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Summary ICAEW Business Planning Taxation 2023 - BPT Open Book Notes 2023 (Achieved 89%) - ACA Professional Level

Name: ICAEW Business Planning Taxation 2023 - BPT Open Book Notes 2023 (Achieved 89%) - ACA Professional Level
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This document is a set of exam ready notes to be taken into the Business Planning: Taxation (BPT) ICAEW ACA Exam. Got 89% in BPT using these notes in 2023. They provide answers to all scenarios that could come up in the exam which can then be used in the open book exam and tailored to the sp...

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Table of Contents
1. Business Structure Choice .............................................................................................................................................................. 1
Scenario: Property Business as Unincorporated vs Incorporated – buying additional property ...........................................................1
Making Husband Partner instead of employee .....................................................................................................................................2
Scenario: Sole Trader vs Limited Company ............................................................................................................................................3
2. Changing Business Structure: Incorporation from sole trader to company ..................................................................................... 5
Scenario: Incorporating a sole trader / partnership business ................................................................................................................5
Scenario 1: Transfer Property & all other assets of sole trader to Company. Company then sells Property for MV (Q43)...................6
Scenario 2: Individual retains property on incorporation and sells it personally...................................................................................7
Scenario: Cease holiday lettings and let property to long term tenants ...............................................................................................7
Scenario: Incorporate Property Business by (transferring property which lived in) to a company .......................................................7
Scenario: Sell property, repay mortgage and buy smaller property to let.............................................................................................8
3. Disincorporation ............................................................................................................................................................................ 8
4. Buying a Business .......................................................................................................................................................................... 9
Purchase of company by trade and assets method ...............................................................................................................................9
Commencement of trading ....................................................................................................................................................................9
Conditions for TOGC for VAT .................................................................................................................................................................9
Alternative method – Hivedown:......................................................................................................................................................... 10
Scenario: Purchase of co. by MBO: ...................................................................................................................................................... 11
5. Exiting a business: Sale of incorporated Business ......................................................................................................................... 12
Scenario: Sale of incorporated Business for exchange of shares (SFS) ................................................................................................ 12
Scenario: Sale/purchase of trade & assets vs. Sale of shares .............................................................................................................. 13
Sale of shares = gain / loss arises for the shareholders not the company ........................................................................................... 14
6. Exiting a business: Company Purchases Own Shares .................................................................................................................... 15
Scenario: Takeover with mixed consideration ..................................................................................................................................... 15
OTHER: Takeover with mixed consideration........................................................................................................................................ 15
Scenario: Share buy back from individual or corporate shareholder (Purchase of own shares – POOS) ............................................ 16
7. Exiting a business: Company Liquidation...................................................................................................................................... 17
Scenario: Winding up a subsidiary / Liquidation scenarios .................................................................................................................. 17
8. Corporation Tax ........................................................................................................................................................................... 18
Scenario: Sell of Shares in Group investment company by parent with transfer of building – No SSE (Q57) ...................................... 18
SSE ....................................................................................................................................................................................................... 19
Scenario: Transfers of chargeable assets between groups - NGNL ...................................................................................................... 19
VAT Groups – X Group owner & Y UK Sub ........................................................................................................................................... 19
Change in Ownership ........................................................................................................................................................................... 19
Consortium .......................................................................................................................................................................................... 20
Mitigate Tax liabilities of individual who owns company .................................................................................................................... 20
Financing Proposal: Issue of Debentures vs Issue of shares ................................................................................................................ 20
15m vs 12m period – Q45 .................................................................................................................................................................... 21
Group Loss Relief Considerations: ....................................................................................................................................................... 22
9. Anti Avoidance ............................................................................................................................................................................ 24
Scenario: Thin capitalisation ................................................................................................................................................................ 24
Scenario: Transfer Pricing .................................................................................................................................................................... 24
Scenario: CFC ....................................................................................................................................................................................... 24
Scenario: DPT ....................................................................................................................................................................................... 24

