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Question 5b 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.

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 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:
(b) (ii) Explain the income tax implications for Spike of the relocation payment. (2 marks)

Notes:
1. You should assume that the tax rates and allowances for the tax year 2012/13 apply to all tax years.
2. Ignore national insurance contributions throughout this question.