Faculty of Business, Law and Politics
Level 6 Examination
Duration of Exam – 3 hours
Exam – Specific Rubric
Section A – Answer all THREE questions
Section B – Answer ONE question ONLY
ANSWER FOUR QUESTIONS IN TOTAL
The use of a simple hand-held calculator is permitted but you may not use a scientific calculator or a mobile phone.
Show all of your workings in full. Cross out any calculations which you do not wish to be marked.
You should answer all compulsory questions. If you do not attempt to answer a compulsory question you will receive a mark of 0 for that question.
If you have a choice of questions and you answer more than you are asked to, your answers will be marked in the order that the questions appear on the examination question paper. Any additional questions that you attempt will not be marked.
You should cross out any questions which you attempt but do not wish to be marked.
Do not open or turn over this exam paper, or start to write anything until told to by the Invigilator. Starting to write before permitted to do so may be seen as an attempt to use Unfair Means.
SECTION A – Answer all three questions
- Jackie is employed as a sales manager by The Hull Cookie Company Ltd (THCC). Her salary is £38,000 per annum. The following information is also relevant:
- THCC provided Jackie with a Ford Focus Petrol 5-door hatchback car which she used for private purposes as well as business. The list price is £18,600 and the CO2 emissions are 110g/km. Jackie had the use of this car for the whole of the tax year.
- Jackie drove 15,000 business miles during 2019-20. She paid for all of the fuel herself and the company reimbursed her for her business mileage at the rate of 35p for every mile.
- Jackie was a member of the company’s private health insurance scheme throughout the year. The premium which THCC paid for her for 2019-20 was £850.
- In January 2019 THCC made Jackie a loan of £25,000 to fund the deposit when she purchased her own home. THCC charges her 2% interest per annum and the official rate of interest is 2.5%.
- Calculate the total value of Jackie’s Benefits in Kind for 2019-20. Show your calculations in detail. 7 marks
- Calculate the amount which Jackie can deduct for tax purposes under the AMAP scheme. State the amount which Jackie has been over- or under-reimbursed by THCC. 3 marks
Total marks for part (a) 10
- Bill was born in 1930 and he is married to Brenda who was born in 1936. Bill and Brenda have been married for 60 years. Bill had the following income for 2019-20:
State pension £11,250
Private pension £8,000
Bank and building society interest £3,900
Brenda’s income consisted of the state pension only (£8,400 for 2019-20).
Prepare Bill’s income tax computation for 2019-20 and calculate his tax liability.
Marks for Q1(b) 15
Total marks for Question 1 25
Section A continues on the next page
Section A continued
Cottingham Trading Ltd has the following results for the four years ended 31st March:
31/03/2016 31/03/2017 31/03/2018 31/03/2019
£ £ £ £
(losses) 3,900 (20,500) (20,300) 5,100
Property income 4,200 5,300 6,800 7,400
Chargeable gains 3,600 – – 11,000
Capital losses – – – (6,000)
Gift Aid donations 1,000 1,000 1,000 1,000
- Assuming that all possible claims are made to relieve the trading losses against total profits, at the earliest possible time, calculate the company’s taxable total profits (TTP) for each of the four years. Using loss memoranda, clearly show how each of the losses for the years ended 31st March 2017 and 2018 has been relieved, identifying any amounts which remain unrelieved. State whether there are any unrelieved charitable donations.
- Explain the reforms to s45 of the Corporation Tax Act 2010 introduced by the Finance Act 2017 and comment on the advantages or disadvantages of the amendments to the rules for relief of corporate losses.
Total marks for Q2 25
Section A continues on the next page
Section A continued
Boris is a married man aged 56. He is semi-retired but still works part-time as an accountant. For the 2019-20 tax year his income from all sources (after deduction of personal allowances) was £31,000. He had unrelieved capital losses brought forward from earlier years of £15,000. During the tax year 2019-20 he made the following capital transactions:
- On 13th May 2019 Boris sold a buy-to-let house for £120,000, incurring agents’ and legal fees of £1,750. He acquired the house in 1992 for £45,000, and survey and legal fees cost £750. The house was “not fit for human habitation” and before it could be let to a tenant Boris spent £22,000 on a complete renovation (this expenditure qualifies as “enhancement expenditure”). This house was not his Principal Private Residence at any time.