, Scenario: Corporate Interest Restriction (CIR) ..................................................................................................................................... 25
Scenario: Company buys shares and acquires bank loan (CIR) ............................................................................................................ 26
Scenario: Hybrid Mismatch .................................................................................................................................................................. 26
10. International Corporation Tax...................................................................................................................................................... 27
PE overseas .......................................................................................................................................................................................... 27
Sub overseas ........................................................................................................................................................................................ 27
Scenario: Acquiring a new subsidiary .................................................................................................................................................. 27
Scenario: Overseas company making subsidiary in UK ........................................................................................................................ 28
Incorporation of overseas PE – Managed Overseas ............................................................................................................................ 28
Incorporation of overseas PE – Managed in UK ................................................................................................................................... 29
Scenario: Incorporating a PE: ............................................................................................................................................................... 29
Scenario: Purchasing the shares vs trade and assets of an overseas company ................................................................................... 30
Scenario: Acquiring trade & assets of a company................................................................................................................................ 30
Overseas PE vs Overseas Sub for UK resident owner .......................................................................................................................... 31
Scenario: Company migrating from the UK ......................................................................................................................................... 33
Scenario: Migration ............................................................................................................................................................................. 33
11. Close Companies ......................................................................................................................................................................... 34
Scenario: House used by individual who is not director or employee (Q31) ....................................................................................... 34
Loans to participators .......................................................................................................................................................................... 34
Benefits to participators ...................................................................................................................................................................... 34
12. Research and development ......................................................................................................................................................... 35
13. IFA Rules...................................................................................................................................................................................... 35
14. Income Tax .................................................................................................................................................................................. 36
15. Share Schemes ............................................................................................................................................................................ 36
Scenario: Tax-advantaged share scheme for key employees only....................................................................................................... 36
Scenario: Options are to be issued for no consideration; shares granted to be worth £40,000 ......................................................... 36
Non-tax advantaged schemes.............................................................................................................................................................. 37
16. Example of IT comp ..................................................................................................................................................................... 37
17. Termination – Scenario: Unable to work 3-month notice period. Didn’t receive monthly pay for it.............................................. 38
18. Scenario: Remuneration via cash bonus vs. pension scheme ........................................................................................................ 39
19. Intermediaries (disguised employment) – Employee vs Services through limited company .......................................................... 40
Personal Service Company................................................................................................................................................................... 41
Managed Service Company ................................................................................................................................................................. 42
Additional Bonus vs Dividend .............................................................................................................................................................. 42
20. Pension Contributions ................................................................................................................................................................. 43
Tapered annual allowance ................................................................................................................................................................... 43
SASS/SIPP Scheme ............................................................................................................................................................................... 43
21. Venture Capital investment (8-12 marks) ..................................................................................................................................... 44
22. Trading Loss - Individual .............................................................................................................................................................. 45
23. IT international model answers ................................................................................................................................................... 46
Scenario 1: Person X- Resident not Domiciled for 11 years. ................................................................................................................ 46
Scenario 2: Person Y - NR but moving to UK for work for 2 years ...................................................................................................... 46
Scenario 3: Person Z – Born in UK & left 10 years ago. Coming to UK for 2 years work, then return back. ........................................ 46

