UNIT TEST – 2: CAPITAL GAINS TAX
Max Marks: 50
Max Time: 2 hours
Question 1 - DAVID AND ANGELA BROOK
This scenario relates to one requirement.
David and Angela Brook are a married couple. They disposed of the following assets during the tax
year 2022/23:
Jointly owned property
On 30 September 2022 David and Angela sold a house for £381,900. The house had been purchased on
1 October 2002 for £86,000.
David and Angela occupied the house as their main residence from the date of purchase until 31 March
2006. The house was then unoccupied between 1 April 2006 and 31 December 2009 due to Angela
being required by her employer to work elsewhere in the United Kingdom.
From 1 January 2010 until 31 December 2016 David and Angela again occupied the house as their main
residence. The house was then unoccupied until it was sold on 30 September 2022.
Throughout the period 1 October 2002 to 30 September 2022 David and Angela did not have any other
main residence.
David Brook
On 5 May 2022 David transferred his entire shareholding of 20,000 £1 ordinary shares in Bend Ltd, an
unquoted trading company, to Angela. On that date the shares were valued at £64,000. David's
shareholding had been purchased on 21 June 2019 for £48,000.
Angela Brook
On 7 July 2022 Angela sold 15,000 of the 20,000 £1 ordinary shares in Bend Ltd that had been
transferred to her from David. The sale proceeds were £62,400.
Neither David nor Angela has ever worked for Bent Ltd.
On 15 October 2022 Angela disposed of a small business she had been running part time for many
years. The only chargeable asset in the business was a warehouse and this resulted in a gain of £3,700.
Angela has taxable income of £27,145 for the tax year 2022/23. David does not have any taxable
income.
Required:
Compute David and Angela's respective total capital gains tax liabilities for the tax year 2022/23.
Ignore any payments on account.
(10 marks)
Question 2 - BILL DING
This scenario relates to three requirements.
Bill Ding has run a construction company, High Rise Ltd since he purchased the entire shareholding for
£112,000 in 2003. He has worked for the company since purchase.
Bill has decided to retire and on 17 August 2022 Bill made a gift of his entire holding of High-Rise Ltd
shares to his daughter, Belle, who also works for the company. The market value of the shares on that
date was £260,000.
On 17 August 2022 the market value of High Rise Ltd's chargeable assets was £180,000, of which
£150,000 was in respect of chargeable business assets. Bill and his daughter have elected to hold over
the gain on this gift of a business asset.
Belle plans to sell the shares in High Rise Ltd on 31 March 2023, when they are expected to be worth
£265,000 in order to fund a new business venture.
Neither Bill nor Belle has made any previous disposals chargeable to capital gains tax, and both are
higher rate taxpayers.
Required:
(a) Calculate the gains arising and capital gains tax liabilities for Bill and Belle on the gift of High
Rise Ltd shares to Belle and the subsequent sale by Belle. Assume that Bill and Belle make a joint
claim for gift holdover relief, and state the due date for this claim. (5 marks)
(b) Recalculate the gains arising and capital gains tax liabilities for Bill and Belle, assuming a
joint claim for gift holdover relief is not made. (3 marks)
(c) Briefly conclude, including a calculation of the tax saving, on which route would be preferable
for Bill and Belle. (2 marks)
(Total: 10 marks)
Question 3 - JEROME
This scenario relates to two requirements. Jerome made the following gifts to family members during
the tax year 2022/23:
1. On 28 May 2022, Jerome made a gift of a house valued at £187,000 to his wife. Jerome's uncle
had originally purchased the house on 14 July 2001 for £45,900. The uncle died on 12 June
2010, and the house was inherited by Jerome. On that date, the house was valued at £112,800.
Jerome has never occupied the house as his main residence.
2. On 24 June 2022, Jerome made a gift of his entire 12% holding of 12,000 £1 ordinary shares in
Reward Ltd, an unquoted trading company, to his son. The market value of the shares on that
date was £98,400. The shares had been purchased on 15 March 2012 for £39,000. On 24 June
2022, the market value of Reward Ltd's chargeable assets was £540,000, of which £460,000
was in respect of chargeable business assets. Jerome and his son have elected to hold over the
gain on this gift of a business asset.
3. On 7 November 2022, Jerome made a gift of an antique bracelet valued at £12,200 to his
granddaughter. The antique bracelet had been purchased on 1 September 2007 for £2,100.
