May 2013 Examination
PAPER 1
Personal Taxation
TIME ALLOWED – 3 ¼ HOURS
(for Part I and Part II)
 You are required to answer all questions in each part (both parts printed together).
 The first 15 minutes is designated as reading time. During this time you may read your
question paper and legislation and annotate your question paper. You are not permitted
to write in the answer folders. The Presiding Officer will inform you when you can start
writing.
 You are provided with two answer folders (one for each part of the paper). You must
put your candidate number on the front cover of both folders.
 You must write your answers on the paper provided. Please start each answer on a
new sheet of paper and write on one side of the paper only. Put your candidate number
at the top of each page and make sure you place your answers in the correct answer
folder.
 All workings should be shown and made to the nearest month and pound unless the
question requires otherwise.
Part I
You must use the Part I answer folder.
1.
Ethel sold an antique mirror for £7,500, which she had bought the previous year for
£2,500.
Calculate Ethel’s capital gain on disposal.
2.
3.
(2)
Finance Act 2012 introduced the Seed Enterprise Investment Scheme.
1)
Explain the requirements for an individual to qualify for tax relief in respect
of a Seed Enterprise Investment Scheme investment.
(2)
2)
Outline the Income Tax and Capital Gains Tax reliefs available in 2012/13 in
respect of this type of investment.
(2)
The liability of an individual to UK Income Tax depends on where they are resident for
tax purposes.
Explain the extent to which an individual who is neither UK resident nor UK
ordinarily resident is liable to UK Income Tax.
(3)
4.
Explain which periods of absence from an individual’s only or main residence
may be eligible for principal private residence relief.
(4)
5.
Florence is 66 years old and has income from a cleaning job of £13,110 and bank
interest of £400 (net) in 2012/13.
Calculate Florence’s Income Tax liability for 2012/13.
Page 2 of 8
(3)
6.
State the dates by which a 2012/13 tax return must be submitted to HM Revenue
& Customs if the notice to submit a tax return was issued on:
1)
2)
7.
6 April 2013.
9 August 2013.
(2)
Anthea has filed her 2011/12 tax return and paid the balance of her Income Tax eight
months late.
Explain the penalties that Anthea will incur in respect of the late filing and late
payment.
(4)
8.
In 2012/13 Taylah’s total income consisted of £20,000 of UK earned income and
£4,000 (gross) of overseas interest, in respect of which overseas tax of £1,200 was
paid.
Calculate the Income Tax payable by Taylah on the basis that there is no double
tax treaty in place with the overseas country.
(4)
9.
Trevor is employed by Wrench Ltd as a plumber and in 2012/13 had employment
income of £40,000. He has recently also started a part time job in a shop earning
£15,000 per year.
Briefly explain the impact of the second job on Trevor’s liability to pay Class 1
National Insurance Contributions. (Calculations are not required.)
(3)
10.
Sam bought a set of antique cutlery for £40,000 and sold a part of it for £25,000 in
2012/13. The value of the remainder of the set at the time was £45,000. During
2012/13, Sam also sold an antique painting for £8,000 that she had bought for £30,000.
Calculate Sam’s capital gains for 2012/13 and identify any capital losses
available to carry forward.
(4)
11.
On 1 August 2012, Kaia gave 10,000 shares in Bubble plc to her son Andrew. She had
bought the shares in January 2004 for £2.50 per share.
On 1 August 2012, the shares were quoted at 335p – 339p, with marked bargains of
337p, 340p and 341p.
Calculate Kaia’s capital gain on the disposal.
Page 3 of 8
(4)
12.
In 2012/13, Henry sold the following holdings of company loan stock:
1)
£100,000 of loan stock in XY plc, 8% paid annually, cum-dividend of 56 days
interest.
2)
£100,000 of loan stock in MN plc, 7% paid annually, ex-dividend of 15 days
interest.
