INSTRUCTIONS TO CANDIDATES:
1. This is a closed book examination.
2. Non-programmable calculators are allowed.
3. You must answer all three questions.
4. Marks allocated are shown at the end of each question.
5. All apportionments are to be made to the nearest month.
6. All answers are to be calculated to the nearest pound.
QUESTION 1
PART A
Snowdonia plc’s results for the year ended 31st March 2021 were:
UK trading profits (before adjusting for items below) £600,000
Debenture interest payable £30,000
Bank interest receivable
Received 31st March 2021 £10,000
Chargeable gains (note i) See below
Dividends received from UK companies £10,000
Charitable donation (paid under gift aid scheme) £5,000
Notes:
i) On 20th November 2020 Snowdonia plc sold a warehouse for £160,000, realising an indexed gain of £60,000. In February 2021 it purchased a piece of fixed machinery with a useful life of 30 years for £150,000.
ii) Snowdonia plc owned a 100% owned subsidiary, Dales Ltd until it was sold to Moors Ltd on 31st December 2020. Arrangements under which Dales Ltd might be sold came into force on 1st October 2020. Dales Ltd made an adjusted trading loss of £200,000 in the year ended 31st March 2021.
iii) In the year ended 31st March 2019 Snowdonia plc had transferred a chargeable asset to Dales Ltd at no gain/no loss. The asset had originally cost Snowdonia plc £60,000 in 2011 and the market value at the date of transfer was £80,000.
Required:
a) Calculate the corporation tax payable by Snowdonia plc for the year ended 31st March 2021, assuming that they make all available elections to minimise their liability. (9 marks)
b) State the date on which the corporation tax calculated in part a) is payable.
(1 mark)
c) Explain the tax consequences of Dales Ltd being sold to Moors Ltd.
(3 marks)
PART B
Snowdonia plc made standard-rated taxable supplies in the quarter end 30th September 2020 of £700,000. This included a receipt of £10,000 in respect of a contract which is due to start in January 2021.
The managing director of Snowdonia plc is provided with fuel for his company car. The total cost of fuel provided in the quarter ended 30th September 2020 was £600 (inclusive of VAT) and the VAT scale charge applicable is £420 (inclusive of VAT).
Snowdonia plc incurred standard-rated expenses totaling £320,000 in the quarter. These included the fuel above and the following:
£
Entertaining UK customers 15,000
Entertaining overseas customers 8,000
New car for marketing director 35,000
d) Calculate the VAT payable or repayable by Snowdonia plc for the quarter. (9 marks)
Total: 22 marks
(QUESTIONS CONTINUE ON NEXT PAGE)
QUESTION 2
The following events relating to Olivia’s assets occurred in 2020/21:
i) In 2008 Olivia inherited a house from her aunt on her death. Her aunt had acquired it in 1982 for £20,000 and the probate value in 2008 was £300,000. On 18th June 2020 she sold it for £500,000. The house had never been her principal private residence
ii) On 5th September 2020 she sold 2 acres of land for £70,000. This was part of an original 5-acre plot which she acquired in 2012 for £110,000. At the date of the disposal the value of the remaining 3 acres was £80,000.
iii) On 21st October 2020 she sold 8,000 shares in Dartmoor plc for £6 per share. She had acquired shares in Dartmoor plc on the following dates:
Date No. of shares Cost
21st October 2006 10,000 £40,000
14th April 2009 Rights issue – 1 for 4 at £4.50
4th November 2020 4,000 £23,700
iv) On 15th January 2021 she sold an antique table for £4,500, incurring selling expenses of £150. She had acquired the table in 2010 for £3,200.
Olivia’s taxable income for 2020/21 was £30,000.
Required:
a) Calculate the gains arising on each of the above events, assuming that Olivia makes all available elections to minimise her liability in 2020/21.
(12 marks)
b) Calculate Olivia’s capital gains tax liability for 2020/21. (6 marks)
On 20th November 2019 Olivia moved house, but she did not sell her previous house until 5th March 2021. The old house had always been her principal private residence (PPR) and the entire period of ownership up to 20th November 2019 was covered by actual or deemed occupation. Olivia has not yet elected for her new house to become her PPR.
c) Advise Olivia on the action she should take regarding her principal private residence. (3 marks)
Total: 21 marks
QUESTION 3
Sam, a UK-domiciled individual, died on 5th December 2020.
His estate comprises the following assets:
1. A main residence valued at £1,500,000.
2. Cash and chattels totalling £450,000.
The cost of Sam’s funeral was £5,000. He had made the following lifetime transfers:
17th June 2015 Discretionary trust – 20,000 shares in Smith Ltd, a 20% holding. These were part of a holding of 60,000. Each share is valued at:
20% holding £20
40% holding £25
60% holding £30
10th May 2018 Oxfam (a charity) – £50,000.
Sam left the entire estate to his grandchildren. Sam paid any IHT arising on the transfers.
Required:
a) Calculate the inheritance tax that will be payable on Sam’s lifetime transfers.
(8 marks)
b) Calculate the inheritance tax payable as a result of Sam’s death.
(9 marks)
Total: 17 marks
