5/24/22, 11:31 PM

Question Number 1: Jeg Limited Group

Memorandum

To, Tax Files

From, Tax Senior

Client: Jeg Limited Group

Date: 1 September 2021

Subject: Group tax planning matters

(a) Becoming tax advisers to the Jeg Ltd group of companies

Our firm should consider about legal existence of Jeg Limited group. We should obtain information about
proof of existence of companies within group, addresses of there registered head offices and detail of their
business activities.

Futher information about people who control Jeg Limited group will also be obtained. Names and detail of
directors of the group and their residencies.

Information about group structure will also be obtained that what are the companies included in Jeg Limited
group and their residency status.

Our firm should take professional clearence from previous tax adviser of Jeg Limited group to gain detail
about there reason of termination and any ethical issues if they exist.

Further our firm should evaluate its competency to deal with Jeg Limited group. Our firm will be dealing for
the first time with a client having an overseas permenant establishment. We should make sure that we have
relevant competencies to do work of Jeg Limited group with due care.

(b) Relieving the chargeable gain on the sale of Kod Ltd’s business premises.  

Chargeable gain in relation to disposal of Kod Limited business premises can be deffered through Rollover
relief, as business premises are a qualifying asset for Rollover relief, because it is a Land and building used
in trade by Kod Limited. In order to defer gain it is necassary that reinvestment is made in any another
qualifying asset within qualifying period by Kod Limited itself OR by companies within its capital gains
group.

Qualifying assets for Rollover relief include Land and Building, Fixed Plant and Machinery and Goodwill.

Qualifying period for Rollover relief is one year before and 3 years after the disposal date. In case of Kod
Limited's disposal this qualifying period will be from 30 June 2020 to 30 June 2024. (Disposal date is 30
June 2021).

Companies within Capital Gains group of Kod Limited include Jeg Limited, Kod Limited, Lis Company and
Mot Limited. For Capital Gains group parent company must own atleast 75% direct holding and 50%
indirect holding. In case of Kod Limited, all the comapnies have a common parent company Jeg Limited
which owns their whole share capital. This satisfies requirement of 75% direct and 50% indirect holding.

Kod Limited itself has reinvested in Eight delievery vans on 1 August 2021. On this reinvestment rollover
relief will not be available as these are movable plant and machinery, on which rollover relief is not
available.

Jeg Limited reinvested in qualifying period in Fixed plant and machinery on 1 February 2021. This will
qualify for Rollover relief. Reinvestment amount is £290,000. This can defer part of the gain of Kod Limited
business premises as proceeds of business premises were £485,000.

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Lis Company has also invested in a building, but its reinvestment will not qualify for Rollover relief as it is a
non UK resident company and non UK resident companies cannot get capital gains group privilleges.

Only qualifying reinvestment is of Jeg Limited which is of £290,000 in Fixed Plant and Machinery.

Chargeable gain on sale of Business

£247,000
premises
Rollover relief (£52,000) Balancing Figure
Charegeable now is lower of:

Cash in hand: £485,000 - £290,000 =

Chargeable now £195,000
£195,000
Chargeable Gain = £247,000 

This gain is rollover against Fixed Plant and Machinery of Jeg Limited. As Plant and machinery qualify for
capital allowances therefore deferred gain will get chargeable on earlier of:

Disposal of Plant and machinery

Ceasation of business use
10 years since deferral

It is possible that if any other qualifying asset is purchased before crystalization of this gain, deferred gain
can be transferred against base cost of that asset.

(c) Taxation of profits generated overseas.

Lis Co

If Lis Company will charge inflated prices to Jeg limited for components it is selling, then it will come under
rules of transfer pricing. Lis Company is controlled by Jeg Limited as it owns 100% shares in Lis Company.
Charging a non arms length price will be subject to transfer pricing rules.

As Lis Company is resident in country of Silana with whom UK has no Double taxation treaty, therefore it
will be regarded as a company in non Qualifying teritory. 

Anti avoidance rule of transfer pricing will get applicable as Jeg Limited a UK resident company is
transacting with Lis Company, a company in non qualifying teritory.

As per Anti avoidance rule, tax department will convert the transaction to arms length transaction. This
means that if Lis company will do transaction at inflated prices, tax department will convert this transaction
to arms length and will reduce profits of Lis Company and increase profits of Jeg Limited.

