ACCA TX ^UK Syllabus C. Chargable Gains For Individuals - Rollover relief - Past Papers ^{1 / 3}

Alice is in business as a sole trader. On 13 May 2014, she sold a freehold warehouse for £184,000, and this resulted in a chargeable gain of £38,600. Alice purchased a replacement freehold warehouse on 20 May 2014 for £143,000. Where possible, Alice always makes a claim to roll over gains against the cost of replacement assets. Both buildings have been, or will be, used for business purposes by Alice.

What is the base cost of the replacement warehouse for capital gains tax purposes?

A. £181,600
B. £104,400
C. £143,000
D. £102,000

Mick Stone disposed of the following assets during the tax year 2013–14:

(1) On 19 May 2013, Mick sold a freehold warehouse for £522,000. The warehouse was purchased on 6 August 2001 for £258,000, and was extended at a cost of £99,000 during April 2003. In January 2007, the floor of the warehouse was damaged by flooding and had to be replaced at a cost of £63,000. The warehouse was sold because it was surplus to the business’s requirements as a result of Mick purchasing a newly built warehouse during 2012. Both warehouses have always been used for business purposes in a wholesale business run by Mick as a sole trader.

(2) On 12 August 2013, Mick sold an acre of land for £81,700. He had originally purchased five acres of land on 19 May 1998 for £167,400. The market value of the unsold four acres of land as at 12 August 2013 was £268,000. The land has never been used for business purposes.

(3) On 24 September 2013, Mick sold 700,000 £1 ordinary shares in Rolling Ltd, an unquoted trading company, for £3,675,000. He had originally purchased 500,000 shares in Rolling Ltd on 2 June 2005 for £960,000. On 1 December 2010, Rolling Ltd made a 3 for 2 bonus issue. Mick has been a director of Rolling Ltd since 1 January 2005.

(4) On 19 January 2014, Mick made a gift of his entire holding of 24,000 £1 ordinary shares in Sugar plc, a quoted investment company, to his son, Keith. On that date the shares were quoted on the Stock Exchange at £6·98–£7·10, with recorded bargains of £6·85, £6·90, £7·00 and £7·05. The shares had been purchased on 8 May 2008 for £76,800. Mick’s shareholding was less than 1% of Sugar plc’s issued share capital, and he has never been an employee or a director of the company.

Required:
(b) State which capital gains tax reliefs might be available to Mick Stone in respect of each of his disposals during the tax year 2013–14, and what further information you would require in order to establish if the reliefs are actually available and to establish any restrictions as regards the amount of relief.

Note: For this part of the question you are not expected to perform any calculations. (6 marks)

You should assume that today’s date is 1 March 2013.

(b) Aom is in business as a sole trader. On 3 February 2013, she purchased a freehold factory for £168,000. Aom also owns two freehold warehouses, and wants to sell one of these during March 2013. The first warehouse was purchased on 20 March 2009 for £184,000, and can be sold for £213,000. The second warehouse was purchased on 18 July 2002 for £113,000, and can be sold for £180,000.

All of the above buildings have been, or will be, used for business purposes by Aom. She will make a claim to roll over the gain on whichever warehouse is sold against the cost of the factory.

Required:
Calculate the chargeable gain, if any, that will arise in the tax year 2012–13 if either (1) the first or (2) the second freehold warehouse is sold during March 2013. (5 marks)