PG 48,

Part (a):

Sale Of Simpson’s Building

Disposal Proceeds 140,000

(Cost) Cost to A Ltd (75000)

Indexation Allowance (75000 * 0.162) - Note 1 (12150)

Chargeable Gain 52850

(Corporation Tax @ 19%) (10041)

Dividend paid to A Ltd 140000 - 10041 129959

Sale Of Shares in A Ltd:

Disposal Proceeds 250000

Total Cash Available for Gail 379959

Part (b):

Payment by Bonus:

Bonus is a cash benefit and hence class 1 employee NIC, class 1 employer NIC and income tax will be
paid on the bonus amount.

Bonus 379959

Class 1 Employee NIC (379959 * 3.25%) (12349)

Class 1 Employer NIC (379959 * 15.05%) (57184)

Corporate tax saving (57184 * 19%) 10865

Income Tax Liability (379959 * 45%) (170981)

Post tax cash receipt 150310

Gail is an additional rate taxpayer and hence all of the nil rate band, basic rate band and higher rate band
have been utilized for income tax and NIC purpose.

Payment By Dividend:

Dividend 379959

Income tax liability (2000 * 0%) 0

 (377959 * 39.35%) (148727)

Post Tax payment Cash Receipt 231232

Part (d)(i):

1. Lifetime gifts to individuals come under Potentially exempt transfers and are not chargeable
during lifetime.
2. If the donor dies 3 years after the time of lifetime gift, taper relief is available which reduces the
death tax on lifetime gift.
3. If the donor dies 7 years after the date of lifetime gift, it gets fully exempt from death tax.
4. There in annual exempt amount of 3000 per year for gifts falling under IHT. This annual exempt
amount will reduce the amount of chargeable transfer.
5. The value of gift gets locked at the time of gift. Future tax such as death tax will be at the locked
value.
6. If there is a decrease in value, fall in value relief is available.
7. Small gift exemption is available upto the gift value of 250 per donne per year

Part (d)(ii):

Brad and his wife have a total shareholding of 7,500 shares amounting to 75% holding of Omnium Ltd
since both brad and his wife are related parties.

Value of Brad’s shareholding before gift (3000 * 290) 870,000

Value of Brad’s shareholding after gift (1500 * 240) (360,000)

Value Of gift 510,000

Annual Exemption (2 years) (6,000)

PET 504,000

The value of reduction in Brad’s estate is 735,000.

Omnium is an unquoted business and qualifies for business property relief as follows:

1. Unquoted business property

2. Brad has owned the shares for more than 2 years
3. The donne should hold the business until the donor’s death.
4. In changing business scenario, the donne should 2 out of 5 years in business.

If BPR applies and holding conditions are satisfied by both donor and donne, no lifetime tax or death tax
will be payable on the amount of BPR.

If Gail sells the shares of Omnium Ltd, the total amount of gift will become chargeable as there were no
BPR in first place. Furthermore, if Brad dies within 3 years of gift date, whole of the PET amount will get
chargeable at 40%. However, if brad dies within 3 to 7 years of gift, the death tax will be reduced by
taper relief and will get exempt if Brad dies after 7 years.