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Question 5a ii

Spike requires advice on the loss relief available following the cessation of his business and on the tax implications
of share options and a relocation payment provided by his new employer.

Spike:
– Ceased to trade and sold his unincorporated business to an unrelated individual on 30 September 2012.
– Sold his house, ‘Sea View’, on 1 March 2013 for £125,000 more than he had paid for it.
– Began working for Set Ltd on 1 May 2013.
– Has no income or capital gains other than the amounts referred to in the information below.

Spike’s unincorporated business:
– There are overlap profits from the commencement of the business of £8,300.
– The sale of the business resulted in net capital gains of £78,000.
– The tax adjusted profits/(loss) of the business have been:

£
Year ended 31 December 2008 Profit 52,500
Year ended 31 December 2009 Profit 68,000
Year ended 31 December 2010 Profit 54,000
Year ended 31 December 2011 Profit 22,500
Nine months ending 30 September 2012 Loss (13,500)

Remuneration from Set Ltd:
– Spike is being paid a salary of £65,000 per year.
– On 1 May 2013, Spike was granted an option to purchase ordinary shares in Set Ltd.
– On 1 July 2013, Set Ltd will pay Spike a relocation payment of £33,500.

The option to purchase ordinary shares in Set Ltd:
– Spike paid £3,500 for an option to purchase 7,000 ordinary shares, representing a 3·5% shareholding.
– The option is exercisable on 1 May 2017 at £4·00 per share.
– An ordinary share in Set Ltd was worth £5·00 on 1 May 2013 and is expected to be worth £8·00 on 1 May 2017.
– Set Ltd does not have any HM Revenue and Customs approved share option schemes.

The relocation payment of £33,500:
– Spike sold ‘Sea View’, and purchased a new house, in order to live near the premises of Set Ltd.
– £22,000 of the payment is to compensate Spike for having to sell his house at short notice at a low price.
– £11,500 of the payment is in respect of the costs incurred by Spike in relation to moving house.

Required:
(a) (ii) Explain the reliefs available in respect of the losses calculated in part (i) and quantify the potential tax savings for each of them. (10 marks)