Seminar Questions
National Insurance Contributions
Pensions
Trading Losses
Income Tax Planning
Capital Gains Tax
Inheritance Tax
NIC’s & Pensions
NIP 1.John is self-employed and makes up his accounts annually to 5th April. His 2020/21 taxable
trading income is £46,600. You are required to calculate the class 2 and class 4 NIC’s payable
by John for 2020/21
NIP 2. State the maximum annual contributions to registered pension schemes on which an individual
could obtain tax relief in 2020/21 if the individual’s earnings for the year were:
£1,400
£125,000.
NIP 3. Rachel & Anna are sisters who completed their BAAF degree at LSBU 10 years ago. Rachel is now employed by a City of London bank as a senior manager. In 2020/21 her gross salary was £130,000 and she also received a bonus of £30,000.
On 31 March 2020 she made a contribution of £45,000 (gross) into her personal pension scheme as she does not belong to a pension scheme at the bank. Rachel had only paid £20,000 into her pension in the previous year when she had earnings of £140,000.
Anna is self-employed as a financial advisor. Her tax adjusted trading profit for 2020/21 was £36,000. On 31 March 2020 she made a contribution of £40,000 (gross) into a personal pension scheme.
Rachel and Anna have no other sources of income.
REQUIRED:
a. Calculate Rachel & Anna’s income tax liabilities for the tax year 2020/21.
b. Calculate the actual net of tax amounts that Rachel & Anna paid into their pension
schemes.
NIP 4. Tim is a sole trader with a personal pension plan. His gross contributions to the personal pension plan have been as follows:
2016/17
2017/18
2018/19
2019/20
26,000
27,000
31,000
34,000
REQUIRED:
What is Tim’s maximum pension contribution 2020/21?
NIP 5. Sarah had employment income of £250,000 in 2020/21. She has no other sources of
income and she paid £80,000 gross into a personal pension scheme. She has no carried
forward annual allowance.
You are required to calculate Sarah’s income tax payable in 2020/21.
Module leader – Shahrukh Irfan
irfans3@lsbu.ac.uk
Trade Losses
TL 1. Mary has been trading for many years but has suffered a trading loss of £60,000 for the year to 30th September 2020.
a) If she does not make a claim in relation to her trading loss, how will it be relieved?
b) If she does make a claim how will the loss be relieved?
TL 2. Ryan has been trading since August 2006. His accounting year end is 31 July. His recent trading results are as follows:
Y/E 31 July 2017
Profit £18,000
Y/E 31 July 2018
Loss £43,200
Y/E 31 July 2019
Profit £13,000
Y/E 31 July 2020
Profit £16,000
Ryan has other income of £12,000 per annum.
REQUIRED:
Show Ryan’s net income after loss relief for all the tax years affected assuming;
a) No claim is to be made against total income for trading loss( trade losses will be carried forward)
b) Full claims are to be made to obtain relief against total income as early as possible.
TL 3. Paul starts trading as a sole trader on 1.7.2018
Paul’s taxable trading results are as follows:
Y/E 30.06.2019
Loss £96,000
Y/E 30.06.2020
Profit £130,000
He had held a job before he started his business and his income was as follows:
2015/16 Employment income £28,000
2016/17 Employment income £29,000
Module leader – Shahrukh Irfan
irfans3@lsbu.ac.uk
2017/18 Employment income £30,000
2018/19 Employment income £13,000
Assume personal allowance of £11,000 for all years.
Assume basic rate band of £32,000 for all years.
REQUIRED
Produce calculations to enable you to advise Paul on his best relief options.
Module leader – Shahrukh Irfan
irfans3@lsbu.ac.uk
Tax Planning
TP 1
Fergus was born on 19 July 1971. He is currently self-employed and if he continues to trade on a self-employed basis, his total income tax liability and National insurance contributions (NIC) for the tax year 2020-2021 will be £33,985.