Mot Ltd

As Mot Limited is a UK resident company, therefore profits earned by its permenant establishment in Puran
will be subject to normal UK corporation taxes. However any overseas tax paid will be relieved through
double taxation relief. Tax rate in Puran is 13%, whereas tax rate in UK is 19%. Mot Limited will face net
6% UK tax after adjustment of double taxation relief in UK.

If Mot Limited makes exemption election on its overseas permenant establishment of Puran, then there will
be no UK tax on its profits of overseas permenant establishment. This means that net 6% UK tax payable
currently in UK will get saved. However it needs to keep in mind, that if this exemption election is made
then there will be no UK loss relief on overseas permenant establishment losses if they arise. Further there
will be no UK capital allowance on overseas PE assets. This exemption election is irrevocable, which means
that it will apply forever. Lastly this exemption election will be applicable on overseas PE present today and
which will be formed in future.

(d) Value added tax (VAT)

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5/24/22, 11:31 PM

For Group VAT registration, companies under more than 50% share ownership can be included. In case of
Jeg Limited Group, Jeg Limtied owns whole of the share capital of Kod Limited, Lis Company and Mot
Limited. Another conditions is that company should be having its trade in UK OR its main office in UK.

Considering this, Group VAT registration will only be permitted for Jeg Limited and Kod Limited. Lis
Company is reident and doing business in Silana, it has no presence in UK. For Mot Limited, its main trade
is in Puran, so it will only be included in VAT Group registration if its main head office is in UK.

Potential disadvantage of registering as a group for VAT can be, that if any of the company within group
makes any error while submitting data for Group VAT return, then it can result in a penalty for the entire
group. They will be liable jointly for it.

If Jeg Limited will purchase components form Lis company then it will be regarded as an import done by
UK resident company as Jeg Limited is a UK resident Company whereas Lis company is an overseas
company. Jeg Limited has to pay VAT on components imported before there release from bounded
warehouse at port. However it can recover VAT paid later if it uses those components in taxable supplies.

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5/25/22, 9:38 PM

Question Number 2: Lucille

(a) Lucille’s financial position for the tax year 2021/22.

Lucille's post tax

£53,575 Working
income
Lucille's personal
(£57,600)
expenditure
Difference amount (£4,025)

Summary

Lucille has a defecit of £4,025 in her Cash earnings to pay her personal expenditure. This is happening
despite that her total taxable income is £141,130. Reason of this is a fact that her total taxable income also
includes non cash benefits. She has to pay personal expenditure from her cash earnings, whereas tax is
getting applicable on non cash earnings also. Greater tax is reducing her post tax cash earnings, which is
causing defecit while paying for personal expenditures.

Post Tax income

Lucille will only be able to pay her personal expenses from her Cash earnings. Car benefit, Accomodation
benefit and other non cash benefits, which also include shares of BKB Limited which are not a readily
convertable asset, cannot be used to pay personal expenses. However tax gets applicable on all earnings.

Cash earnings of Lucille (Salary and Dividend) =

£106,100
£87,800 + £18,300
Income tax (£46,890)
National Insurance contribution (£5,635)
Post tax amount £53,575

Income tax and NIC for Lucille

Income tax Non Saving Income Dividend

Employment Income
Salary £87,800
Non cash benefits £26,230
Share incentive of BKB Limited. Benefit amount is £23,200
£8,800
- £14,400
Dividend £18,300
Total Income £122,830 £18,300
Personal Allowance - Note  (£0) (£0)
Taxable income £122,830 £18,300

Income tax
Non Saving income = £122,830
£37,700 X 20% £7,540
(£122,830 - £37,700) X 40% £34,052
Dividend income = £18,300
£2,000 X 0% £0
(£18,300 - £2,000) X 32.5% £5,298
Total Income tax ££46,890

Note: Total income of Lucille is £122,830 + £18,300 = £141,130. Personal allowance will diminish to zero
as income exceeds £125,140.
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5/25/22, 9:38 PM

Lucille has to pay Class 1 Employee NIC on all cash benefits she is getting. Her Cash benefit from
employment only include Salary. On non cash benefits class 1 A Employer NIC is payable by Employer.

Class 1 Employee NIC

Cash Benefit = Salary = £87,800
£9,568 X 0% £0
(£50,270 - £9,568) X 12% £4,884
(£87,800 - £50,270) X 2% £751
Total £5,635

(b) Overseas income and gain on investment property

Lucille’s gain arising on the sale, on 1 February 2021, of her investment property in Tavara will not be
subject to UK CGT because she was non UK resident while she disposed this property. No UK CGT applies
on non UK residents on overseas disposals. Further as her period of stay was of more than 5 years therefore
rules of temproary absence will not apply on her.