2

, Scenario 4 - NR but moving to UK for work for 18 months 1 Jan 2024-30 June 2025 ........................................................................ 47
Scenario 5: Born in UK, foreign secondment for 18 months. 1 Jan 2024 - 30 June 25 OR 1 Aug 2024 – 1 Jan 26 ............................... 47
Scenario 6: Person B – Born overseas - Resident in UK for past 21 years – Not domiciled until 15 years. Pays remittance basis until
deemed domicile ................................................................................................................................................................................. 48
Scenario 7: Person X – Born overseas - Resident in UK for past 22 years – Not domiciled until 15 years. Intends to return overseas.
Previously paid remittance basis in 1 year for CGT sale. ..................................................................................................................... 48
Born Overseas – Resident but not D in UK for past 10 years. Moving overseas for 10 months to start business. .............................. 48
Rebasing .............................................................................................................................................................................................. 49
Bringing funds to the UK ...................................................................................................................................................................... 49
24. Overseas aspects of personal taxation: ........................................................................................................................................ 50
25. Capital Gains Tax ......................................................................................................................................................................... 52
Sale of building – CGS .......................................................................................................................................................................... 52
Purchase of building – 2/3 rented out, 1/3 trading ............................................................................................................................. 53
ROR/HOR Model Answer ..................................................................................................................................................................... 53
26. Inheritance Tax Planning ............................................................................................................................................................. 54
CGT & IHT on Assets to give during life or death: Family Home, Holiday Home, Shares & Cash ......................................................... 54
Discretionary trust treatment .............................................................................................................................................................. 55
Scenario: Setting up a discretionary trust ............................................................................................................................................ 55
Scenario: IHT – transferring quoted shares via gift VS trust VS leaving in will..................................................................................... 56
Gift of assets to trust = CGT as well as IHT so special form of gift relief available Scenario: Kid has financial & health issue – Set up
trust or pass to grandchildren ............................................................................................................................................................. 56
Scenario: Transfer ownership of property to daughter now – individual continue to receive rental income. .................................... 56
Scenario: Transfer ownership of property to company now – company passes rental income as loan to individual instead of
dividends ............................................................................................................................................................................................. 57
Scenario: Transfer money to daughter, who buys property, but individual receives rent .................................................................. 57
Scenario: Leaving the business in your will .......................................................................................................................................... 57
GWROB ................................................................................................................................................................................................ 57
Scenario: Transfer unincorporated business to daughter or leave it in will. Owner retiring. .............................................................. 58
27. Scenario: Sale & Leaseback for Companies .................................................................................................................................. 60
28. Depreciatory Transactions: .......................................................................................................................................................... 60
29. Scenario: Housing benefits .......................................................................................................................................................... 60
30. Annual Tax on Enveloped Dwellings (ATED): ................................................................................................................................ 61
31. VAT Scenarios .............................................................................................................................................................................. 62
32. FX Gain ........................................................................................................................................................................................ 62
33. Ethics ........................................................................................................................................................................................... 63
DOTAS & Scheme to reduce tax ........................................................................................................................................................... 63
Tax Avoidance & Large Companies Tax Strategy ................................................................................................................................. 63
Disclosure of Errors – Part of firm........................................................................................................................................................ 63
Scenario – Trying to reduce tax payable .............................................................................................................................................. 64
Scenario – Evading Tax by understating sales...................................................................................................................................... 64
Overhead personal conversation including bribery – part of company............................................................................................... 64

3

,Business Structure Choice
Scenario: Property Business as Unincorporated vs Incorporated – buying additional property
If question gives weeks of occupancy: signpost that the furnished holiday let conditions should be considered

IT & CT

 The difference between purchasing through a company or by individual is the difference in tax rates
 If the property was purchased as individuals, the profits would be subject to IT.
 If the property were to be purchased through a company, the profits would be subject to CT. The after-
tax profits would then be paid out as dividends.
 One of the main reasons why a company is used in preference to owning a let property personally is to avoid
the restriction on the amount of interest that can be relieved against rental income for let property.
 However, if let the property as a furnished holiday let: income can be reduced by all the interest payable on a
loan to purchase the property.
 To qualify as an FHL the following criteria would need to be satisfied:
 The property should be available for commercial letting for at least 210 days a tax year:
 The property must be actually let for at least 105 days per tax year:
 The property must not be let to one person for more than 31 consecutive days in one stretch within the
105-day period.
 However, if one of spouse BR taxpayer: it might be more advantageous to buy the property in their name. This
would save income tax. Buying a property in the name of one spouse only has other implications e.g on
separation property would belong to them. If no issue: buying in BR Payers sole name would save 20% tax on
half the rental profits each year.
 Non-tax related costs attached to the administration of a company, such as the costs of preparing accounts &
Companies House costs which might make trading through a company less desirable to the client.
 NICs are not payable on furnished holiday letting income