However, Fergus is considering incorporating his business on 6 April 2020. The forecast taxable total profits of the new limited company for the year ended 5 April 2021 are £100,000 (before taking
account of any director’s remuneration). Fergus will pay himself gross director’s remuneration of £18,000 and dividends of £44,444. The balance of the profits will remain undrawn within the new
company.
REQUIRED:
Determine whether or not there will be an overall savings of tax and national insurance contributions (NIC) for the year ended 5 April 2021 if Fergus incorporates his business on 6 April 2020.
Note:
You are expected to calculate the income tax payable by Fergus, the class 1 NIC payable by
Fergus and new limited company, and the corporation tax liability of the new limited company for
the year ended 5 April 2021.
TP 2
Jane Jones has had two alternative offers of employment. In both cases employment will commence on 6 April 2020 and you should assume that she will drive 12,000 business miles during 2020/21.
Aurora Plc.
Jane will receive the following employment package:
a)
A salary of £33,000 per year.
b)
A new petrol-engine car, list price £18,400 and having a CO 2 emissions factor of 188g/km.
The company will pay for all running costs including petrol for private motoring. Jane will be required to pay Aurora Plc £50 per month as a condition of the car being available for her private use. However, she will not need to purchase a private motor car.
Zodiac Plc
Under this employment, Jane will receive a salary of £35,000 per year. She will be required to purchase her own motor car and to use this for business purposes. The company will pay her 20 pence per mile for business mileage. The HMRC approved mileage allowance payment rates are 45 pence per mile for the first 10,000 miles and 25 pence per mile thereafter.
Jane’s total annual cost of running her private motor car will be £8,100.
REQUIRED
a)
Compute Jane’s income tax liability for 2020/21 if she:
•
Accepts the offer of employment from Aurora Plc.
•
Accepts the offer of employment from Zodiac Plc
Module leader – Shahrukh Irfan
irfans3@lsbu.ac.uk
b)
Advise Jane as to which offer of employment she should accept. Your answer should be supported by a calculation of the amount of income, after payment of income tax that she will receive in 2020/21 under each offer of employment. Ignore the NIC implications. (Past ACCA
question)
TP 3
Sophia Khan graduated from University and was offered two different jobs in Accounting. Both
started from 6 April 2020 but she could only accept one of them.
Astra Finance Limited
Her salary is £32,000 for a full year. There is also the use of a company flat with an annual value of £10,000 which the company rents from the Council at £12,000 per annum. Furniture is provided in the flat which cost the company £5,000. The flat is not job related.
Along with the flat comes a company car which she may use privately. It is petrol driven which cost £30,000 and had CO 2 emissions of 162 g/km. There is free parking at work which would otherwise cost her £3,000 to park privately but she had to contribute £800 a year towards the car running costs and £600 a year towards private petrol costs, although the employer pays the balance of all private
and business motoring costs.
Stella Investments Limited
Her salary is £35,000 but she is not provided with a company car. However she is required to use her own car for 10,000 miles of business mileage a year and is not given any mileage allowance towards it. There is no parking at work and she has to pay £3,000 a year to park privately near the workplace.
She is provided with an interest free company loan of £8,000 in her first year of work however with which to buy a car and she does not have to repay it until she leaves the job but she has to pay the running costs herself of both private and business motoring costing £800.
REQUIRED
(a) Calculate Sophia’s income tax liability and NIC liability for 2020/21 is she accepted the job with Astra Finance Ltd and her liability to income tax and NIC for 2020/21 if she accepted the job with Stella Investments Ltd.
(b) Advise Sophia which job was better from the tax point of view using calculations of take home
pay.
Module leader – Shahrukh Irfan
irfans3@lsbu.ac.uk
TP 4
Alex Courier is employed by Speedbird as a delivery driver and is paid a salary of £40,000. Shecontributes 8% of her salary into the company’s approved occupational pension-scheme.
As an alternative to being employed, Speedbird have offered Alex the opportunity to work on a selfemployed basis. The details of the proposed arrangement which will commence on 6 April 2020 are as follows:
Her income from Speedbird will be £45,000.
When not working for Speedbird, she can work for other clients and generate income of approximately £9,000.