Lucille’s rental income in respect of her home in Tavara will be subject to UK income tax in the tax year
2021/22, because she will be UK resident in the tax year 2021/22.

Lucille’s rental income in respect of her home in Tavara will be subject to UK income tax in the tax year
2021/22, on arising basis because she is a UK resident and UK deemed domicile holder. Lucille do not have
domicile of choice in UK, but she will be regarded as deemed UK domicile holder because

She had domicile of origin of UK

She was born in UK
And she will be UK resident in the tax year 2021/22.

Considering that Lucille is UK resident and deemed domicile holder, she will not be able to opt remittance
basis.

Her unremitted amount in Tavara will be £800 per month X 12 months = £9,600. As this un remitted amount
is more than £2,000 therefore automatic remittance basis will not be available to her.

Considering non availability of remittance basis, Tavara will be subject to UK tax on arising basis on her
overseas rental income. UK tax will be payable even she donot remit the amount to UK.

(c) Trust to be created for the benefit of Lucille’s nieces

CGT Gift relief will be available on gift of shares to trust, because gift to trust is a transaction immediately
chargeable to IHT because it is a CLT. On transactions immediately chargeable to IHT CGT gift relief is
always available.

Conditions which need to be satisfied for Business property relief in relation to gift of quoted shares by
Lucille to trust include:

Lucille must have ownership of shares for atleast 2 years

Those quoted companies should be doing trading activity. If they will own excepted assets such as
investment in shares or Land and building then BPR will not be available on that portion
Lucille must control those quoted companies, which means atleast own 50% plus shares
If Lucille is disposing shares and acquiring new shares then holding period of relevant qualifying
shares should be atleast 2 years in last 5 years.

If all the conditions are satisfied then Lucille will be able to get 50% Business property relief. Value of
transfer will get reduced by 50% amount.

Gift to Trust on 1 December 2021. Fiscal year will be 2021/22

Value of transfer after annual exemption OR Chargeable £394,000 Given in Email from manager
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5/25/22, 9:38 PM

Life time transfer

Nil Rate Band of 2021/22 £325,000

No other lifetime gifts made by
Last 7 years Chargeable transfers (£0)
Lucille
Available NRB £325,000

Lifetime tax
£325,000 X 0% £0
Donor / Lucille is paying
(£394,000 - £325,000) X 25% £17,250
lifetime tax
Total Lifetime tax £17,250

Gross Chargeable Lifetime transfer £411,250 £394,000 + £17,250

Lucille will die on 30 September 2027. Fiscal year will be 2027/28

Chargeable Lifetime transfer of 1 December 2021 will get Gross CLT gets subject to death
£411,250
chargeable for death tax as it lies in last 7 years of death. tax

Death year NRB - 2027/28 £325,000

Last 7 years chargeable transfers (£0) No other gifts made by Lucille
Available NRB £325,000

Death Tax
£325,000 X 0% £0
(£411,250 - £325,000) X 40% £34,500
Total £34,500
Taper Relief will be 60% as gap between gift and death is 5 to 6
(£20,700) £34,500 X 60%
years (December 2021 to September 2027)
Tax already paid (£17,250)
Death Tax £0 No refund is given.

Since death tax is reduced to zero, therfore total IHT payable in respect of this gift will be lifetime tax of
£17,250.

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5/25/22, 11:52 PM

Question Number 3: Sabin and Patan Limited

(a) Calculate, with supporting explanations, the income tax saving for Sabin if he claims terminal loss relief
ONLY for the trading losses arising in his final two trading periods

Sabin ceased to trade on 31 December 2020. Her last period of trading is of six months. As it is of less than
12 months therefore terminal loss needs to be composed. Terminal loss is loss of last 12 months of business.

