Sample
483 others answered this question

Question 2a

Your manager has been advising a client, Waverley, on his plans to sell his business. An email from your manager setting out the current situation are set out below:
Email from your manager – dated 8 September 2016

Unincorporated business
Waverley will cease trading as a sole trader on 15 January 2017 when he sells his unincorporated business to Roller Ltd.
Roller Ltd will be wholly-owned by Waverley.

The tax adjusted trading profits of the business (actual and budgeted) up to the date of cessation are: 
Year ended 30 June 2016                   £125,400
Period ended 15 January 2017             £72,150

The assets of the unincorporated business are expected to be worth £540,000 on 15 January 2017. They will be sold at market value to Roller Ltd in exchange for 270,000 £1 ordinary shares in the company. This will result in chargeable gains, before incorporation relief, of £160,000 on the business premises and £30,000 in respect of goodwill. 
The shares in Roller Ltd will be sold for £600,000 at some point during the six months following Waverley's emigration to Surferia on 5 April 2017.

Please carry out the following work:

(a) Unincorporated business
- State the basis period for 2016/17, the final tax year of trading, and calculate the taxable trading profits for that year, noting any further information required in order to finalise this figure. 
- State the conditions which must be satisfied in order for incorporation relief to be available on the sale of the unincorporated business to Roller Ltd. 
- Prepare calculations in order to conclude whether or not it will be advantageous for Waverley to disclaim incorporation relief on the sale of the unincorporated business to Roller Ltd.

To do this you will need to calculate Waverley's total capital gains tax liability, in the UK and in the country of Surferia, in respect of both the sale of the unincorporated business to Roller Ltd in the tax year 2016/17 and the sale of the Roller Ltd shares in the tax year 2017/18. In respect of the sale of the Roller Ltd shares, you should consider two possible situations: first where Waverley is resident only in the UK at the time of the sale; and second where he is resident only in Surferia at the time of the sale. You should not consider the rules concerning individuals who are temporarily non-UK resident. You should assume that Waverley will be a higher rate taxpayer in the tax years 2016/17 and 2017/18 (if UK resident) and that he realises sufficient additional chargeable gains every year to use his annual exempt amount.

Tax manager

Required: Carry out the work requested in the email from your manager. 
The following marks are available: 
(a) Unincorporated business.
   (12 marks)