- On 21st July 2019 Boris gave a valuable portrait (market value £130,000) to the National Portrait Gallery. He inherited this painting from his uncle in 2002, when its probate value was £75,000. There were no incidental costs of either disposal or acquisition.
- On 1st November 2019 Boris sold a second buy-to-let house to his brother Joe for £50,000. The market value of the house at that date was £95,000. Legal costs for the sale were £800. Boris inherited this house in 1987 from his grandmother (probate value £40,000, no incidental costs of acquisition). The house was not his Principal Private Residence at any time.
- On 12th December 2019 Boris sold an antique clock for £5,500 (no incidental costs of disposal). He had purchased the clock for £6,500 in 2017 from an antique shop (no incidental costs of acquisition).
- On 3rd April 2020 Boris sold 1,000 shares in XYZ plc for £9.50 each. Ignore incidental costs, which were minimal. He acquired his shareholding over a period of time as follows:
1st August 2019 acquired 1000 shares for £1 per share
15th March 2020 acquired 100 shares for £8 per share
3rd April 2020 acquired 600 shares for £9 per share
- Compute the chargeable capital gain or loss on each of the above transactions.
- Calculate Boris’s Capital Gains Tax liability for 2019-20 and state the due date for payment. Allocate the annual exemption and losses in the most advantageous way. 10 marks
Total for question 3 25 marks
This is the end of Section A
You should have answered all three questions
Section B starts on the next page
SECTION B – Answer one question from this section
“Taxes, like death, are unavoidable. But we can design our taxes. We are not bound to have a tax system as inefficient, complex, and unfair as our current one. To improve things, we need to see the system as a whole, we need to design the system with a clear understanding of the population and economy on which it operates, and we need to apply economic insights and evidence to the design. We also need a much more informed public debate and a much better set of political processes than the ones we currently have.”
Extract from the Introduction to Tax by Design (Mirlees, J. et al, Oxford University Press, 2011:20), more generally known as “The Mirlees Review”.
Critically evaluate the above statement. Comment on the factors which have resulted in the inefficiency, complexity and unfairness of the current system, and the criteria which are fundamental to a properly designed system of taxation. Support your arguments by reference to UK tax law, academic literature and theory, and any other sources which you consider to be relevant.
Section B continues on the next page
Section B continued
- Elton, aged 81, is considering his Inheritance Tax position. He estimates that if he were to die in the near future his assets would consist of the following:
House (the family home) 315,000
Interest in a business * 240,000
Cash in bank and building society accounts 80,000
National Savings & Investments – Premium Bonds 45,000
Equity based investments 195,000
Personal effects 15,000
*This is Elton’s own business and his interest in it satisfies all the conditions for Business Property Relief.
Elton’s civil partner Robert died on 31 March 2017. Robert’s estate was valued at £200,000 and in his will he left it all to his brother Jack. Robert had not made any chargeable lifetime transfers.
On 20 December 2013 Elton gave cash of £220,000 (net of all relevant exemptions) to his and Robert’s two legally adopted children. Elton has not made any other gifts which exceed the annual exemptions.
In his will Elton leaves £30,000 to a local museum (which is a registered charity) and everything else equally to the two children. An estimate of funeral expenses, professional fees and general creditors when Elton dies is £8,000.
- Calculate the Inheritance Tax payable if Elton dies on (i) 30 November 2020 and (ii) 31 December 2020. Note that the amount of the Residential Nil Rate Band for 2020-21 will be £175,000.
- Suggest ways in which Elton might reduce any IHT liability, both now and in the future. 5 marks
Marks for Q5.1 25 marks
END OF EXAMINATION PAPER