(ACC3009/LAC3009) Question 6 You are a Chartered Accountant working in the personal tax department of a medium sized firm. You have been asked to provide tax planning advice on two unconnected proposed capital transactions. Assume that today is 1 November 2020 and the transactions detailed below have not yet taken place. (1) Sale of shares In Halliday Limited Gordon acquired 15% of the equity shares in Halliday Limited, an unquoted trading company on 1 January 2018 for 15,000. On 1 March 2019, Gordon left his former employment and became a full-time working director of Halliday Limited for an annual salary of 100,000 per year. Halliday Limited has become very successful and as a result Gordon has received two separate offers to buy his 15,000 shares: Offer 1: Sale of shares on 31 December 2020 at 30 per share Offer 2: Sale of shares on 31 March 2021 at 27.50 per share Following the share sale Gordon will resign as a director of Halliday Ltd. He plans to use the net proceeds to go travelling and would like to maximise his after-tax proceeds to fund his travels. Gordon's only other capital disposal in 2020/21 is the sale of a residential property realising a gain of 20,000. [Question 6 continued over the page] [Page 29 of 31] [ACC3009/LAC3009] (ACC3009/LAC3009] [Question 6 continued] (2) Sale of residential property Leanne inherited a house from her father in December 2017 when it was valued at 570,000. The house has been empty since then. Leanne intends to sell the property in February 2021 to an unconnected third party for 630,000 (net of selling expenses). Following the sale, Leanne plans to use the after- tax proceeds to set up a partnership business with her husband Daniel. Leanne's friend has mentioned that it may be beneficial to transfer a half share of the property to Daniel prior to the sale in February 2021. Leanne requires your advice on the tax consequences of doing so. Neither Leanne nor Daniel have made any other chargeable disposals in the year. Leanne and Daniel are expected to have taxable income of 90,000 and 15,000 respectively in 2020/21. Requirements: (a) Advise Gordon, which of the two offers for the Halliday Limited shares will produce the highest after-tax proceeds. Where applicable explain the availability of any reliefs or exemptions. (5 marks) (b) Explain to Leanne the tax consequences of gifting one- half of the property to Daniel prior to the third-party sale of the house in February 2021. Your answer should include a calculation of the net cash saving to the couple. (5 marks) [Total: 10 marks] [Page 30 of 31) [ACC3009/LAC3009] Question 7 (ACC3009/LAC3009) Question 6 You are a Chartered Accountant working in the personal tax department of a medium sized firm. You have been asked to provide tax planning advice on two unconnected proposed capital transactions. Assume that today is 1 November 2020 and the transactions detailed below have not yet taken place. (1) Sale of shares In Halliday Limited Gordon acquired 15% of the equity shares in Halliday Limited, an unquoted trading company on 1 January 2018 for 15,000. On 1 March 2019, Gordon left his former employment and became a full-time working director of Halliday Limited for an annual salary of 100,000 per year. Halliday Limited has become very successful and as a result Gordon has received two separate offers to buy his 15,000 shares: Offer 1: Sale of shares on 31 December 2020 at 30 per share Offer 2: Sale of shares on 31 March 2021 at 27.50 per share Following the share sale Gordon will resign as a director of Halliday Ltd. He plans to use the net proceeds to go travelling and would like to maximise his after-tax proceeds to fund his travels. Gordon's only other capital disposal in 2020/21 is the sale of a residential property realising a gain of 20,000. [Question 6 continued over the page] [Page 29 of 31] [ACC3009/LAC3009] (ACC3009/LAC3009] [Question 6 continued] (2) Sale of residential property Leanne inherited a house from her father in December 2017 when it was valued at 570,000. The house has been empty since then. Leanne intends to sell the property in February 2021 to an unconnected third party for 630,000 (net of selling expenses). Following the sale, Leanne plans to use the after- tax proceeds to set up a partnership business with her husband Daniel. Leanne's friend has mentioned that it may be beneficial to transfer a half share of the property to Daniel prior to the sale in February 2021. Leanne requires your advice on the tax consequences of doing so. Neither Leanne nor Daniel have made any other chargeable disposals in the year. Leanne and Daniel are expected to have taxable income of 90,000 and 15,000 respectively in 2020/21. Requirements: (a) Advise Gordon, which of the two offers for the Halliday Limited shares will produce the highest after-tax proceeds. Where applicable explain the availability of any reliefs or exemptions. (5 marks) (b) Explain to Leanne the tax consequences of gifting one- half of the property to Daniel prior to the third-party sale of the house in February 2021. Your answer should include a calculation of the net cash saving to the couple. (5 marks) [Total: 10 marks] [Page 30 of 31) [ACC3009/LAC3009] Question 7
