Kesme and Soba, a married couple, require advice on Kesme’s taxable income and rent-a-room relief, the capital gain on a future sale of the family home, and the assets which will be received by Soba under Kesme’s will.
– Was born on 1 June 1940.
– Is UK resident and UK domiciled.
– Is married to Soba.
– Has not made any lifetime gifts for the purposes of inheritance tax.
– Is UK resident but non-UK domiciled.
– Has elected to be treated as UK domiciled for the purposes of inheritance tax.
Kesme’s income for the tax year 2013/14:
– State retirement pension of £7,900 (gross).
– A pension from a former employer of £24,100 (gross).
– Rental income in respect of furnished rooms in the family home.
– Interest in respect of 8% loan stock in Ramen plc.
Rental income in respect of furnished rooms in the family home:
– Kesme and Soba purchased the family home on 1 July 1990 and have lived there since that date.
– Three furnished rooms have been rented out to an individual tenant since 6 April 2013.
– The tenant does not share Kesme and Soba’s living accommodation or take meals with them.
– The three rooms represent 30% of the property.
– The annual rent is £14,400 and there are allowable expenses of £1,600 per year.
8% loan stock in Ramen plc:
– Kesme purchased £18,000 of 8% loan stock on 1 May 2007.
– Interest is payable on 31 May and 30 November annually.
– Kesme sold the 8% loan stock on 30 September 2013 cum interest.
Kesme’s estate and his will:
– Kesme’s share of the family home, a plot of land and chattels are worth £1,280,000 in total.
– The plot of land is worth £370,000 and is situated in the UK.
– Kesme has left the plot of land to his daughter.
– Kesme has left the residue of his estate to his wife, Soba.
(a) Explain the availability and operation of rent-a-room relief in relation to Kesme and calculate his taxable income for the tax year 2013/14 on the assumption that the relief is claimed. (8 marks)