Terminal Loss composition

1.4.2020 (start of fiscal year) to 31 December
Loss in last fiscal year
2020 (ceasation of business) - 9 months
Six months period to 31 December 2020 1.7.2020 to 31.12.2020 - 6 months  £23,000
1.4.2020 to 30.6.2020 - 3 months - £4,000/12 X
Three months from previous accounting year £1,000
3
Borrow from previous fiscal year - 3 months 1.1.2020 to 31.3.2020 - 3 months
1.1.2020 to 31.3.2020 - 3 months - £4,000/12 X
Second last accounting period £1,000
3
Loss for 12 months £25,000
Overlapping profit £7,800
Terminal Loss £32,800

Last period of trading is of six months ending 31 December 2020. It lies in fiscal year of 2020/21. Second
last accounting year ends on 30 June 2020. It also lies in fiscal year of 2020/21. This means that last
accounting period will be merged with second last accounting period and will be assesed in fiscal year of
2020/21.

Period ended 31
Year ended 30 June Year ended 30 June Year ended 30 June
December 2020 - 18
2017 - 2017/18 2018 - 2018/19 2019 - 2019/20
months - 2020/21
Trading Profits £44,000 £32,000 £21,000 0 (Loss)
Employment income £6,000 £6,000 £6,000 £6,000 (Note)
Total income £50,000 £38,000 £27,000 £6,000
Terminal Loss relief (£11,800) (£21,000)
Revised Total
£50,000 £26,200 £6,000
Income
(£6,000) - PA wasted
Personal Allowance (£12,570) (£12,570)
6,570

Terminal loss of £32,800 will be relieved against TRADING INCOME of last 36 months on Last in First out
basis. 

Loss will be relieved against 2019/20 Trading income of 21,000. Remaining loss of £32,800 - £21,000 =
£11,800 will be relieved in 2018/19

Tax Benefit will be:

In 2019/20, loss claim was of £21,000. It will give saving at basic rate of tax of £21,000 X 20% = £4,200.
Personal allowance will get wasted as revised total income is £6,000 whereas personal allowance is £12,570.
Personal allowance will be wasted by £6,570. This will result in tax impact of £6,570 X 20% = £1,314. Net
benefit will be £4,200 - £1,314  = £2,886

In 2018/19, loss claim will be £11,800. It will give tax saving of £11,800 X 20% = £2,360. No wastage of
personal allowance as suffecient income exist after it. Sabin is a basic rate tax payer after consideration of
personal allowance.

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5/25/22, 11:52 PM

(b) Explain the capital gains tax (CGT) implications for Sabin arising from the sale of the business premises
and specialist machine to Patan Ltd, and calculate the amount available to Sabin from the sale of these assets,
after paying any CGT liability arising.

Business Premises
Disposal Proceed £114,000
Cost (£86,000)
Chargeable Gain £28,000
Annual Exemption (£0) Annual exemption is already used as per Scenario
Taxable Gain £28,000

Business Asset Disposal relief will be available on sale of

Business premises. It will reduce rate of CGT to 10%.
CGT - 10% X £28,000 £2,800 BADR is available because Sabin owned business for more
than 2 year and she is selling business premises within 3
years of ceasation of trade.

Proceed £114,000
Capital Gains Tax (£2,800)
Proceeds after CGT £111,200

Specialist Machine
Disposal Proceed £41,000
Cost (£49,000)
No Capital loss relief as it is an asset eligible for Capital
Capital loss (£8,000)
allowance asset. No CGT impact will be involved.

Proceeds  £41,000
Capital Gains Tax (£0)
Proceeds after CGT £41,000

(c) Explain the tax deductions and reliefs available to Patan Ltd in the year ending 31 March 2022 in respect
of (1) the acquisition of the new factory, and (2) the expenditure on research and development.

On purchase of Factory, Patan Limited will be able to claim Structure Building allowance as it is a new
building purchased. SBA will be available at rate of 3% per year. It will not be available on value of Land.
Value of amount eligible for SBA will be £142,000 - £56,000 = £86,000. SBA will be availble from the date
business use was started that is from 1 May 2021. In year ended 31 March 2022, SBA deduction will be
£86,000 X 3% X 11/12 months = £2,365.

Patan Limited will get 230% allowed expense on its qualifying research and development outflows. Salary
paid to its own employee will be completely eligible for R&D relief of 230% allowed expense. In relation to
subcontractor staff cost 65% cost will qualify for 230% allowed expense and rest will qualify for 100%
allowed expense.

Allowed Expense
Salary paid to Patan Limited emplotee £40,000 X 230% £92,000
£22,000 X 65% X 230% £32,890
Subcontractor staff cost
£22,000 X 35% X 100% £7,700
Total allowed expense £132,590

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5/25/22, 11:52 PM

This allowed expense will be deducted from Trading P&L of Patan Limited.

