Tax Flashcards
(8 cards)
Two spouses each owned 50% of a company. Each was a director and officer of the company. They sold the company to a large conglomerate for a total net gain of £12 million. The applicable capital gains tax allowance in the relevant tax year is £12,300. Business asset disposal relief is limited to £1 million on qualified gains. How much can be taxed at the reduced rate of 10%?
2 million.
Business asset disposal relief can be claimed as to gains of up to £1 million by an individual who holds at least 5% ownership of a company in which they are either an employee or an officer. Because each spouse here was an officer of the company, each is eligible to claim £1 million business asset disposal relief to reduce tax on that part of their gain to 10%.
On 1 July 2022, a woman made a cash gift of £2,500 to her sister. On 1 May 2023, she made a cash gift of £2,000 to a friend. On 1 June 2023, she made a cash gift of £50,000 to a discretionary trust. The woman has not made any other lifetime gifts.
What is the gross chargeable transfer value for inheritance tax purposes of the gift made to the trust after taking account of all available exemptions?
£48,500
The annual exemption is set against potentially exempt transfers, even if they never become chargeable, and is offset against the earliest gift in the tax year automatically. The 2023/24 annual exemption (£3,000) is therefore reduced by the amount given to the friend (£2,000), as this was before the gift to the discretionary trust (£50,000).
The current year’s annual exemption (£3,000) must be offset prior to the offset of any brought forward amounts (£500, as the woman would have used £2,500 of the prior year’s annual allowance to offset the gift to her sister). (No small gift exemption would apply because it is available only if the entire gift is £250 or less.)
Therefore, the gross chargeable transfer value is £50,000 (the gift to the discretionary trust) less £1,000 (the remaining 2023/24 annual exemption after the gift to the friend) less £500 (the annual exemption from the previous year left after the gift to the sister), which equals £48,500.
A retailer is granted a 20-year lease on a shop. The premium payable is £400,000, annual rent payments are £3,000, and the net present value of the rent payable is £145,000. Assume the applicable stamp duty land tax rates at the time the lease was entered were:
* 0% to £150,000
* 2% £150,001 to £5 million
What is the SDLT payable by the retailer on the grant of the lease?
£5,000
SDLT is due on both the premium and the present value of the lease.
- SDLT on the premium is 2% on the amounts above £150,000, so £250,000 would be taxed at 2% = £5,000.
- We use the net present value of the lease payments to calculate tax on them (rather than the total actual lease payments), so £145,000. This falls within the 0% band, no tax is owed on the lease payments.
A man died and left an estate worth £2,200,000 to his friend. The man’s main residence, valued at £600,000, was included in the total value of the estate. The man did not make any lifetime gifts.
The relevant residence nil rate band was £150,000, and the regular nil rate band was £325,000.
What amount of the man’s estate is chargeable to tax?
£1,875,000
Reduce the amount of the estate by the nil rate band (£2,200,000 - £325,000 = £1,875,000).
The estate cannot be further reduced by the residence nil rate band because that is applicable only if the recipient of the estate is closely related to the decedent, such as a lineal descendant (not his friend).
A company has an accounting period that ends June 30. In the year ended 30 June 2023, a company had a tax adjusted trading profit of £800,200 and property income of £45,000. It also realised a chargeable capital gain of £25,000 and a capital loss of £80,000.
In the prior year, the company made a tax adjusted trading profit of £520,000 and chargeable capital gains of £9,000.
How much, if any, of the capital loss arising in the year ended 30 June 2023 may be carried forward to the year ended 30 June 2024?
£55,000
Step 1: Deduct capital loss from chargeable capital gain in the same year, excess losses must be carried forward to be used against future chargeable gains.
- £25,000-£80,000= -£55,000 (loss to be carried forward into the 2024 tax year.)
We ignore the trading profit and the capital gain made in the year before.
Calculate the CGT owed for the relevant tax year:
A man worked for a small, unquoted trading company for ten years. Last month, he left the company and sold his 10% shareholding in the company which he had acquired when he began working for the company.
- The man realised a chargeable gain of £56,200 on the sale.
- He had non-savings income for the year of £24,000. - He did not have any losses to carry forward.
- Annual exempt amount for the relevant tax year is £12,300
- Business asset disposal relief rate was 10% on gains up to £1,000,000.
£4,390
Step 1: subtract the annual exempt amount from the chargeable gain to arrive at the taxable gain (£56,200 - £12,300 = £43,900 taxable gain).
Step 2: Apply Business Asset Disposal Relief (10% rate applies to the taxable capital gain.) The man qualifies because he sold shares in a company in which he was an employee for at least two years AND he owned at least 5% of the company’s trading shares.
Thus, the man would owe £4,390 (£43,900 x 10%).
NOTE: If BADR did not apply, we would apply a 10% rate to the amount of the taxable gain that is still within the taxpayer’s basic rate band above the taxpayer’s other income and apply a 20% rate to amounts in excess of the basic rate band.
A company has the following income and gains for its most recent tax year ended 31 March .
- Trade Profit: £210,000
- Interest: £15,000
- Dividends: £10,000
- Capital gain: £10,000
- CapitaI loss brought forward from the prior tax year: £30,000.
What are the company’s total taxable profits?
£225,000 (Trade Profit + Interest)
Companies pay tax on taxable total profits:
- Sum of income from all sources (except dividends)
- Net gains* (gains less capital losses).
*Capital losses can be brought forward from previous years to offset capital gains, but they cannot be used to offset any other type of income. If capital losses exceed capital gains, the excess can be carried forward to offset capital gains in future years.
Thus, the previous year’s capital loss can be used to offset the current year’s £10,000 capital gain and the remaining £20,000 of capital loss will be carried into the future.
