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2 Assume that today’s date is 1 July 2005.

Jan is aged 45 and single. He is of Danish domicile but has been working in the United Kingdom since 1 May 2004

and intends to remain in the UK for the medium to long term. Although Jan worked briefly in the UK in 1986, he

has forgotten how UK taxation works and needs some assistance before preparing his UK income tax return.

Jan’s salary from 1 May 2004 was ￡74,760 per annum. Jan also has a company car – a Jaguar XJ8 with a list price

of ￡42,550 including extras, and CO2 emissions of 242g/km. The car was available to him from 1 July 2004. Free

petrol is provided by the company. Jan has other taxable benefits amounting to ￡3,965.

Jan’s other 2004/05 income comprises:

￡

Dividend income from UK companies (cash received) 3,240

Interest received on an ISA account 230

Interest received on a UK bank account 740

Interest remitted from an offshore account (net of 15% withholding tax) 5,100

Income remitted from a villa in Portugal (net of 45% withholding tax) 4,598

The total interest arising on the offshore account was ￡9,000 (gross). In addition, Jan has not remitted other

Portuguese rental income arising in the year, totalling a further ￡1,500 (gross).

Jan informs you that his employer is thinking of providing him with rented accommodation while he looks for a house

to buy. The accommodation would be a two bedroom flat, valued at ￡155,000 with an annual value of ￡6,000. It

would be made available from 6 August 2005. The company will pay the rent of ￡600 per month for the first six

months. All other bills will be paid by Jan.

Jan also informs you that he has 25,000 ordinary shares in Gilet Ltd (‘Gilet’), an unquoted UK trading company. He

has held these shares since August 1986 when he bought 2,500 shares at ￡4.07 per share. In January 1994, a

bonus issue gave each shareholder nine shares for each ordinary share held. In the last week all Gilet’s shareholders

have received an offer from Jumper plc (‘Jumper’) who wishes to acquire the shares. Jumper has offered the following:

– 3 shares in Jumper (currently trading at ￡3.55 per share) for every 5 shares in Gilet, and

– 25p cash per share

Required:

(a) Calculate Jan’s 2004/05 income tax (IT) payable. (11 marks)

3 The Stiletto Partnership consisted of three partners, Clint, Ben and Amy, who shared the profits of the business

equally. On 28 February 2007 the partners sold the business to Razor Ltd, in exchange for shares in Razor Ltd, with

each former partner owning one third of the new company.

The recent, tax adjusted, trading profits of the Stiletto Partnership have been as follows:

￡

Year ended 30 June 2006 92,124

1 July 2006 to 28 February 2007 81,795

Clint, who was 65 on 5 October 2006, retired when the business was sold to Razor Ltd. He is now suggesting that

if the sale of the partnership, and his retirement, had been delayed until 30 April 2007, his total tax liability would

have been reduced. Clint’s only other income is gross pension income of ￡6,100 per year, which he began receiving

in the tax year 2005/06. Clint did not receive any salary or dividends from Razor Ltd. It is estimated that the

partnership’s tax adjusted trading profits for the period from 1 March 2007 to 30 April 2007 would have been

￡20,760. Clint has overlap profits of ￡14,250 brought forward from when the partnership began trading.

Razor Ltd manufactures industrial cutting tools. On 1 July 2007, Razor Ltd will subscribe for the whole of the ordinary

share capital of Cutlass Inc, a company newly incorporated in the country of Sharpenia. It is intended that Cutlass

Inc will purchase partly finished tools from Razor Ltd and customise them in Sharpenia. It is anticipated that Cutlass

Inc’s annual profits chargeable to corporation tax will be approximately ￡120,000.

Ben and Amy will be the directors of Cutlass Inc, although Ben will not be involved in the company’s business on a

day-to-day basis. Amy intends to spend one or two weeks each month in the country of Sharpenia looking after the

company’s affairs. The remainder of her time will be spent in the UK. Amy has employment contracts with both Razor

Ltd and Cutlass Inc and her duties for Cutlass Inc will be carried out wholly in Sharpenia. Cutlass Inc will pay for

Amy’s flights to and from Sharpenia and for her husband and baby to visit her there twice a year. Amy is currently

UK resident and ordinarily resident.

The system of income tax and corporation tax in the country of Sharpenia is broadly similar to that in the UK although

the rate of corporation tax is 38% regardless of the level of profits. There is a double tax treaty between the UK and

Sharpenia based on the OECD model treaty. The clause in the treaty dealing with company residency states that a

company resident in both countries under domestic law will be regarded under the treaty as being resident only in the

country where it is effectively managed and controlled. Sharpenia is not a member of the European Union.

Required:

(a) (i) Calculate Clint’s taxable trading profits for the tax years 2006/07 and 2007/08 for both of the

alternative retirement dates (28 February 2007 and 30 April 2007). (3 marks)