3 Wilson Biazma is resident and ordinarily resident in the United Kingdom for tax purposes. He disposed of the following
assets during the tax year 2007–08:
(1) On 21 April 2007 Wilson sold a freehold office building for £246,000. The office building had been purchased
on 3 January 1990 for £104,000. Wilson has made a claim to rollover the gain on the office building against
the replacement cost of a new freehold office building that was purchased on 14 January 2007 for £136,000.
Both office buildings have always been used entirely for business purposes in a wholesale business run by Wilson
as a sole trader. The indexation factor from January 1990 to April 1998 is 0·360 and from January 1990 to
April 2007 it is 0·700.
(2) On 26 May 2007 Wilson incorporated a retail business that he had run as a sole trader since 1 June 2005. The
market value of the business on 26 May 2007 was £200,000. All of the business assets were transferred to a
new limited company, with the consideration consisting of 140,000 £1 ordinary shares valued at £140,000 and
£60,000 in cash. The only chargeable asset of the business was goodwill and this was valued at £120,000 on
26 May 2007. The goodwill has a nil cost. Wilson took full advantage of the available incorporation relief.
(3) On 17 August 2007 Wilson made a gift of his entire holding of 10,000 £1 ordinary shares (a 100% holding)
in Gandua Ltd, an unquoted trading company, to his daughter. The market value of the shares on that date was
£160,000. The shares had been purchased on 8 January 2007 for £112,000. On 17 August 2007 the market
value of Gandua Ltd’s chargeable assets was £180,000, of which £150,000 was in respect of chargeable
business assets. Wilson and his daughter have elected to hold over the gain on this gift of a business asset.
(4) On 3 October 2007 an antique vase owned by Wilson was destroyed in a fire. The antique vase had been
purchased on 7 November 2005 for £49,000. Wilson received insurance proceeds of £68,000 on 20 December
2007 and on 22 December 2007 he paid £69,500 for a replacement antique vase. Wilson has made a claim
to defer the gain arising from the receipt of the insurance proceeds.
(5) On 9 March 2008 Wilson sold ten acres of land for £85,000. He had originally purchased twenty acres of land
on 29 June 1999 for £120,000. The market value of the unsold ten acres of land as at 9 March 2008 was
£65,000. The land has never been used for business purposes.
Required:
(a) Briefly explain when a person will be treated as resident or ordinarily resident in the United Kingdom for a
particular tax year and state how a person’s residence status establishes whether or not they are liable to
capital gains tax.
Note: you are not expected to explain the rules concerning people leaving or coming to the United Kingdom.
(4 marks)
(b) Calculate Wilson’s chargeable gains for the tax year 2007–08, clearly identifying the effects of the reliefs
claimed in respect of disposals (1) to (4). (16 marks)
(20 marks) 3 (a) (1) A person will be resident in the UK during a tax year if they are present in the UK for 183 days or more.
(2) A person will also be treated as resident if they visit the UK regularly, with visits averaging 91 days or more a tax year
over a period of four or more consecutive tax years.
(3) Ordinary residence is not precisely defined, but a person will normally be ordinarily resident in the UK if this is where
they habitually reside.
(4) A person is liable to capital gains tax (CGT) on the disposal of assets during any tax year in which they are either resident
or ordinarily resident in the UK.
(b) Wilson Biazma – Chargeable gains 2007–08
Gain Taper Tapered
% gain
£ £
Office building 104,560 75% 26,140
Goodwill 36,000 50% 18,000
Ordinary shares in Gandua Ltd 8,000 100% 8,000
Antique vase – – –
Land 17,000 70% 11,900
–––––––
Chargeable gains 64,040
––––––– 8J–UKAB
Paper F6UK
8J–UKAC
Paper F6UK
Office building
£
Disposal proceeds 246,000
Cost (104,000)
–––––––––
142,000
Indexation 104,000 x 0·360 (37,440)
–––––––––
104,560
–––––––––
(1) Rollover relief is not available because the amount not reinvested of £110,000 (246,000 – 136,000) is greater than
the capital gain of £104,560.
(2) The office building is a business asset and taper relief is based on nine complete years of ownership.
Goodwill
£
Disposal proceeds 120,000
Cost Nil
–––––––––
120,000
Rollover relief (120,000 – 36,000) (84,000)
–––––––––
36,000
–––––––––
(1) The proportion of the gain relating to the cash consideration cannot be rolled over, so £36,000 (120,000 x
60,000/200,000) of the gain is immediately chargeable to CGT.
(2) The goodwill is a business asset and taper relief is based on one complete year of ownership.
Ordinary shares in Gandua Ltd
£
Deemed proceeds 160,000
Cost (112,000)
–––––––––
48,000
Gift relief (40,000)
–––––––––
Chargeable gain 8,000
–––––––––
(1) Gift relief is restricted to £40,000 (48,000 x 150,000/180,000), being the proportion of chargeable assets to
chargeable business assets.
Antique vase
(1) The insurance proceeds of £68,000 received by Wilson have been fully reinvested in a replacement antique vase.
(2) The disposal is therefore on a no gain no loss basis, with the capital gain of £19,000 (insurance proceeds of £68,000
less original cost of £49,000) being set against the cost of the replacement antique vase.
Land
£
Disposal proceeds 85,000
Cost (68,000)
–––––––––
17,000
–––––––––
(1) The cost relating to the ten acres of land sold is £68,000 (120,000 x 85,000/150,000 (85,000 + 65,000)).
(2) The land is a non-business asset and taper relief is based on eight complete years of ownership. |
发表于 2008-10-11 14:39
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