SDLT

 Whichever purchase option is chosen, SDLT will be payable on the purchase of the property.
 The rate of SDLT is determined by the type of the property being purchased (residential),
 If 2nd property owned: Additional 3% SDLT on each band
 The SDLT payable if the property is purchased by a company would be the same

IHT

 In purchasing the property through a company there is a practical advantage as easier to give away shares in a
company over time, allowing a proportion of the value of a property to be given away, without the need for
expensive legal fees in terms if transferring ownership.
 Tax purposes the treatment of a gift of a proportion of an FHL or a company owning an FHL are similar.
 To take advantage of the seven-year rule: Could consider transferring a share of the property company/FHL to
daughter at least seven years before death to reduce the value of their estate. If this were a gift it would be
eligible for CGT reliefs such as GR and BADR if conditions were satisfied, as FHLs satisfy the criteria for CGT
business reliefs.
 The RNRB only applies to a main residence and would therefore not apply to this property.
 In purchasing/owning FHL personally: no BPR available, given that the FHL is regarded as an investment. But if
significant involvement in the day-to-day management of the FHL by the owners: BPR available
 Advised to consider gifting some of the shares in the company or a proportion of the FHL itself, as early as
possible to reduce the chances of being charged at 40% IHT on their deaths.

1

,Making Husband Partner instead of employee
 If couple setting up business, consider which one of couple has BRB available to help save tax as not fully using
 As employee: Save tax at marginal rate on husband’s salary as it was deducted in arriving at business profits.
 Salary will no longer be tax deductible, so the taxable profits will increase
 Class 4 NIC to pay at 10.25%. Liable for class 4 NIC on the excess over £12,570 However, if husband had not
been a partner, would have only paid NIC at 3.25% since this falls above the upper annual profits limit. Overall
additional class 4 NIC is payable.
Overall, therefore save income tax but pay more NIC.
A partnership structure is very easy to create although it is advisable that they obtain legal advice in drawing up
a partnership agreement to determine profit sharing ratios and other matters.
A partnership is itself not a taxable person and for husband to become a partner he would need to register as
self-employed. He would be taxed on a share of the profits and pay class 2 and class 4 NIC.
The partnership would need to become VAT registered.
 There would be a CGT disposal as disposing of a share. However, the transfer would be at a NGNL as it would
be between wife and husband.
 There would also be a PET for IHT, but the spouse exemption would apply

2

,Scenario: Sole Trader vs Limited Company
- Sole trader = all profits subject to income tax and NIC class 2 and 4 in tax year where AP ends
o Regardless of level of drawings
o If loss making, then no IT or NIC liability on drawings
- Company = profits of company subject to corporation tax at 19%/25% (if excess of 250k) & 20%/40%/45%
and/or 0%/8.75%/33.75%/39.35% additional IT on withdrawal.
- Profits extracted from company subject to income tax and NIC class 1 primary on salary
o £5,000 employment allowance not available if sole employee / director of company
- Dividends are not subject to NIC but dividend payments are not tax deductible for the company
- Salary and class 1 secondary NIC receive corporation tax relief (tax deductible for co.)
- Bank loan interest same for both. Apportion for period

Losses

- Sole Trader: Important consideration is whether the business will make a profit in the opening years. The use
of losses is more flexible for a sole trader losses may be carried back 1 year, or 3 years if incurred in the first 4
tax years of trade.
- Losses of the period ending (XX Date) could be carried back to the tax year (XX Date). Opening year losses
would generate a tax repayment.
- Losses in a new ltd company can only be set off against current period income and/or c/f against future total
profits. Losses therefore can remain unrelieved if the company does not make taxable profits in the near future
at a time when the business could benefit from the cash flow effect of a tax refund.
- Losses: Sole trader better as will provide cashflow benefit on use of losses and save tax at 20/40/25 compared
to saving at 25%

R&D

- Limited company structure would give reliefs for R&D expenditure and patents, but not sole trader.
o Ltd co. making qualifying R&D expenditure would qualify for additional deduction of 130% of the
actual qualifying expenditure.
o Assuming co. SME, additional 130% can be deducted from trading profits. Expenditure on P+M would
qualify for 100% capital allowance.
- Cap ex incurred before a business starts is eligible for CA. Treated as being incurred on first day of business and
therefore, included in first accounting period BUT rate of allowance is determined by actual date of
expenditure.
- If AIA (£200k max) available, a deduction from trading profit of cost of equipment can be made. Adjusted for
shorter period. Remaining gets 18%/6% WDAs
- Hardware into main pool. Consider WDAs for both periods if 2 periods.

