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September 10, 2016 at 4:21 pm #339704Jean96
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dec 2013 qu 3(b)
On 12 February 2013, Marlon sold a house for £497,000, which he had owned individually. The house had
been purchased on 22 October 1997 for £146,000. Marlon incurred legal fees of £2,900 in connection with
the purchase of the house, and legal fees of £3,700 in connection with the disposal.
Throughout the period of ownership the house was occupied by Marlon and his wife, Alvita, as their main
residence. One-third of the house was always used exclusively for business purposes by the couple.
Entrepreneurs’ relief is not available in respect of this disposal.
For the tax year 2012–13 Marlon is a higher rate taxpayer, but Alvita did not have any taxable income. Neither
of them has made any other disposals of assets during the year
(ii) Calculate the amount of capital gains tax which could have been saved if Marlon had transferred 50%
ownership of the house to Alvita prior to its disposal.
could we used another method like deducting annual exemption allowance in both marlon and alvita then calculating difference to get tax savings and if possible how thanks for your helpSeptember 12, 2016 at 6:04 pm #340096Tax Tutor
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PPR relief will be available on two thirds of the gain leaving one third chargeable. At the moment the chargeable gain will be reduced by Marlon’s AEA and the remaining taxable gain will be taxed at 28% as he is a higher rate taxpayer.
If half of the ownership had been transferred to his wife Alvita this would be a no gain no loss transfer allowing her to crystallise half of the gain when the property was subsequently sold.
This would have 2 advantages:
1) As you state this would enable her to use her AEA and exempt 11,100 of the gain,
2) It would also then mean that that the first 31,785 of her taxable gains will be taxed at 18%
The tax savings can therefore be computed directly as 11,100 x 28% (use of AEA) plus 31,785 x (28% – 18%) ( the gain now taxed at 18% instead of 28%)
One further issue you should NOT be using the past exam Q’s & A’s from the ACCA website as these have not been updated for the changes in legislation – you should purchase a FA 2015 exam kit from one of the approved providers!
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