4. On 29 January 2023, Jerome made a gift of nine acres of land valued at £78,400 to his brother.
He had originally purchased ten acres of land on 3 November 2011 for £37,800. The market
value of the unsold acre of land as at 29 January 2023 was £33,600. The land has never been
used for business purposes.
Required:
(a) Calculate Jerome's chargeable gains for the tax year 2022/23.
marks)
(7
Note: You should ignore inheritance tax.
(b) For each of the four recipients of assets 1 to 4 gifted from Jerome, state their respective base
cost for capital gains tax purposes.
(3 marks)
(Total:
marks)
10
Question 4 - GINGER AND NIGEL
You should assume that today's date is 1 March 2023.
(a) This scenario relates to one requirement.
Ginger has a holding of 10,000 £1 ordinary shares in Nutmeg Ltd, an unquoted trading company, which
she had purchased on 13 February 2013 for £2.39 per share. The current value of the shares as agreed
with HM Revenue and Customs is £6.40 per share, but Ginger intends to sell some of the holding to her
daughter at £4.00 per share during March 2023. Ginger and her daughter will elect to hold over any
gain as a gift of a business asset.
For the tax year 2022/23, Ginger will not make any other disposals, and has therefore not utilised her
annual exempt amount.
Required:
Explain how many £1 ordinary shares in Nutmeg Ltd Ginger can sell to her daughter for £4.00
per share during March 2023 without incurring any capital gains tax liability for the tax year
2022/23.
Your answer should be supported by appropriate calculations.
(4 marks)
(b) This scenario relates to one requirement.
Innocent and Nigel, a married couple, both have shareholdings in Cinnamon Ltd, an unquoted trading
company with a share capital of 100,000 £1 ordinary shares.
Innocent has been the managing director of Cinnamon Ltd since the company's incorporation on 1 July
2013, and she currently holds 20,000 shares (with matching voting rights) in the company. These shares
were subscribed for on 1 July 2013 at their par value. Nigel has never been an employee or a director
of Cinnamon Ltd, and he currently holds 3,000 shares (with matching voting rights) in the company.
These shares were purchased from an existing shareholder on 23 April 2017 for £46,200.
Either Innocent or Nigel will sell 2,000 of their shares in Cinnamon Ltd during March 2023 for £65,000,
but they are not sure which of them should make the disposal. For the tax year 2022/23, both Innocent
and Nigel have already made disposals which will fully utilise their annual exempt amounts, and they
will each have taxable income of £80,000.
Required:
Calculate the capital gains tax saving if the disposal of 2,000 shares in Cinnamon Ltd during
March 2023 is made by Innocent rather than Nigel.
(6 marks)
(Total:
marks)
10
Question 5 - MICK STONE
This scenario relates to two requirements.
Mick Stone disposed of the following assets during the tax year 2022/23:
1.
On 19 May 2022, Mick sold a freehold warehouse for £522,000. The warehouse was purchased
on 6 August 2009 for £258,000. In January 2015, the floor of the warehouse was damaged by
flooding and had to be replaced at a cost of £63,000. The warehouse was sold because it was
surplus to the business's requirements as a result of Mick purchasing a newly built warehouse
during 2021. Both warehouses have always been used for business purposes in a wholesale
business run by Mick as a sole trader.
2. On 24 September 2022, Mick sold 700,000 £1 ordinary shares in Rolling Ltd, an unquoted
trading company, for £3,675,000. He had originally purchased 500,000 shares in Rolling Ltd
on 2 June 2013 for £960,000. On 1 December 2018, Rolling Ltd made a 3 for 2 bonus issue.
Mick has been a director of Rolling Ltd since 1 January 2013.
Required:
(a) Assuming that no reliefs are available, calculate the chargeable gain arising from each of Mick
Stone's asset disposals during the tax year 2022/23.
You are not required to calculate the taxable gains or the amount of tax payable.
marks)
(4
(b) State which capital gains tax reliefs might be available to Mick Stone in respect of each of his
disposals during the tax year 2022/23, and what further information you would require in order
to establish if the reliefs are actually available and to establish any restrictions as regards the
amount of relief.
For this part of the question you are not expected to perform any calculations.
(6 marks)
(Total:
marks)
10