Question 3

You are the tax advisor for Major Ltd a UK trading company that owns shares in Venus Ltd. The board of directors require advice in respect of the proposed sale of Venus Ltd shares and also on the personal tax matters of an employee, Ashok Patel.

Venus Ltd Shares

Venus Ltd is a manufacturing company but also earns 15% of its income from renting investment properties. Initially Major Ltd acquired a 15% shareholding in Venus Ltd on 1 July 2010 for 90,000. On 1 December 2015 Major Ltd sold a 10% shareholding and kept the remaining 5% holding. An unconnected company has recently offered Major Ltd 80,000 for the remaining 5% holding if the sale goes ahead on 31 May 2020.

The directors of Major Ltd are of the opinion that if the sale is delayed until 31 December 2020 the shares may be worth as much as 100,000. They require advice on the matters they need to consider in deciding which of the two dates is more financially beneficial.

Employee Tax Matters

Ashok Patel moved to the UK in May 2009 joining the company on a full time contract of employment. He was born in the country of Zakistan and has retained his domicile there.

Ashoks annual salary in the UK is 80,000 and he makes gains on UK shares of 20,000 each year. Ashok earns 60,000 (gross) dividend income in Zakistan and remits only 2,000 (gross) each year to the UK.

On 31 March 2020 Ashok sold a residential property in Zakistan for 300,000. The property cost 60,000. He remits only 100,000 of the proceeds to the UK.

There is no capital gains tax in Zakistan and income tax is charged at a flat 30% rate. There is no double tax treaty between the UK and Zakistan.

(In answering this question you may ignore indexation allowances on the share costs).

You are required to:

Write a memorandum to the board of directors addressing the following matters:

a) Consideration of the substantial shareholding exemption and its relevance when considering the best date for the disposal of the remaining 5% shareholding in Venus Ltd. (maximum word count 260 words)

(13 marks)

b) Prepare calculations to help Ashok decide whether he should make a remittance basis claim for the tax year 2019/20.

(10 marks)

There will be marks allocated for the presentation and style of your response.

(2 marks)

UK tax law