Explain the impact of the Accrued Income Scheme on these disposals and
calculate the adjustments. You should perform calculations on a daily basis,
rather than to the nearest month.
(3)
Turn the page over for the Part II questions.
Place your answers for Part II in the Part II answer folder.
Page 4 of 8
Part II
You must use the Part II answer folder.
Marks are specifically allocated for appropriate presentation.
1.
Ellis was employed by Grey Ltd as the company’s financial controller until
6 March 2013 when he was made redundant, with immediate effect. He received a
gross salary of £70,000 per annum from Grey Ltd from which PAYE of £25,000 was
deducted during 2012/13. In addition, Ellis also received the following benefits from
Grey Ltd up to the date he left the company:
1)
An award of £1,250 on 1 August 2012 made as part of the staff suggestion
scheme.
2)
An annual permit for the car park across the road from his office, which costs
Grey Ltd £568 per annum.
3)
Medical insurance which costs Grey Ltd £379 per annum.
4)
A 2000cc petrol engine company car with a list price of £32,500 and carbon
dioxide emissions of 190g/km. The car was made available for private use and
private fuel was provided.
5)
A round sum expense allowance of £685 per month.
During 2012/13 Ellis incurred a number of expenses as part of his job. He spent £1,750
on client entertaining, £475 entertaining his co-workers at Grey Ltd, £378 on
professional subscriptions, £2,679 on hotel bills incurred when undertaking a project
away from home and £2,100 on a work related training course.
In connection with his termination, Ellis received £3,450 statutory redundancy pay,
£1,600 in respect of accrued holiday which was not taken prior to his departure,
£15,000 as a payment in lieu of notice and an ex gratia payment of £14,000.
Ellis received interest from his ISA of £351 (gross) during 2012/13. He also received
bank interest of £460 (net). In addition, Ellis received dividends from his share portfolio
during 2012/13 of £3,600 (net). Ellis makes regular charitable donations through gift aid
of £75 (net) per month.
You are required to:
1)
Calculate the Income Tax payable by Ellis for 2012/13.
(15)
2)
Explain the qualifying conditions for statutory redundancy pay.
(3)
3)
Explain how statutory redundancy pay is calculated.
(2)
Total (20)
Page 5 of 8
2.
You are a tax technician at Lucas & Co and act for Friendlyco plc, a listed company.
One of the partners at Lucas & Co has received an email from Gabby Williams, the
new Human Resources manager at Friendlyco plc.
“Friendlyco plc has operated a Share Incentive Plan for a number of years. I am aware
that this is a tax favoured share scheme but have no idea of the detailed provisions or
how it operates in practice.
In addition, I have the following specific queries which have arisen in respect of three
employees who are leaving the company on 31 May 2013. I have set out the details
below:
1)
Jessica Brown has worked for Friendlyco plc for the past nine years and has
decided to leave the company to spend more time with her family. She was
awarded 2,000 free shares on 22 January 2010 when the market value of the
shares was £1.00 per share.
2)
Chase Hartley has worked for Friendlyco plc for the past three years and has
decided to pursue her career with a smaller company. She was awarded 1,500
free shares on 25 September 2011 when the market value of the shares was
£2.00 per share.
3)
Skye Young has worked for Friendlyco plc for the past 25 years and is due to
retire this month. Skye was awarded 1,200 free shares on 5 January 2012 when
the market value of the shares was £2.50 per share.
The current market value of Friendlyco plc shares is £3.00 per share, and is unlikely to
change in the near future. The rules of the Share Incentive Plan do not contain any
forfeiture provisions, so each of the individuals will be entitled to their shares when they
leave. Please let me know what the tax implications are for each of the above leavers.”
Your partner has forwarded Gabby’s email to you.
You are required to:
1)
Explain the key features of a Share Incentive Plan. You should include
details of how a Share Incentive Plan operates and the types of awards
which can be made by a company operating this type of share scheme. (6)
2)
Explain and calculate the amounts, if any, subject to Income Tax for
Jessica Brown, Chase Hartley and Skye Young.