Alex will lease a delivery van from Speedbird and this will be used exclusively for business purposes. The annual cost of leasing the van will be £8,000.
When she is unavailable Alex will have to pay the costs of a replacement driver which will cost £3,200.
Alex will need to contribute £4,000 into a personal pension plan during the year to give her the same benefits as the Speedbird plan.
REQUIRED
Compare Alex’s Income tax and NIC liabilities for 2020-21 under both alternatives outlined above.
Module leader – Shahrukh Irfan
irfans3@lsbu.ac.uk
CAPITAL GAINS TAX
CGT 1
Sloop had the following capital transactions during the year ended 31st March 2021:
(i)
On 1st July 2020 he sold an antique table at auction for £8,000 before auctioneer’s commission.
The auctioneer’s commission was 5% of gross proceeds. He had bought the table for £2,600 three years earlier.
(ii)
On 3rd August 2020 he sold an investment property for £300,000. He had bought this property in July 1999 for £110,000. This property had never been his main residence.
(iii)
On the 25th March 2021 he sold a vintage Rolls Royce car for £70,000. This had cost him £5,000 in October 1984
(iv)
On the 3rd April 2021 he sold a painting (a forgery) for £100. He had bought the painting for £8000 in 2010.
(v)
He had losses bought forward of £9,000.
REQUIRED:
Calculate Sloop’s capital gains tax liability for the year ended 5th April 2021 assuming his other taxable income for income tax purposes for 2020/21 was £22,000. He had made gift aid donations of £8,000
net during the tax year.
CGT 2
In 2020/21 Bruce has capital gains of £18,000 and capital losses of £6,000. He also has capital losses of £5,000 brought forward at 6th April 2020. What is the CGT situation?
CGT 3
Nigel sell Georgina a diamond necklace for £10. Nigel bought the necklace 2 days earlier at a cost of £15,000. Nigel is hoping to take Georgina out on a date after she has had the necklace for a couple of days.
What is the CGT position?
CGT 4
Michaela had the following capital transactions during the tax year 2020/21. She had brought forward capital losses of £12,000.
She acquired ordinary shares in Tonic Plc as below and sold 40,000 shares on 2 January 2021 for
£4.25 each.
20.7.08
24.8.13
No of shares
14,000
16,000
Module leader – Shahrukh Irfan
Cost £
41,700
51,300
irfans3@lsbu.ac.uk
31.8.14
30,000
94,000
Tonic Plc made a 1 for 3 bonus issue on 1.5.13 and then a 1 for 4 rights issue on 31.3.14 at a rights price of £3.70 per share. Michaela took up the bonus and the rights issue.
2.
On 3 July 2020 she sold a Daimler motor car for £20,000. She had bought the car ten years earlier for £16,000.
3.
On 4 August 2020 she sold an antique vase for £7,800. She paid commission of 5% on the sale. She had purchased this vase on 5 November 2002 for £2,200.
4.
On 30 November 2020 she sold a painting (a forgery) for £400. She had bought the painting for £7,000 in 2006.
5.
Michaela has other income of £40,560 in the year. She is entitled to the basic personal allowance.
REQUIRED
Calculate the capital gains tax payable by Michaela in the tax year 2020/21.
CGT 5
Scenario 1
Neil purchased a house in Hampstead for £360,000 on 1 March 1978. Neil had the house valued at £730,000 on 31 March 1982. He sold the house and retired to Tenerife on 28 February 2021. The selling price was £1,367,000 but he incurred agents and legal fees of £18,000.
Neil occupied the house as his main residence from 1 March 1978 to 31 October 1995. He then went to work in Newcastle (UK) until 30 June 2005. He returned home on 1 July 2005 and lived there again until 1 September 2011. He then went to work in Madrid (Spain) until 30 June 2014. He returned to the UK on 1 July 2014 but did not return to the house and instead took a job in Scotland.
He did not return to the house and it was sold on 28 February 2021. The house was never let.