Conclusion

- Sole trader: Cashflow benefit from loss relief in earlier period.
- If company – may prefer C/f loss in company & eligible for R&D allowances
- Incorporating the business could give CGT but, incorporation relief would defer any tax on incorporation until
the shares in the company were sold. Incorporation relief should apply if all assets were transferred to the
company, as a going concern in exchange for shares.

Sole trader: Income tax and class 2 & 4 NIC

Trading profits x

Less PA (x) *Check if full PA still available*

= Taxable income

Calculate IT as normal. Payable by self-assessment (give date). 50% of IT & NIC Following 31st Jan of tax year. 50% by 31st
July. Balance by next 31st Jan.
3

, NIC:

Class 2 = 52 x £3.15

Class 4 = (£50,270 – £12,570) x10.25% + (Trading profit - £50,270) x 3.25%

Net cash = Cash – IT – NIC

Company:

Step 1) Calculate the CT liability

Profit x

Salary (x)

Class 1 secondary employers NIC 15.05% x(salary – 9,100) (x)

TTP x CT @ 25%

Retained earnings (dividend payable)

Step 2) Calculate IT liability *Check if full PA still available*

Salary as NSI OR dividends 8.75%/33.75%/39.35% (DNRB available)

Step 3) Calculate NIC liability if salary: Class 1 primary employee NIC 13.25% x (salary – £12,570) . 3.25% above £50,270

Payable 9m and 1 day after end of accounting period as most likely small. If large, then instalments.

4

,Changing Business Structure: Incorporation from sole trader to company
Scenario: Incorporating a sole trader / partnership business
- Put heading as VAT, IT and CGT (and CA if needed)
- Business ceases to trade for IT purposes = apply closing year rules to business profits and calc. IT liability
- An election can be made to transfer assets at TWDV to the company if connected persons
o So no capital allowances are claimed in the final period of trading
o If not connected, then balancing allowances / charges will arise to adjust profits / losses
- Losses in final trading period can be carried back against trading profits of unincorporated business under
terminal loss relief or be offset against total income of the tax year of cessation / preceding tax year
- (s.86 incorporation relief) Or losses can be carried forward to set off against income received from the
company e.g. salary / dividends
o Only if consideration is 80% shares and shares owned throughout the year in which loss relief given
o If shares will be sold before the year, b/f trading losses can be relieved against gains.
- Chargeable gains arise on disposal (at MV) of chargeable assets
- Incorporation relief automatically applies to roll over gain against (reduce) base cost of the shares
o IR = all assets other than cash transferred, consideration is in shares & business is TOGC
o Any cash received is immediately chargeable (whole gain deferred if consideration only shares)
o Gain initially deferred = Total gains x MV of securities at transfer / MV of total consideration
 Use value of total assets transferred to figure out consideration split
o Can disclaim IR if BADR applies now but not later (34 months from end of tax year to disapply)
 Base cost of shares would be MV of assets transferred
o If not all assets transferred = no IR but gift relief available
 If GR claimed, transfer of non-chargeable assets value = total base cost of shares
o BADR will not apply if goodwill is sold to a close co. where partner has an interest (>5%)
- Shares will be deemed to have been owned from start date of the ST/P’ship
- SDLT payable on market value of any land transferred, even if no consideration paid
o Consider retaining property to save SDLT
 However, that means IR would not apply as not all assets transferred (but gift relief would)
 Individual can charge co. rent so co. would receive tax deduction, individual would pay IT
 Charging rent would result in BADR not being available on future disposal though
- If asset transferred that would give rise to a benefit (e.g. car) = IT charge to individual and class 1A NIC to co.
o Consider owning the car personally
- Transfer of assets not treated as supply of goods & services = no VAT payable as business is TOGC
o Goodwill must be transferred for that to apply (even if business premises not transferred)
o Special rules for land and buildings – check if part of TOGC or not (CN p.122)
- Company should register for VAT esp. if turnover will exceed registration limit
- Company will pay corporation tax on its adjusted profits
- Company can claim R&D / patent relief (only mention if applicable to scenario)
- Any salary paid to the individual will be deducted and the individual liable to IT and NIC on salary drawn
- Dividends received by individual are liable to IT (but not NIC) (Ensure co. has sufficient distributable reserves)
- If partner sells his shares before incorporation (e.g. to another partner continuing in the co.), CGT will arise
o Use MV for proceeds of assets
o The purchaser of his shares will have a higher cost upon incorporation
o Consider if BADR will apply to the gain
- If the owner decides to sell shares in the future, BADR will not apply to goodwill as was transferred to related
co
- If partner decides to sell shares immediately after incorporation or not work for the co. for full year, consider
disapplying incorporation relief so to claim BADR instead
o No gain will arise on sale of shares as proceeds will equal cost
- If individual disposes of an asset that was his personally and not business asset but used in the business =
associated disposal (conditions SM p.145) = can apply for BADR too
- Corporation tax will be payable 9m and 1 day after the end of the accounting period. [Give date].