(4)
Total (10)
Page 6 of 8
3.
Sarah Lund, aged 34, inherited 10,000 £1 Ordinary shares in Brix plc from her mother
on her death in 2004. The shares were valued at that time at £1.20 each. Sarah bought
5,000 more shares in April 2005 for a total cost of £7,500, including £500 dealing costs,
and in June 2006 there was a 1 for 4 rights issue at £2 per share in which she fully
participated.
In July 2012 there was a further 1 for 2 rights issue at £9 per share at a time when the
Brix plc shares were worth £12 each. On this occasion she decided not to take up the
rights issue but sold her entitlement to a friend for £20,000.
Sarah paid the proceeds from the sale of this entitlement into a US$ bank account with
an exchange rate of £1:US$1.6 being applied to the conversion. In January 2013 she
converted the US$ back into Sterling at an exchange rate of £1:US$1.4.
Sarah bought 2,500 £1 Ordinary shares in Zeuthen plc on 4 January 2012 for £5.20
each; she sold 2,000 of these shares to an unconnected party for £6.25 per share on
7 April 2012 before buying a further 4,000 shares in Zeuthen plc on 1 May 2012 for £7
per share.
Some years ago, Sarah subscribed for 100,000 £1 Ordinary shares in Borch Ltd at par.
In May 2012 Borch Ltd was acquired by Juncker plc as a result of which Sarah
received £200,000 cash and £300,000 of Juncker plc loan notes. The loan notes were
Qualifying Corporate Bonds and were treated as a paper for paper exchange. On
5 April 2013 Juncker plc redeemed £50,000 of Sarah’s loan notes.
Sarah’s only source of income in 2012/13 was her gross salary of £24,000.
Sarah has recently phoned and advised you that she plans to leave the UK for four
years and that during the tax year following her departure she will sell her remaining
shareholdings and redeem the balance of her loan notes.
You are required to:
1)
Calculate the Capital Gains Tax payable by Sarah for 2012/13.
(14)
2)
Explain the Capital Gains Tax implications if Sarah’s disposal of her
Zeuthen plc shares on 7 April 2012 had instead been to her sister.
(2)
3)
Write a short email to Sarah advising as to whether her plan to realise her
remaining assets whilst non-UK tax resident will avoid UK Capital Gains
Tax.
(4)
Total (20)
Page 7 of 8
4.
You have received the following email from one of your clients:
To:
From:
Date:
Subject:
Hattie Tee
Natasha Royal
8 May 2013
Leases
Dear Hattie
I wonder if you can help me as I’m getting a little confused about the Income Tax and
Capital Gains Tax implications of some possible property transactions.
As you know, I own a couple of properties on the South coast, Fariclose Mews and
Denas Cottage. I have no particular use for them right now and have been wondering
what to do with them for a while.
As luck would have it I have recently been approached by two separate individuals who
have made offers in relation to these properties.
Katie High is prepared to pay £120,000 to take on the remaining 25 years of the lease
over Fariclose Mews. You will remember that I acquired this lease about 10 years ago.
Coincidentally, Katie is offering me exactly the same price that I paid for it, so I am
assuming that this will give rise to neither a taxable gain nor an allowable loss but I’d be
grateful if you could confirm this.
I own the freehold of Denas Cottage and Mathilda Power has offered quite a lot of
money for me to grant a 60 year lease over the property to her. I’m a bit reluctant to
commit to a lease for such a long period and would prefer a shorter lease, perhaps 40
years. Mathilda may be willing to agree to a 40 year lease, but I’d really like to
understand the tax implications of these two options before I discuss it further with her.
I’m meeting with both Katie and Mathilda next month and so would appreciate your
advice.
Regards,
Natasha
You are required to write an email to Natasha in response, explaining the manner
in which the proposed transactions will be subject to tax. You are not required to
produce any calculations.
(10)
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