Patan Limited is expected to make a loss in year ended 31 March 2022. Patan Limited can surrender its loss
uptill maximum of 230% of qualifyig outflows and get a tax credit of 14.5%.

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5/27/22, 9:29 PM

Question Number 4: Caden and Amahle 

(a)(i) Explain, with supporting calculations, the capital loss which will arise on the proposed sale of the
antique chairs to Nathi and how this loss can be relieved.

Disposal Proceed = Market Disposal proceed will be Market value as transaction is with
£99,000
Value connected party, son. Disposal proceed is of 4 chairs.
Cost of six Caden received six chairs from his
£152,000
chairs mother at MV
Two chairs were already disposed by
Cost of 2 chairs
Cost of Four chairs (£104,711) (£47,289) Caden. £152,000 X £42,000 / (£42,000
already assesed
+ £93,000)
Base cost for 4
£104,711
chairs
Capital loss £5,711

As Capital loss is created on transaction with connected party, Son. This loss can only be relieved in future
transactions with Son only.

(a)(ii) Advise on the availability and effect of the instalment option for payment of Nathi’s inheritance tax
liability in respect of each of the investment property and the antique chairs, on the assumption that Caden
dies on 20 March 2026.

Instalment option will not be available for gift of antique chairs.

For investment property, instalment option will be available as it is a gift of Land and Building. Death tax on
Caden's death which will get due after six months of death on 30 September 2026, can be paid in 10 annual
equal instalments by Nathi. However it is necassary that Nathi donot sell the asset before paying all
instalments.

(b) Calculate Caden’s taxable income for the tax year 2021/22 on the basis that the personal services
company (IR35) legislation applies to the budgeted fee income receivable by Mandini Ltd in the year ending
31 March 2022.

Deemed Employment Income calculation

Income received from relevant engagement £65,000
Less: Actual Salary paid by Company (£18,000) £1,500 X 12 months
Less: Employer NIC on Actual salary (£1,264) (£18,000 - £8,840) X 13.8%
Less: 5% Statutory deduction (£3,250) £65,000 X 5%
Deemed Employment Income including
£42,486
Employer NIC
Class 1 Employer NIC on Deemed Salary (£5,152) £42,486 / 113.8% X 13.8%
Notional Salary £37,334

Taxable Income for Caden

Actual salary of Caden £18,000
Dividend will be ignored as income of Madini
Notional Salary of Caden £37,334
Limited is converted to notional salary
Total Employment Income £55,334
Personal Allowance (£12,570)
Taxable Income £42,764

(c) For the tax year 2021/22, advise Amahle why the interest receivable in respect of her bank account in the
country of Komor will be subject to UK income tax and explain, with supporting calculations, why this will
not actually result in any UK tax payable.
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5/27/22, 9:29 PM

Amahle is a UK resident individual, therefore she has to pay UK income tax on her worldwide incomes. Her
interest income of £150,000 X 5% = £7,500 on deposit of Komur will be subject to UK income tax on
arising basis as she is a UK resident and UK domicile holder. 

Remittance basis will not be available as she is UK domicile holder. Automatic remittance basis is also not
available as unremitted amount is more than £2,000.

UK income tax will be charged irrespective of remittance to UK.

Amahle UK Income tax Non Saving Saving

Employment income £45,000 0
Interest income 0 £7,500
Total income £45,000 £7,500
Personal allowance (£12,570)
Taxable income £32,430 £7,500

Income tax
Non Saving Income
£32,430 X 20% £6,486
Saving Income
£1,000 X 0% £0
(£7,500 - £1,000) X 20% £1,300
Double Taxation relief (£1,300)
Total tax payable £6,486

Basic rate band will extend by gross personal pension contribution. Gross PPC = £3,000 / 80% X 100% =
£3,750.

Basic rate band will now be £37,700 + £3,750 = £41,450

Total taxable income is £32,430 + £7,500 = £39,930. As Basic rate band is now of £41,450, therefore
Amahle is a basic rate tax payer. She will get 0% band of £1,000.

Double taxation relief will be available on Interest income of Komur, as it is already taxed in Komur also.
Double taxation relief will be lower of:

UK Tax on overseas income: £0 + £1,300 = £1,300

Overseas tax: £7,500 X 18% = £1,350

UK tax on interest income of Komur has fallen to zero as it is covered through Double taxation relief.

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