5

,Scenario 1: Transfer Property & all other assets of sole trader to Company. Company then sells Property for MV (Q43)
 Trade ceases for unincorporated business
 Final trading profit/loss is calculated for IT & NI
 BA or BC on assets, or succession relief to transfer at TWDV as connected person

Gain

 CGT on L&N, P&M & IFAs (including GW)
 E.G. Property: (MV - Cost - SDLT)
 The gains will arise as shown above, however the conditions for incorporation relief will have been met.
 The conditions are as follows:
 Business is a going concern.
 All assets except for cash must be transferred
 The transferring company must own at least 25% of the ordinary SC
 Cash received is taxable now
 As the conditions have been satisfied, incorporation relief will apply automatically, unless disclaimed
 However, if any %age of shares are sold, that %age gains postponed will be chargeable
 (IF APPLICABLE – Leaving company in near future) - Disclaim IR since BADR is not available on any share sale
after leaving company. Can ask individual on intentions regarding the shares in company
 The effect of incorporation relief will be to reduce the base cost of the shares in company, by the amount of
the gain. Larger amount of CGT on sale of the shares, in the future, because of the reduction in their base cost.
 Reduced base cost of company shares: MV of company (assets added) – Gains on incorporation
 Since selling property almost immediately to a third party. On the sale of property - no gain arising on S Ltd, as
the deemed cost of the asset would be its market value
 Capital loss can be set off against any capital gains in the year or carried forward against future gains.

VAT and SDLT on incorporation

 Incorporation would be outside the scope of VAT, provided the conditions for TOGC were satisfied.
 The conditions for a TOGC would be satisfied in this case because:
• the transfer is of a going concern
• the business is continuing;
• we presume that company would be VAT registered
• there would be no break in trade.
 If building 'old', commercial building and as no OTT exercised, the TOGC would also apply to the transfer of
building.
 On the purchase of building, VAT was charged at 20%. This is wholly recoverable if wholly taxable business.
 SDLT was also charged, on the VAT inclusive purchase price. This cost is deductible in calculating any gain on
the sale of building
 Because building cost more than £250k, the VAT initial recovery is subject to adjustment under the CGS in the
adjustment period of 10 intervals. Count number of times VAT YE passes.
 On the transfer of building, the TOGC rules would ensure that no adjustment on sale was required on
incorporation. However, company have to pay future adjustments relating to the property.
 On the immediate sale of property there would be an adjustment on sale
 £VAT/10 x (Current Taxable % - Original Tax%) x intervals = Adjustment. Payable by company
 On incorporation, the transfer of property would have incurred SDLT payable by the purchaser