Scenario 2
Clarissa bought the following shares in Fashion House PLC:
11 August 2012
12 September 2014
15 October 2020
20 October 2020
22 October 2020
18 November 2020
No of shares
5,000
1,600
3,400
1,200
1,400
4,100
Cost £
17,000
6,000
14,100
4,900
5,800
16,000
On 15 October 2020 she sold 7,000 shares for £30,500.
She sold a further 3000 shares for £14,000 on 2 December 2020.
Module leader – Shahrukh Irfan
irfans3@lsbu.ac.uk
Scenario 3
Allan sold his house (his principal private residence) in Reading in November 2020 making a gain on sale of £216,000. Allan had owned the house for 18 years.
It was his principal private residence for the first 9 years of ownership.
During his actual residency period, Allan ran a business and claimed 1/8 of the household expenses as business costs against his income for a 2 year period.
After 9 years, he let the house out to tenants for the next 3 years whilst he lived with his girlfriend, but it was unoccupied for the last 6 years of ownership.
REQUIRED:
Calculate the chargeable gain for Capital Gains Tax in each of the three scenarios above.
CGT 6
Lindsay has had the following capital transactions during the current tax year.
1.
Lindsay had made the following purchases of shares in XBZ Plc:
10 July 2012
18 November 2014
3 July 2016
12 December 2020
No of shares
Cost £
8,000
15,700
1,600
3,100
Rights issue (see below)
2,600
5,600
Lindsay took up a 1 for 3 rights issue 4 July 2016 at a rights price of £2.20.
On 5 December 2020 he sold 5,300 shares for £13,038.
2.
On 6 August 2020 he sold a painting at auction for £12,000 before auctioneer’s commission.
The auctioneer’s commission was 7% of gross proceeds. He had bought the table for £5,100
four years earlier
3.
He sold his home, a detached house in Burton-on-Trent for £390,000 on 30 November 2020.
He had bought it on 1 April 1998 for £220,000.
He had lived in it from purchase until 31 December 2000 when he moved in to his girlfriend’s house. He decided to move out on 30 October 2006 and he moved back to his own house.
He remained in occupation until 31 December 2013 when he got a job elsewhere in the UK (in London), and moved out of the house on 1 January 2014.
He returned to Burton and the house on 30 April 2017 but moved out to live in his new girlfriend’s flat on 1 October 2018. He never returned to the house and it was never let it out.
One room in the house (1/8th of the total) was used exclusively for Lindsay’s business for a period of 4 years from January 2000 – December 2004.
4.
On 2 March 2021 he sold another painting (a forgery) which he foolishly purchased for £12,200 in 2017. He sold it at a car boot sale for £200.
Module leader – Shahrukh Irfan
irfans3@lsbu.ac.uk
5.
Lindsay had capital losses bought forward from 2019/20 of £4,000.
Lindsay earned a salary of £41,000 in 2020/21 and he has no other income. He is entitled to the normal personal allowance.
REQUIRED
Calculate Lindsay’s capital gains tax liability for 2020/21.
CGT 7
Priyanka purchased a chargeable asset for £90,000 in 2011. She sold one third of the asset for £70,000 in June 2020 and incurred selling costs of £900. The remaining two third were worth £150,000 at this date.
REQUIRED
Calculate Priyanka’s chargeable gain.
CGT 8 Mustafa bought a house in Southwark on 1 July 2009 for £65,000. He occupied the house as his Principal Private Residence until 1 January 2011 when he left to work in Newcastle where he stayed with relatives. He returned to the house in Southwark on 1 December 2014 and stayed until 1 September 2016 when he left to take up a new job in Arabia but he never returned to the house. On
1 April 2021 he sold the house in Southwark for £ 260,000. Friends had stayed in the house while he was away but had paid out no rent.
Mustafa had the following transactions in Property Portions PLC ordinary shares. He sold 20,000 shares in Property Portfolios Ltd on 31 December 2020 for £100,000.
