5 Assume today’s date is 1 May 2005.On 1 April 1999, Alan set up his own company, Alantech

5 Assume today’s date is 1 May 2005.

On 1 April 1999, Alan set up his own company, Alantech Ltd to design and produce technology components in mobile

phones. He personally owns 100% of the share capital. Accounts are drawn up to 31 December each year.

The company was successful, and the profits made allowed Alantech to buy 7.5% of the ordinary shares in another

technology company, Mobile Ltd, on 1 July 2001. The price paid for the shares was £75,000. At this time, the

remaining ordinary shares in Mobile were held by Boron Ltd (7.5%), Carbon plc (40%) and Diamond Ltd (45%).

Technology companies faced difficult trading during this time, and although Alantech Ltd continued to make profits,

other companies suffered. This allowed Alantech Ltd to buy 100% of the shares of Boron Ltd (together with its 100%

subsidiary, Bubble Ltd) at a low price as both companies were performing poorly. The acquisition took place on 1

July 2004, and was funded by the sale of a building used in Alantech Ltd’s trade. The building had cost £150,000

on 1 September 1999, and was sold for £250,000 on 1 May 2004.

Trading results for the companies are as follows:

Additional information:

– Boron Ltd’s chargeable gain took place prior to its acquisition by Alantech Ltd.

– Bubble Ltd has brought forward Schedule D Case I losses of £25,000 as at 1 January 2004.

– It is anticipated that Boron Ltd will make a small Schedule D Case I loss in 2005.

– Mobile Ltd is profit making.

Alan believes that to improve the Boron Ltd business, the company needs to invest in new high-tech fixed machinery

within the next year. The projected cost of the fixed machinery is £200,000. In order to raise funds, Alantech Ltd and

Boron Ltd will have to sell the shares in Mobile Ltd. From an examination of Boron Ltd’s accounting records, Alan

understands that Boron Ltd’s holding of shares in Mobile Ltd was bought on 1 November 2000 for £55,000.

Alan has identified a possible sale of the group’s entire shareholdings (15%) in Mobile Ltd for £300,000 to Carbon

plc, as this will give Carbon plc a controlling shareholding in Mobile Ltd. He plans to sell the shares at the beginning

of June 2005. Alan has heard that there is a form. of tax relief available to companies selling shares and would like

advice on whether or not it applies to his situation.

In addition, Alan has struggled to deal with the VAT returns for each company in the group, in particular the intragroup

transactions, and wonders if there is any way in which the VAT accounting for the group can be simplified.


(a) Calculate the chargeable gain arising on Alantech Ltd’s disposal of the building in May 2004. State clearly

any reliefs available, and the conditions to be satisfied to obtain such reliefs. (6 marks)


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(b) Calculate the corporation tax (CT) liabilities for Alantech Ltd, Boron Ltd and Bubble Ltd for the year ending31 December 2004 on the assumption that loss reliefs are taken as early as possible. (9 marks)
(c) Advise Alan on the proposed disposal of the shares in Mobile Ltd. Your answer should include calculationsof the potential capital gain, and explain any options available to Alan to reduce this tax liability. (7 marks)
6 Assume today’s date is 16 April 2005.Henry, aged 48, is the managing director of Happy Home Ltd, an unquoted UK company specialising in interiordesign. He is wealthy in his own right and is married to Helen, who is 45 years old. They have two children – Stephen,who is 19, and Sally who is 17.As part of his salary, Henry was given 3,000 shares in Happy Home Ltd with an option to acquire a further 10,000shares. The options were granted on 15 July 2003, shortly after the company started trading, and were not part ofan approved share option scheme. The free shares were given to Henry on the same day.The exercise price of the share options was set at the then market value of £1·00 per share. The options are notcapable of being exercised after 10 years from the date of grant. The company has been successful, and the currentvalue of the shares is now £14·00 per share. Another shareholder has offered to buy the shares at their market value,so Henry exercised his share options on 14 April 2005 and will sell the shares next week, on 20 April 2005.With the company growing in size, Henry wishes to recruit high quality staff, but the company lacks the funds to paythem in cash. Henry believes that giving new employees the chance to buy shares in the company would help recruitstaff, as they could share in the growth in value of Happy Home Ltd. Henry has heard that there is a particular sharescheme that is suitable for small, fast growing companies. He would like to obtain further information on how sucha scheme would work.Henry has accumulated substantial assets over the years. The family house is owned jointly with Helen, and is worth£650,000. Henry has a £250,000 mortgage on the house. In addition, Henry has liquid assets worth £340,000and Helen has shares in quoted companies currently worth £125,000. Henry has no forms of insurance, and believeshe should make sure that his wealth and family are protected. He is keen to find out what options he should beconsidering.Required:(a) (i) State how the gift of the 3,000 shares in Happy Home Ltd was taxed. (1 mark)



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