Income tax

 If sole trader loss-making in the first few years of trade - no overlap profits b/f to set off on cessation of trade.
 Individual taxed on the profits up to cessation. Also taxed on salary/dividends/received from incorporation
 Would not receive the personal allowance if income exceeds £125,140
 Capital gains tax on assets transferred to the company
 Corporation tax
 On acquiring the goodwill of SG, S Ltd will not be able to claim the amortisation of goodwill as an allowable
expense.
 Plant and machinery will be taken over a tax written down value if there is a succession election.

6

, Scenario 2: Individual retains property on incorporation and sells it personally
Gain on incorporation

 The gain on incorporation would just be the gain on remaining assets (not property)
 IR not available, because not all of the assets were transferred to the company.
 Gift relief available on transfer of the goodwill to the company if gifted and gain deferred against cost of the
goodwill in the company (reducing the cost to nil) - Would remove the immediate gain.
 BADR on incorporation cannot be claimed in respect of goodwill, where the goodwill has been disposed of to a
close company and immediately after the disposal, the claimant owns at least 5% of the ordinary share capital
of the close company.

VAT and SDLT

 The transfer of the trade and assets to company would be a TOGC.
 As property not transferred to company - no VAT CGS adjustment and no SDLT to pay
 SDLT would be payable by the third-party purchaser and the sale of an old commercial building on which there
was no OTT, would be exempt from VAT.
 Would have personal CGS adjustment on sale of property

Gain on the sale of house personally

 Taxable gain on the sale of property at the rate of 10% as this disposal under BADR - as disposed of at the same
time as the other assets when the trade ceased
 Able to use AEA and the capital loss b/f (assuming gift relief is used to defer the gain on the goodwill)
 Private residence relief (PRR) is available for the period that the house was main residence plus the last 9
months of ownership.

Scenario: Cease holiday lettings and let property to long term tenants
 The rental profit is chargeable to income tax
 No NICs are payable on property income.
 Deductibility of finance costs are restricted
 Finance costs are not deductible as an expense, but instead relief is given at 20% as a tax reducer
 Tax due would be:
 After paying interest, profit is: and net cash received only:

Scenario: Incorporate Property Business by (transferring property which lived in) to a company
CGT
 As furnished holiday accommodation, the disposal of the property qualifies for business asset disposal relief or
gift relief.
 Rollover relief if purchasing a qualifying asset for the gain to be rolled into.
 Incorporation relief if the property has been ‘actively managed’ (Spends over 20 hours per week on business)
 Not available if work is outsourced and only amounts to few hours per week.
 If gifts the property to company and claims gift relief, there will be no CGT payable.
 On any future sale of the property, the company will be liable to corporation tax on the proceeds over new cost
and the proceeds will then be taxed again when extracted from the company.
 As business asset disposal relief (BADR) is available, may be better off paying tax now on the gain.
 If individual and company connected, property would transfer at market value.
 Private residence relief (PRR) is available for the period that the house was main residence plus the last 9
months of ownership.
 The company would receive the property at its current market value

SDLT
 SDLT will apply to the transfer between individual and company even if the property is gifted for no
consideration.
 IF PROPERTY OVER 500K - As is a company and the value of the property is over £500,000: 15% SDLT payable
 Significant SDLT cost
ATED
 IF PROPERTY OVER 500K - Could be subject to ATED as a company with an interest in a UK dwelling worth
more than £500,000.

7

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Summary

Summary ICAEW Business Planning Taxation 2023 - BPT Open Book Notes 2023 (Achieved 89%) - ACA Professional Level

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The benefits of buying summaries with Stuvia:

Guaranteed quality through customer reviews

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Focus on what matters

Frequently asked questions

What do I get when I buy this document?

Satisfaction guarantee: how does it work?

Who am I buying these notes from?

Will I be stuck with a subscription?

Can Stuvia be trusted?