Pg 51, 217

Part (a):

Approach 1:

If Ziti closes the business and sells the building and the equipment on 31 Jan 2024, following tax
implications will occur:

1. Holdover relief was claimed when the business assets were transferred in Ziti’s name. Holdover
relief becomes chargeable when either the business is sold, 10 years are completed, or business
use of the asset is ceased. Since the business will be ceased on 31 Jan 2024, previously claimed
holdover relief will become chargeable.
2. Considering the monthly profits to be 5,000, profit for the year end of 31 Jan 2024 will be:

Profit for the year end (5,000 * 9) 45,000

(Capital Allowance) (6,000)

Taxable profit for the year end 31 Jan 2024 39,000

Tax Payable 12570 * 0% 0

26430 * 20% 5286 (5,286)

Post tax proceeds from profit 33,714

A 100% capital allowance will be claimed on the purchase of business equipment for the
business. Capital allowance is an allowed expense from business profit and loss.

3. Goodwill Building Equip

Market Value 40,000 330,000 10,000
(Cost) 0 (60,000) (9,000)
Gain 40,000 270,000 1,000
Annual Exemption (12,300) 0 0
Taxable Gain 27,700 270,000 1,000
CGT @10% (1,127) (27,000) (100)
CGT @ 20% (3,286)

Post CGT Receipts 35,587 303,000 9,900

4. Business Asset Disposal relief will be available in respect of the sales of building and equipment.
Capital gains under BADR will be taxed at the rate of 10%.

Part (b):

Ziti’s father has made two gifts during his lifetime. First was a gift of quoted share to a trust on 1 May
2015. Second was of business to Ziti on 1 July 2019.

Gift of shares to trust fall under chargeable lifetime transfer. Since, 7 years have passed since the gift of
shares to trust, no death tax will be payable on the value of CLT to trust.
Gift of business falls under business property relief (100%) because of the following conditions:

1. Ziti’s father held the business for more than 2 years.

2. Business is unincorporated.

There was no lifetime tax on the gift of the business as it fell under business property relief. However,
when Ziti sells the business, BPR is reversed, and the business becomes chargeable for IHT. The gift of
business falls under potentially exempt transfer and hence no lifetime tax will be payable on the gift.
However, death tax will be payable if Ziti’s father dies within 7 years of business gift.

Calculation of death tax is given below:

Business Value (300000 + 40000 + 9000) 349,000

Annual Exemption 19/20 (3,000)

Annual Exemption 18/19 (3,000)

PET 343,000

If Ziti’s father dies between 2 Jun 2023 to 30 Jun 2026, Death tax of 40% will apply, however, taper relief
will be available based on the date of death of Ziti’s Father:

Death between 2 Jun 2023 to 30 Jun 2023 20%

Death between 1 July 2023 to 30 Jun 2024 40%

Death between 1 July 2024 to 30 Jun 2025 60%

Death between 1 July 2025 to 30 Jun 2026 80%

Calculation of death tax will be as follows:

PET 343,000

NRB

NRB 325000

(Last 7 year’s chargeable transfer) 0

Available NRB 325000 (325,000)

Chargeable Amount 18,000

Death Tax @ 40% 7,200

Taper relief (%age based on the date of death * Death tax) (xx)

Death tax payable xx

Part (c):
Investment in EIS:

There are two types of relief available when investing in EIS, income tax relief and capital gains tax
reinvestment relief.

Income tax relief is available on lower of income tax liability or 30% of investment in EIS.

Capital gains tax relief is available on lower of gain or reinvestment amount.

However, there are certain requirements for investment in EIS as mentioned below:

1. The maximum number of employees should be 250.

2. The maximum investment amount should be 1 million.
3. Maximum value of scheme should be 5 million.
4. The minimum holding period should be 3 years, otherwise both reliefs will get withdrawn.
5. The maximum value of the assets before scheme should be 15 million and after launch 16
million.
6. Holding period of 3 years.

Investment in VCT:

VCT invests 85% of the capital in EIS and SEIS. Only income tax relief is available. However, no capital
gains tax is charged on disposal.

Income tax relief is available at a lower of income tax liability or 30% of investment.

The maximum amount of investment per year in VCT is 200,000.

Dividends from VCT are exempt. However, there is a holding period of 5 years.