Tx notes fa22 Final

June 2023 to March 2024 exams
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Chapter 19
 
 
Answer to Example 1
 
 
 
 
Answer to Example 2
 
1)
Same day
None
2)
Previous 9 days
500 shares
£
£
Sale proceeds
100,000
Less: Incidental costs of sale
(1,000)
99,000
Less:
Cost
20,000
Enhancement expenditure
6,000
(26,000)
Unindexed gain
73,000
Less:
Indexation allowance on cost
20,000 
×
1.706
34,120
On enhancement
6,000 
×
1.067
6,402
(40,522)
Chargeable gain
32,478
£
Proceeds
500
x 36,000
6,000
3,000
Less cost
(5,000)
Chargeable gain
1,000

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3)
Share pool
Calculate the gain on the 2,500 shares:
Share Pool
Number
Cost
Indexed 
cost
£
£
£
20 August 1990
1,000
5,000
5,000
Index up to November 1997
5,000 x 0.329
1,645
1,000
5,000
6,645
Addition 16 November 1997
2,000
12,000
12,000
3,000
17,000
18,645
Index up to December 2017
18,645 x 0.820
15,289
3,000
17,000
33,934
Disposal 10 December 2023
2500/3000 x 17,000:
2500/3000 x 33,934
(2,500)
(14,167)
(28,278)
500
2,833
5,656
£
Proceeds
2,500
x 36,000
30,000
3,000
Cost
(14,167)
Unindexed gain
15,833
I.A (28,278 – 14,167)
(14,111)
Chargeable gain
1,722
Total Gains
Gains
Previous 9 days
1,000
Pool
1,722
Chargeable Gains to include in the corporation tax computation
2,722

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276
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Answer to Example 3
 
 
Matching rules: 
Same day 
×
Previous 9 days 
×
Share pool
Calculate the Gain
Share pool
Number
Cost
Indexed 
cost
£
£
£
July 1994
3,000
10,000
10,000
February 1996 Bonus 1:3
1,000
–
–
No reindexation of pool (though examiner may still give the 
indexation factor to that date - ignore!)
4,000
10,000
10,000
Index to December 2017 from July 1994 10,000 x 0.991
9,910
4,000
10,000
19,910
Sale
(2,000)
(5,000)
(9,955)
2,000
5,000
9,955
£
Proceeds
12,000
Less Cost
(5,000)
Unindexed Gain
7,000
Less Indexation allowance (9,955 – 5,000)
(4,955)
Chargeable gain
2,045

---

277
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Answer to Example 4
 
 
 
 
As the terms of the takeover are a share for share transfer no gain will arise at the the time of the 
takeover with the new shares in B plc taking on the same original cost as the old shares in A Ltd. As 
2 types of share are issued at takeover we use the market values of those shares as the basis of 
dividing the A Ltd share cost, hence the ordinary shares take 30/40 and the preference shares take 
10/40 of the £10,000 share cost. 
Calculate Gain on sale of preference shares in March 2024:
Answer to Example 5
 
 
As Z Ltd now receives some cash at the time of the takeover an immediate gain will arise thereon as 
computed below.
Z Ltd receives at takeover:
Chargeable gain in July 2022:
Market 
value
Cost
B plc ordinary shares 10,000 
×
2 
×
£1.50
30,000
7,500
B plc preference shares 10,000 
×
1 
×
£1.00
10,000
2,500
40,000
10,000
£
Proceeds
15,000
Cost
(2,500)
Less: indexation allowance 1.357 
×
2,500
(3,393)
Chargeable gain
9,107
Market 
value
Cost
£
£
20,000 B plc ordinary shares
30,000
7,500
Cash
10,000
2,500
Total
40,000 10,000
£
Proceeds
10,000
Less Cost
(2,500)
Indexation allowance (1.357 
×
£2,500)
(3,392)
Chargeable gain
4,108

---

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Chapter 20
 
 
Answer to Example 1
 
 
 
 
Answer to Example 2 
Answer to Example 3 
 
 
When the insurance proceeds are received there is no chargeable gain as the company has elected 
to rollover the proceeds against the cost of the painting.
When the painting is eventually sold its cost will be:
In addition the restoration costs themselves of £8,000 can be deducted on a future disposal.
£
Proceeds
16,000
Less: Cost 
26,000 x
16,000
(8,320)
16,000 + 34,000
7,680
Unindexed gain
Less: I.A 
0.269 
×
8,320
(2,238)
Chargeable gain
5,442
£
Proceeds 
30,000
Less Acquisition cost
10,000 
×
30,000
(5,455)
30,000 + 25,000
Unindexed gain
24,545
Less indexation allowance 0.549 
×
5,455
(2,995)
Chargeable gain
21,550
£
Original cost
10,000
Less insurance proceeds
(8,000)
Base cost of painting
2,000

---

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Answer to Example 4 
 
 
Proceeds have only been partially used to buy a replacement asset, therefore £4,000 (£34,000 – 
£30,000) of the gain is chargeable immediately and £1,250 (£5,250 – £4,000) can be deferred.
Base cost of the replacement asset:
£
Proceeds
34,000
Less cost
(23,000)
Unindexed gain
11,000
Less: I.A 
0.250 
×
23,000
(5,750)
Chargeable gain
5,250
Less gain rolled over
(1,250)
Revised chargeable gain
4,000
Cost
30,000
Less Gain Deferred
(1,250)
Base cost
28,750

---

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Chapter 21
 
Answer to Example 1 
Proceeds are fully reinvested into a qualifying asset within the specified time period (12 months 
before disposal date), so the entire gain of £110,650 can be deferred until the sale of the land.
Base cost of the land
Answer to Example 2
 
 
Proceeds not reinvested = 350,000 – 335,000 = £15,000 which will become chargeable and the 
remaining gain of £26,400 (41,400 – 15,000) can be deferred as partial reinvestment has occurred 
within 3 years of disposal date.
Base cost of new asset:
£
Proceeds
400,000
Less Cost
(150,000)
Unindexed Gain
250,000
Less: I.A 
0.929 
×
150,000
(139,350)
Chargeable gain
110,650
Cost
500,000
Less Gain deferred
(110,650)
Base cost
389,350
£
Proceeds
350,000
Cost
(200,000)
150,000
Less: I.A 
0.543 
×
200,000
(108,600)
Chargeable gain
41,400
Cost
335,000
Gain deferred (41,400 - 15,000)
(26,400)
308,600

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281
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Answer to Example 3
 
 
The gain is deferred due to the purchase of the fixed plant within 3 years of the disposal date and will 
be chargeable in year ended 31 March 2023, when the depreciating asset is sold/ceases to be used 
in the trade (Feb 2023). This is earlier than 10 years from its date of acquisition (March 2026).
Chapter 22
 
Answer to Example 1
 
 
 
 
A Ltd has three wholly owned subsidiaries and thus there are four related 51% group companies, 
meaning that each group member will have a revised profit limit of £375,000 (£1.5M / 4).
A Ltd, with a TTP of £400,000, will therefore be a large company and if it was large in the previous 
AP should have made quarterly instalment payments for this period and will be required to make 
quarterly instalment payments for the next AP if its estimated profits for that period will exceed 
£375,000.
If the TTP had been say £350,000, but A Ltd received dividends from non-subsidiary companies of 
£40,000 then its Augmented Profit figure would be £390,000 and again it would be a large company.