Candidate Number You must tick the box below if you have answered this Module. The Chartered Tax Adviser Examination November 2015 AWARENESS MODULE D TAXATION OF INDIVIDUALS You should only answer this module if you have not sat/do not intend to sit the Taxation of Individuals Advisory paper. Each question carries 5 marks. You should answer all 12 questions. You should answer questions in brief bullet points and/or summary computations where appropriate. You must answer questions in the spaces provided. You may not need all the space provided. You should make all calculations to the nearest month and pound unless stated otherwise. Unless otherwise indicated by the provision of additional table information, you may assume that 2014/15 rates and allowances continue to apply for 2015/16 and future years. Candidates referring to actual or pending rates and allowances for 2015/16 and future years will not be penalised.
1. In December 2014 Michael invested 40,000 in shares for which all conditions for Enterprise Investment Scheme (EIS) relief were met. He intends to keep the shares until 2018 when he expects to sell the shares at a profit. In January 2015 Michael disposed of a property which he had always rented out, realising a gain of 87,000. Michael had income after personal allowances of 72,000 in 2014/15. Michael always makes any beneficial claims. Set out the Capital Gains Tax implications for Michael of the transactions using appropriate calculations and explanations. Page 2 of 25
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2. Angela rents out properties both in the UK and overseas. She is resident and domiciled in the UK. Her income in 2014/15 was: UK rental income 44,500 Overseas rental income (gross) 8,750 Angela paid overseas tax on her overseas rental income of 1,750. Calculate Angela s Income Tax payable for 2014/15. Page 4 of 25
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3. Christian had the following transactions in shares of Bubbles Ltd: September 1986 Acquired 1,000 shares 1,500 October 1991 Acquired 1,000 shares 2,000 April 1993 Rights issue 1 for 4 fully taken up 2.25 per share On 10 December 2014, Christian sold 1,500 shares for 7,500. Christian incurred legal fees on the sale of 375. Calculate the chargeable gain on the sale of the shares. Page 6 of 25
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4. In November 2014 Shivam sold his sole trader business which he started in 2010 realising total gains of 20,000. Shivam also disposed of an investment property realising a gain of 45,000. Shivam had capital losses brought forward of 2,700 and had other income in 2014/15 of 30,000. Calculate Shivam s Capital Gains Tax liability for 2014/15. Page 8 of 25
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5. The directors of Red Ltd are looking at ways to reward the company s key employees for excellent work. They are considering the Enterprise Management Incentives (EMI) scheme but do not know the tax treatment for individuals under the scheme. They are also unsure whether to issue the shares at a discount. Briefly explain the Income Tax and Capital Gains Tax treatment at grant, exercise and disposal. Page 10 of 25
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6. Catherine is UK resident and has been for 10 years, but she is not UK domiciled. In 2014/15 she had the following income: UK trading income 25,000 Non-UK trading income 172,000 She remitted 46,000 of her non-uk trading income into the UK during 2014/15. There is no double tax treaty in place between the UK and the source country of the non-uk trading income. Briefly explain Catherine s liability to UK Income Tax. Calculations are not required. Page 12 of 25
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7. William had the following income in 2014/15: Dividends from UK company (net) 8,100 Employment income 98,500 In March 2015, William made a donation to charity under the Gift Aid scheme of 1,200. Calculate William s Income Tax liability for 2014/15. Page 14 of 25
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8. Mark disposed of his unincorporated trading business to an unrelated company in January 2015. One of the conditions of the sale agreement was that Mark must work for the acquiring company to ensure a smooth handover of the business. The terms of the sale were 20,000 paid to Mark at the time of sale, and a further amount to be paid in January 2016 which is dependent on the level of profits in the 12 months since the sale. Explain the capital gains arising at the time of the disposal and the treatment of any gain or loss arising on the receipt of any additional proceeds in January 2016. Page 16 of 25
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9. Mary works as an employee of Central Ltd and is not a director. During 2014/15 she received a salary of 46,000. She was provided with a diesel company car with CO 2 emissions of 135g/km and a list price of 17,000. Mary contributed 4,000 towards the original purchase and throughout the year paid 100 per month towards running costs. Central Ltd did not pay for fuel for private journeys. On 1 May 2014 she was paid a bonus of 21,000 relating to the performance of the company in the year ended 31 December 2013. On 1 May 2015 she was paid a bonus of 27,000 relating to the performance of the company in the year ended 31 December 2014. Calculate Mary s employment income for 2014/15 from Central Ltd. Page 18 of 25
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10. Simon and Kay are husband and wife and each have investment portfolios of quoted shares which they are planning to sell. Briefly explain how they could take advantage of being husband and wife to minimise their overall Capital Gains Tax liability. Page 20 of 25
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11. Steven is a sole trader. He has recently expanded his business and believes he may need to take on his first two employees. He would pay each employee a basic salary of 24,000 and would also provide accommodation on which the taxable benefit for each employee would be 5,000 per annum. Briefly explain, with supporting calculations, the Employer s National Insurance Contributions in respect of these employees. Page 22 of 25
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12. Etna Ltd is a close company and Owen is a participator in the company as well as being an employee. He earns a salary of 150,000. Etna Ltd made an interest free loan of 115,000 to Owen on 1 September 2014. Owen repaid 60,000 on 30 November 2014 and Etna Ltd decided to waive the remainder of the loan on 31 January 2015. Briefly explain, with supporting calculations, the Income Tax and National Insurance Contributions consequences of the loan for Owen. Page 24 of 25
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