Purchases
Number
30 November 2013
01 February 2015
31 December 2020
15 January 2021
20,000
5,000
3,000
5,000
£
19,000
6,000
12,000
14,000
Mustafa had £20,000 of income taxable to income tax for 2020/21
REQUIRED
a) Calculate any gain on the sale of the house in Southwark giving Principal Private Residence
Relief as appropriate
b) Calculate the total gains arising on the sale of the shares.
c) Calculate the capital gain tax payable by Mustafa for 2020/21
Module leader – Shahrukh Irfan
irfans3@lsbu.ac.uk
CGT 9
Susie purchased his business premises for £170,000 in 2013. She sold the building for £260,000 in February 2021 but immediately purchased another business property. She claims roll-over relief.
Assume the new property cost:
A.
£310,000
B.
£190,000
C.
£160,000
REQUIRED
Calculate the gain on disposal in each of these three scenarios.
CGT 10
Isabelle is a former model who has a taste for the good things in life. She has recently suffered the theft of her diamond set trilogy ring which cost £80,000. Fortunately, she had a very good insurance policy which has recently paid her £110,000 as claim proceeds.
She is considering spending either £60,000 or £100,000 on a new ring but would like to understand the capital gains tax implications in respect of this.
REQUIRED
Advise Isabelle in respect of the CGT position regarding the lost ring
CGT 11 Victor has the following details for 2020/21
Taxable Income
£24,000
Share Capital Gains
£38,000
Property gains
ER Gains
Non ER Capital losses b/f
£60,000
£21,000
£8,000
REQUIRED
Calculate Victor’s CGT liability for 2020/21
CGT 12
Sirin acquired a set of 2 antique grandfather clocks for £4,000.
She sold one clock to her friend Billy for £4,800 in May 2017.
In August 2020, she sold the other clock to billy’s wife for £5,200.
Module leader – Shahrukh Irfan
irfans3@lsbu.ac.uk
REQUIRED
What is the CGT position?
Module leader – Shahrukh Irfan
irfans3@lsbu.ac.uk
INHERITANCE TAX
IHT 1
Stuart is an 80 year old retired man who is considering his position in respect of Inheritance Tax (IHT). His wife died 2 years ago and all the family assets (in excess of £2 million) are in Stuart’s name. Stuart wishes to know what options he has in terms of making gifts which will be exempt from IHT.
REQUIRED
Advise Stuart in respect of his options re exempt IHT transfers.
IHT 2
Simon died on 13 February 2021. Both Simon and his wife are UK domiciled. Simon had made the following gifts during his lifetime
(1)
On 14 December 2017 Simon made a cash gift of £400,000 to a trust. Simon decided to pay the inheritance tax arising from his gift.
(2)
On 24 August 2018, Simon made gifts of £250 to each of his three cousins.
(3)
On 1 January 2019, Simon made a cash gift of £30,000 to the Red Cross National Charity.
(4)
On 2 September 2020, Simon made a gift of 12,000 shares in Southminster Bank plc to his favourite grandson as a wedding gift when he got married. The shares are had a value of
£2.23 per share.
(5)
At the date of his death Simon owned the following assets:
i
His Westcliff on Sea apartment valued at £600,000.
ii
Bank deposit and saving accounts of £231,200.
Simon’s funeral expenses amounted to £5,400.
Under the terms of his will Simon left £300,000 to his wife, with the residue of his estate to his daughter.
REQUIRED:
Calculate the inheritance tax that will be payable in his lifetime and as a result of Simon’s death.
IHT 3
Benji died on 10 February 2021. Both Benji and his wife are UK domiciled. Benji had made the following gifts during his lifetime
Module leader – Shahrukh Irfan
irfans3@lsbu.ac.uk
(1)
On 12 August 2015 Benji made a gift of £14,000 to his old school friend who was unwell and Needed medical treatment.
(2)
On 14 December 2015 Benji made a cash gift of £600,000 to a trust. Benji decided to pay the inheritance tax arising from his gift.
(3)
On 5 May 2018 Benji made a series of gifts of £200 to each of 12 players in his local football team after they won a trophy and £400 to the manager of the team.
(4)
On 2 September 2018, Benji made a gift of £40,000 to his niece as a wedding gift when she got married.
