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hi,
i am a bit stuck in the last part of this questionGinger has a holding of 10,000 £1 ordinary shares in Nutmeg Ltd, an unquoted trading company, which she
had purchased on 13 February 2004 for £2·40 per share. The current market value of the shares is £6·40 per
share, but Ginger intends to sell some of the holding to her daughter at £4·00 per share during March 2013.
Ginger and her daughter will elect to hold over any gain as a gift of a business asset.
For the tax year 2012–13, Ginger will not make any other disposals, and has therefore not utilised her annual
exempt amount.
Required:
Explain how many £1 ordinary shares in Nutmeg Ltd Ginger can sell to her daughter for £4·00 per share
during March 2013 without incurring any capital gains tax liability for the tax year 2012–13.I understand how to get the chargeable gain
mv 6.4
cost (2.4)
gain 4.0
holdover (2.4)
ch gain 1.6but i dont understand why we have to divide the annual exemption of 11000 by the chargeable gain of1.6? can u please explain
So you are ok with the technical requirement of dealing with the sale of an asset at undervalue, computing the gain based on market value and the application of gift relief when actual proceeds exceed actual cost – the donor is taxed on (4 – 2.4 = 1.6). Those are the key skills you need at F6.
The next requirement is giving you a problem that you have not seen before to test whether you can deal with a unique scenario. The taxpayer will not incur any CGT liability if they make gains equal to the Annual Exempt Amount of 11,000 (you will be dealing with 14/15 not 12/13). The taxpayer will make a gain of 1.60 per share – therefore how many shares at 1.60 will equal 11,000 – Answer 11,000 divided by 1.60 = 6,875 shares
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