Monday 1 June 2009
Section A – BOTH questions are compulsory and MUST be attempted
1 An extract from an e-mail from your manager is set out below.
I attach a letter from Frank Coltrane who is about to sell the unincorporated business (known as ‘Alto’) that he has
owned and operated since 2002. I would like you to prepare notes on the tax issues raised by Frank for me to use
at a meeting we are going to have later this week. I set out below some thoughts I have had which you should refer
to when preparing your notes.
(i) Capital gains tax
I have calculated that Frank’s capital gains on the sale of the unincorporated business will be £420,000 and
I’d like you to assume that the Tenor plc shares will be sold for £1,400,000 on 31 July 2012. Because the
sale of Alto will be Frank’s only chance to get entrepreneurs’ relief we have agreed that he will disclaim
incorporation relief so please prepare your calculations on this basis. By the way, Frank has capital losses
brought forward as at 6 April 2009 of £155,000.
Frank may be willing to gift some shares in Tenor plc to his wife prior to both of them selling their shares on
31 July 2012. Please include a summary of all of the tax implications of such a gift and the maximum potential
tax saving. Both Frank and his wife are resident, ordinarily resident and domiciled in the UK.
(ii) Corporation tax
Keep your comments brief and specific to Soprano Ltd. Soprano Ltd has trading losses brought forward as at
1 August 2008 of £65,000. I have reviewed the consolidated financial statements of Tenor plc and can confirm
that the group is large for all aspects of corporation tax.
(iii) Value added tax (VAT)
Don’t forget that the supply of baby clothes is zero rated.
Please keep your notes brief and clear so that I can find my way around them during the meeting.