At the date of his death Benji owned the following assets:
•
18,000 shares in BCX plc. The shares were quoted at £3.64 – £3.76 on 10 February 2019, with bargains marked at £3.64, £3.67 and £3.68 on that day.
•
His beachside apartment in Scarborough valued at £360,000.
•
Bank deposit and saving accounts of £423,500.
Benji’s funeral expenses amounted to £7,800.
Under the terms of his will Benji left £450,000 to his wife, with the residue of his estate to his daughter.
REQUIRED:
Calculate the inheritance tax that will be payable in his lifetime and as a result of Benji’s death and state by when the personal representatives must pay the inheritance tax due on Benji’s estate.
IHT 4
During his lifetime, Paul made the following gifts:
30.10.2011
30.09.2016
£190,000 to a discretionary trust. (Trustees to pay tax)
£140,000 to his friend Sarah.
30.08.2019
£205,000 to a discretionary trust. (Trustees to pay tax)
30.11.2019
£240,000 to a discretionary trust. (Paul paid tax)
Paul died on 28th July 2020
REQUIRED
Calculate the IHT payable in respect of these lifetime gifts.
IHT 5
Sidney died on 12 December 2020. His wife Joan had died 16 February 2014. Joan had made PET’s and CLT’s of £80,000 in the 7 years prior to 16.2.14. Her taxable estate at death was £82,500.
Module leader – Shahrukh Irfan
irfans3@lsbu.ac.uk
REQUIRED
What Nil Rate Band is applicable to Sidney’s estate at his death on 12.12.20?
IHT 6
Paul made a gift of 8,000 shares in Roots PLC to Graham on 15 August 2020. The shares are quoted at £1.20 – £1.28, with bargains marked at £1.22, £1.25 and £1.26 on that day.
REQUIRED
Calculate the value of this gift for IHT purposes.
IHT 7
Laura dies on 17 January 2021 leaving an estate of £825,000. She had made no gifts during her lifetime. In her will, Laura leaves £100,000 to the Retired Ladies Tennis Players Federation (a
registered charity).
REQUIRED
Calculate the IHT arising on Laura’s death.
IHT 8
Ken owns 8,000 shares (an 80% holding) in Swindon Ltd (an unquoted company). On 15 March 2021 he gifted a 25% holding in the company to his daughter Mary.
The values of shareholdings in Swindon Ltd were as follows at 15 March 2021:
Holding
Value per share
Up to 25%
26% – 50%
51% to 74%
75% or more
£8 per share
£11 per share
£17 per share
£22 per share
REQUIRED
Calculate the value of the gift for IHT purposes
IHT 9
Victoria died on 31 August 2020.
On 31 July 2016 Victoria made a gift of a 12% holding (60,000 shares) in Jannel PLC (a quoted company) into a discretionary trust. Tim paid the IHT on the gift (his only lifetime gift).
Jannel shares were worth £9.20 each on 31 July 2016, and £8.30 each when Victoria died on 31
August 2020.
Module leader – Shahrukh Irfan
irfans3@lsbu.ac.uk
REQUIRED
Calculate the IHT liability on the lifetime transfer and the effects on the death estate computation of Victoria.
IHT 10
Alex died on 30 September 2020 leaving an estate valued at £930,000. She had made no chargeable transfers in lifetime.
In her will, Alex left £60,000 to a registered charity, £300,000 to her husband £210,000 to her sister Petra, and the residue to her daughter.
REQUIRED
Calculate the IHT payable on Alex’s death.
IHT 11
Charlie was a wealthy client of yours. His estate was valued at £760,000 and he had made no lifetime gifts. His only lifetime gift was a gift to his sister of £80,000, 9 months before she died. Her will left the following gifts:
•
Cottage £250,000 to her son.
•
Legacy of £180,000 to her daughter.
•
Gift of £40,000 to a charity.
•
Residue to his wife.
REQUIRED
Calculate the IHT payable on Charlie’s estate.
Module leader – Shahrukh Irfan
irfans3@lsbu.ac.uk