(ii) State, giving reasons, the tax reliefs in relation to inheritance tax (IHT) and capital gains tax (CGT) which

would be available to Alasdair if he acquires the warehouse and leases it to Gallus & Co, rather than to

an unconnected tenant. (4 marks)

(c) State any reliefs Bob could claim regarding the fall in value of his shares in Willis Ltd, and describe how the

operation of any such reliefs could reduce Bob’s taxable income. (4 marks)

Relevant retail price index figures are:

September 1990 129·3

April 1998 162·6

December 2004 189·9

(ii) State when the inheritance tax (IHT) calculated in (i) would be payable and by whom. (2 marks)

(b) Calculate the corporation tax (CT) liabilities for Alantech Ltd, Boron Ltd and Bubble Ltd for the year ending

31 December 2004 on the assumption that loss reliefs are taken as early as possible. (9 marks)

(c) Without changing the advice you have given in (b), or varying the terms of Luke’s will, explain how Mabel

could further reduce her eventual inheritance tax liability and quantify the tax saving that could be made.

(3 marks)

The increase in the retail prices index from April 1984 to April 1998 is 84%.

You should assume that the rates and allowances for the tax year 2005/06 will continue to apply for the

foreseeable future.

(b) (i) Advise Benny of the income tax implications of the grant and exercise of the share options in Summer

Glow plc on the assumption that the share price on 1 September 2007 and on the day he exercises the

options is ￡3·35 per share. Explain why the share option scheme is not free from risk by reference to

the rules of the scheme and the circumstances surrounding the company. (4 marks)

(c) Advise Alan on the proposed disposal of the shares in Mobile Ltd. Your answer should include calculations

of the potential capital gain, and explain any options available to Alan to reduce this tax liability. (7 marks)

(ii) List the additional information required in order to calculate the employment income benefit in respect

of the provision of the furnished flat for 2007/08 and advise Benny of the potential income tax

implications of requesting a more centrally located flat in accordance with the company’s offer.

(4 marks)

6 Assume today’s date is 16 April 2005.

Henry, aged 48, is the managing director of Happy Home Ltd, an unquoted UK company specialising in interior

design. He is wealthy in his own right and is married to Helen, who is 45 years old. They have two children – Stephen,

who is 19, and Sally who is 17.

As part of his salary, Henry was given 3,000 shares in Happy Home Ltd with an option to acquire a further 10,000

shares. The options were granted on 15 July 2003, shortly after the company started trading, and were not part of

an approved share option scheme. The free shares were given to Henry on the same day.

The exercise price of the share options was set at the then market value of ￡1·00 per share. The options are not

capable of being exercised after 10 years from the date of grant. The company has been successful, and the current

value of the shares is now ￡14·00 per share. Another shareholder has offered to buy the shares at their market value,

so Henry exercised his share options on 14 April 2005 and will sell the shares next week, on 20 April 2005.

With the company growing in size, Henry wishes to recruit high quality staff, but the company lacks the funds to pay

them in cash. Henry believes that giving new employees the chance to buy shares in the company would help recruit

staff, as they could share in the growth in value of Happy Home Ltd. Henry has heard that there is a particular share

scheme that is suitable for small, fast growing companies. He would like to obtain further information on how such

a scheme would work.

Henry has accumulated substantial assets over the years. The family house is owned jointly with Helen, and is worth

￡650,000. Henry has a ￡250,000 mortgage on the house. In addition, Henry has liquid assets worth ￡340,000

and Helen has shares in quoted companies currently worth ￡125,000. Henry has no forms of insurance, and believes

he should make sure that his wealth and family are protected. He is keen to find out what options he should be

considering.

Required:

(a) (i) State how the gift of the 3,000 shares in Happy Home Ltd was taxed. (1 mark)

(c) Assuming that she will survive until July 2009, advise on the lifetime inheritance tax (IHT) planning

measures that could be undertaken by Debbie, quantifying the savings that can be made. (7 marks)

For this question you should assume that the rates and allowances for 2004/05 apply throughout.