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)