Taxable Gain Relief and Capital Gain Calculation for Max and Lucy

Proposed Capital Transactions

Case

Max and Lucy reduced their interest in business and also planned to concentrate on major passion in life, goal. They both falls under higher tax brackets. It is proposed that neither Max nor Lucy will make any other capital transactions during the year 2020-21. Accordingly, chargeable gain relief and capital gain tax payable are computed for year 2020-21.

Proposed capital transaction:

Max decided to gift his advertising business in August 2020, to his daughter. Max decided to sell building to her for 75,000 pounds. The cost value of building was 60,000 pound and value at August ,2020 was 1,50,000 pounds. Partial Relief of 15,000 pound shall be available to Max and taxable gain shall be 75,000.

The value of Goodwill at August ,2020 was 70,000 pounds. Full Relief of 70,000 pound shall be available to Max and taxable gain shall be 0.00. The gain involved in transfer shall be 70,000 pounds

No gain in case of transfer of plant of machinery as the value on August ,2020 is 5,000 pound which is less than the involved cost price which is 7,500 pounds. The same is disposed at loss.

Net current asset transfer is an exempt transfer no taxable gain and relief shall be available accordingly.

If Max decided to sell his 100% shareholding in a publishing company for value 2.5million pound in the month of September ,2020, the same is acquired for pound 2,00,000. The gain value shall be 2.3million pound. The tax value 230,000 which shall be an entrepreneur relief to Max.

Max proposes to sell his local shop for 2,70,000 pounds, acquired its freehold in year 2000 for 30,000 pounds. A new shop was acquired in Wentworth for 2,30,000 pound in December ,2019. The gain value shall be 2,40,000 and the tax value 24,000 which shall be an entrepreneur relief.

Market value of Lucy engineering business 130,000 pound and the cost price involved for same is 89,000 pounds. The gain value is pound 41,000.

Accordingly gain on goodwill value is 80,000 pounds.

Market value of plant and equipment 35,000 pound and the cost price involved for same is 20,000 pounds. The loss value is pound 15,000.

Accordingly total gain which arises 106,000

The tax involved (106,000*10%) =10,600 which is a taxpayer relief.

Max and Lucy jointly hold the house for a period of 336 months from 1^st June ,1992 to 31^st May ,2020.

Actual and deemed period of stay of Max and Lucy is computed below:

Analysis for Max's Shareholding in a Publishing Company

Sale value of the house pound 650,000. The cost value involved 43,000. Gain which arises from sell is 607,000. PPR relief shall be available on gain value which is total gain value /total period *(Actual+ Deemed period) =504,027 pound

Letting Relief available with respect to gain value:

 On the basis of above analysis, the taxable income from sale of house in Dirham

As the property was jointly hold, the gain shall be shared equally between Max and Lucy.

Kirsty father died on 19^th January ,2020 leaving behind a sizeable estate.

The value of gift after deduction of exemptions is as follows:

Transfer of family home valued at 700,000 will be entitled for an allowance of 175,000. Therefore (700,000-175,000) will be a taxable amount on family home transfer.

As per above analysis the total value of taxable estate is 14,86,000.00 after deduction of allowance of 20,000. The tax is charged at 40% on taxable estate. The tax value is 594,400.

As per above analysis the total tax which is due on Fred’s estate as a result of his death 594,400. Personal dealing with estate shall pay the involved requisite tax which is to be paid on date of transfer

Case

Mr W Payne has been in business and for same accounts are prepared each year to 30^th June. He holds shares in UK companies and is regular in receipt of dividend from such company. The final tax which is to be paid by Mr. W Payne for year 2020 and 2021 if relief under s64 is claimed or another alternative no relief is claimed under s64.

Option 1

If Relief U/S 64 is claimed

The estimated loss involved in year 2019 will be adjusted with same year income if any. Like in above case Mr W Payne estimate loss in year 2019 is adjusted with dividend income. The maximum personal allowance which is allowed for a year:

• 12,500 pounds
• Maximum net income value        

 Lower of the two

In year 2019, personal allowance 2000 is allowed as deduction to compute the taxable income and in year 2020, 12,500 is allowed as deduction from net income value.

Therefore non -saving income is taxable @20 % which excludes dividend value. In year 2019 the value is zero.

In year 2020 Non saving income = (taxable income -dividend value) *20% =4220

                       Tax on dividend aspect = (20000-2000) *5.7%=1026

Therefore, tax involved = (4220+1026)

=5,246, if relief under section 64 is claimed.

If relief is not claimed than loss of year 2019 will be adjusted in year 2020 income. The personal allowance maximum benefit can be taken for both years.

Therefore non -saving income is taxable @20 % which excludes dividend value. In year 2019 and 2020 the value is zero.

In year 2019 and 2020 Non saving income = (taxable income -dividend value) *20% =0

                 2019      Tax on dividend aspect = (12500-2000) *7.5%=787.5

                 2020      Tax on dividend aspect = (18100-2000) *7.5%=1207.5

Therefore, tax involved = (787.5+1207.5)

                                        =1,995, if relief under section 64 is not claimed.

Therefore, better is option 2 the tax involved is much less as compared to option 1. The difference involved = (5246-1995) = 3251.