The following events relating to Michael’s assets occurred in 2020/21:

1. On 21^st June 2020 he sold 10,000 shares in Kent Ltd to his son for £20,000. On that date they were valued at £40,000 and he had acquired them in 2011 for £80,000.

2. On 30^th September 2020 he sold a house, realising a gain of £120,000. He had used the whole of the property as his Principal Private Residence from the date of acquisition on 1 October 2005 up to the breakdown of his marriage on 31^st March 2010 whereupon he let out the top floor of the property from 1^st April 2010 to 31^st March 2013 (assume this is 50% of the property). Thereafter, the top floor was occupied by his elderly mother rent-free.

3. He had purchased 20,000 ordinary shares in Surrey plc in 2016 at a cost of £60,000 and on 21^st October 2020 the company reorganised its share capital. For every ordinary share held, shareholders received 2 ‘A’ shares, 1 ‘B’ share and £1.50 in cash. On that date the ‘A’ shares were quoted at £3.00 and the ‘B’ shares were quoted at £2.00.

4. On 15^th January 2021 he sold a painting for £5,000. He incurred valuation costs of £150 and had acquired the painting in 2012 for £3,500.

Michael’s taxable income for 2020/21 was £70,000.

Required:

1. Calculate the gains arising on each of the above events, assuming that Michael makes all available elections to minimise his liability in 2020/21.

2. Calculate Michael’s capital gains tax liability for 2020/21.

3. Advise Michael on the treatment of any losses.

Answer rating: 100% (QA)

a i Loss on the selling of Kent shares 60000 ii GOS of the house 60000 iii GOS of ordinary shares 23... View the full answer