

    Maria has not made any transfers of value for the purposes of UK inheritance tax. Her only significant asset is the

    family home in the country of Koruba.

    Alvaro and his family expect to return to their home in the country of Koruba in October 2007 once Ray’s affairs have

    been settled. There is no double taxation agreement between the UK and Koruba.

    Required:

    (a) Calculate the inheritance tax (IHT) payable as a result of the death of Ray Pelorus. Explain the availability

    or otherwise of agricultural property relief and business property relief on the two lifetime gifts made by Ray.

    (8 marks)


    正确答案:

     

  • 第21题:

    5 (a) Carver Ltd was incorporated and began trading in August 2002. It is a close company with no associated

    companies. It has always prepared accounts to 31 December and will continue to do so in the future.

    It has been decided that Carver Ltd will sell its business as a going concern to Blade Ltd, an unconnected

    company, on 31 July 2007. Its premises and goodwill will be sold for £2,135,000 and £290,000 respectively

    and its machinery and equipment for £187,000. The premises, which do not constitute an industrial building,

    were acquired on 1 August 2002 for £1,808,000 and the goodwill has been generated internally by the

    company. The machinery and equipment cost £294,000; no one item will be sold for more than its original cost.

    The tax adjusted trading profit of Carver Ltd in 2007, before taking account of both capital allowances and the

    sale of the business assets, is expected to be £81,000. The balance on the plant and machinery pool for the

    purposes of capital allowances as at 31 December 2006 was £231,500. Machinery costing £38,000 was

    purchased on 1 March 2007. Carver Ltd is classified as a small company for the purposes of capital allowances.

    On 1 August 2007, the proceeds from the sale of the business will be invested in either an office building or a

    portfolio of UK quoted company shares, as follows:

    Office building

    The office building would be acquired for £3,100,000; the vendor is not registered for value added tax (VAT).

    Carver Ltd would borrow the additional funds required from a UK bank. The building is let to a number of

    commercial tenants who are not connected with Carver Ltd and will pay rent, in total, of £54,000 per calendar

    quarter, in advance, commencing on 1 August 2007. The company’s expenditure for the period from 1 August

    2007 to 31 December 2007 is expected to be:

    Loan interest payable to UK bank 16,000

    Building maintenance costs 7,500

    Share portfolio

    Shares would be purchased for the amount of the proceeds from the sale of the business with no need for further

    loan finance. It is estimated that the share portfolio would generate dividends of £36,000 and capital gains, after

    indexation allowance, of £10,000 in the period from 1 August 2007 to 31 December 2007.

    All figures are stated exclusive of value added tax (VAT).

    Required:

    (i) Taking account of the proposed sale of the business on 31 July 2007, state with reasons the date(s) on

    which Carver Ltd must submit its corporation tax return(s) for the year ending 31 December 2007.

    (2 marks)


    正确答案:
    (a) (i) Due date for submission of corporation tax return
    Carver Ltd intends to cease trading on 31 July 2007. This will bring to an end the accounting period that began on
    1 January 2007. A new accounting period will commence on 1 August 2007 and end on the company’s accounting
    reference date on 31 December 2007.
    Carver Ltd is required to submit its corporation tax return by the later of:
    – one year after the end of its accounting period; and
    – one year after the end of the period of account in which the last day of the accounting period falls.
    Accordingly, the company must submit its corporation tax returns for both accounting periods by 31 December 2008.

  • 第22题:

    (ii) Explain why Galileo is able to pay the inheritance tax due in instalments, state when the instalments are

    due and identify any further issues relevant to Galileo relating to the payments. (3 marks)


    正确答案:
    (ii) Payment by instalments
    The inheritance tax can be paid by instalments because Messier Ltd is an unquoted company controlled by Kepler at
    the time of the gift and is still unquoted at the time of his death.
    The tax is due in ten equal annual instalments starting on 30 November 2008.
    Interest will be charged on any instalments paid late; otherwise the instalments will be interest free because Messier is
    a trading company that does not deal in property or financial assets.
    All of the outstanding inheritance tax will become payable if Galileo sells the shares in Messier Ltd.
    Tutorial note
    Candidates were also given credit for stating that payment by instalments is available because the shares represent at
    least 10% of the company’s share capital and are valued at £20,000 or more.

  • 第23题:

    (b) Given his recent diagnosis, advise Stuart as to which of the two proposed investments (Omikron plc/Omega

    plc) would be the more tax efficient alternative. Give reasons for your choice. (3 marks)


    正确答案:
    (b) Both companies are listed. The only difference will be in the availability of inheritance tax relief – specifically business property
    relief (BPR). If Stuart and Rebecca jointly hold in excess of 50% of the share capital of a listed company, BPR will apply at
    the rate of 50%. Otherwise, no BPR is available.
    Stuart can only buy 1,005,000 (£422,100/£0·42) shares in Omikron plc. This represents a shareholding of 2·00%
    (1,005,000/50,250,000). As the shares in Omikron plc are listed, a 2% holding will not qualify for BPR.
    At the moment, both Stuart and Rebecca own 2,400,000 shares in Omega plc. Their shareholdings are amalgamated for
    IHT purposes under the related property rules. With a joint holding of 48%, BPR is not available. A further 200,001 shares
    will be required to attain a 50% holding. Assuming Stuart and Rebecca can buy these shares, they must then hold their 50%
    interest in the company for the period of at least two years in order to ensure that BPR applies.
    On the basis that Stuart is expected to survive for two to three years, he should therefore buy further shares in Omega plc in
    order to take advantage of the BPR available.