THE CHARTERED INSTITUTE OF TAXATION
ADVANCED TECHNICAL
Taxation of Individuals
May 2022
TIME ALLOWED
3 HOURS 30 MINUTES
• All workings should be shown and made to the nearest month and pound unless the question specifies
otherwise.
• Candidates who answer any law elements in this paper in accordance with Scots law or Northern
Ireland law should indicate this where relevant.
• Scots law candidates may provide answers referring to Land and Buildings Transaction Tax rather
than Stamp Duty Land Tax.
• Unless otherwise indicated by the provision of additional information in the question, you may assume
that 2021/22 legislation (including rates and allowances) continues to apply for 2022/23 and future
years. Candidates answering by reference to more recently enacted legislation or tax cases will not
be penalised.
• You must type your answer in the space on the screen as indicated by the Exam4 guidance.
,1. Paintlite Ltd is an unquoted paint-manufacturing company which was incorporated in the UK in
1995. The company has always been owned by four siblings: Dennis, Liz, Kate and Matthew. There
are currently 100 ordinary shares of £10 each in issue, which rank equally for dividends, votes and
on a sale or winding up. Dennis and Liz hold 30 shares each and Kate and Matthew hold 20 shares
each. The company has recently been valued at £1,800,000. All shares were subscribed for at par
value.
Dennis would like to retire in the next six months and has offered to sell his shares to the other
shareholders. Kate and Matthew would like to buy them, but they do not have enough cash
available.
They are not keen on offering the shares for sale to external investors.
Paintlite Ltd has a significant cash reserve, so Kate has suggested that company funds could be
used to purchase the shares.
As Dennis has spent so many years building Paintlite Ltd, he would like to keep a small
shareholding for sentimental purposes. Kate and Matthew have agreed that he can keep two
shares. He is to receive proceeds of £336,000 which is considered to be market value for the 28
shares he will sell.
Although she has not expressed any desire to retire or sell her shares, Kate and Matthew have
asked Liz to sell her shares too, since she significantly reduced her involvement in the company
two years ago when she bought a house in Spain. She now very rarely visits the factory and is
resident in Spain. Liz will receive proceeds of £360,000 which is the market value for her 30 shares.
Jon is a key employee in the factory management team at Paintlite Ltd and receives an annual
salary of £60,000. Kate and Matthew would like to grant Jon an unapproved share option, allowing
him to buy 10 shares at an exercise price of £9,000 per share. The option will be granted by Kate
and Matthew, rather than by Paintlite Ltd. They expect Jon to exercise the shares in around three
years’ time when they anticipate the shares will be worth £12,000 per share.
Requirement:
1) Discuss how the purchase of Dennis and Liz’s shares should be funded and explain
any tax implications for Dennis and Liz if the company’s funds are used. (15)
2) Discuss the tax implications of the proposed share option for Kate and Matthew.
You are NOT required to comment on Jon’s tax position. (5)
Total (20)
,2. Ellie Harris is UK domiciled and was resident in the UK from birth until May 2018, when she left the
UK for employment in Portugal. This employment ended on 5 April 2021 and she returned to live
in England on 6 April 2021. Ellie’s Portuguese employer paid her final salary payment of £1,400 on
8 April 2021. All the duties of Ellie’s employment were carried out in Portugal and she did not visit
the UK during this time.
In November 2020 Ellie sold her shareholding in Happy Holidays plc, making a capital gain of
£21,720. She paid tax of £608 on this gain in Portugal. Happy Holidays plc is a UK company. Ellie
originally purchased the shares in September 2015.
On 20 July 2021 (in the sixteenth week of the tax year), Ellie was appointed as a director of Seaside
Photos Ltd. She was paid £16,000 gross salary during 2021/22. Prior to the company’s year-end
on 31 March 2022, the board of Seaside Photos Ltd met on 1 March to discuss bonuses for the
company directors. It was agreed that each director would receive a bonus of £3,000. The bonuses
will be paid on 30 June 2022.
In October 2021, Ellie sold a piece of jewellery for £5,200. Ellie inherited the jewellery from her
Grandmother. The probate value was £7,100.
At 6 April 2021, Ellie had capital losses brought forward of £1,631.
Requirement:
Calculate, with explanations, Ellie’s Tax and National Insurance liabilities for the year ended
5 April 2022. (15)
, 3. Lenny Jones is UK tax resident and lives in England with his wife, Jenny. Until 31 August 2021 he
was employed by Purple Stories Ltd as the manager of their London warehouse. Purple Stories Ltd
operates a book distribution business.
Purple Stories Ltd opened up a new warehouse in Birmingham and asked Lenny to be its manager.
Lenny agreed and he and Jenny moved to Birmingham, where Lenny started his new duties on
1 September 2021. After living in temporary accommodation, Lenny and his family purchased a
new house on 30 November 2021.
During 2021/22 he was paid a basic salary of £75,600 from which PAYE of £7,000 was deducted
and he received the following expense reimbursements:
Date Description Amount
£
9 June 2021 Family trip to Birmingham to find suitable new property 1,750
31 August 2021 Costs of Lenny’s temporary accommodation in Birmingham 1,250
until house purchase
30 November 2021 Stamp Duty Land Tax on Lenny’s new house in Birmingham 3,750
31 December 2021 Cost of redecorating bedrooms in Lenny’s house in 700
Birmingham
Total 7,450
Lenny also received a round sum allowance of £1,750 on 30 April 2021 to cover general business
expenses in 2021/22. Lenny has receipts which show that his actual expenses were:
Date Description Amount
£
19 October 2021 Subscription to trade association 850
31 October 2021 Entertaining customers 900
Total 1,750
Purple Stories Ltd made a loan to Lenny in 2020/21, £12,500 of which was still outstanding on
6 April 2021. Lenny was advanced a further £3,500 on 6 September 2021. He paid interest of £150
during 2021/22 and did not make any repayments.
Lenny subscribed for 2,000 shares in an EIS qualifying company, Hazel Trouser Ltd, on 1 March
2019 and paid £50,000 for them. He received EIS Income Tax relief of £15,000. Lenny sold the
shares for £30,000 on 19 September 2021.
In 2018, Lenny subscribed £10,000 for shares in an unquoted software development company,
White Skirt Ltd. The company ceased to trade on 10 March 2022 and appears to be insolvent so it
is unlikely that Lenny will see any return on his investment.
During 2021/22:
1) Lenny and Jenny jointly borrowed £40,000 which Lenny alone used to buy 15% of the
shares in Green Shawl Ltd, a close company in Northampton which manufactures furniture.
The interest paid on the loan in the year was £2,000 and was paid from a joint bank
account.
2) Lenny paid £750 of interest on a loan of £10,000 to acquire 10% of the shares in Turquoise
Belt Ltd, an Australian unquoted company, which manufactures electronic goods.
3) Lenny made a gift of 10 shares in Indigo Sandal Ltd to a UK charity when the shares were
worth £2,000. Indigo Sandal is an unquoted company based in Dorset, which manufactures
phones. The shares were acquired for £1,000.
4) Lenny received interest from his £40,000 4% Treasury stock 2020 investment which is paid
(gross) twice a year on 31 March and 30 September.
5) Lenny received a dividend distribution of £2,480 from a UK unit trust.
6) Lenny and Jenny received interest of £1,750 from a jointly owned Eurobond.
7) Lenny received interest of £300 from an overseas bank account, net of overseas taxes of
20%. There is no double tax treaty in place between the UK and the source country of the
interest.
Requirement:
ADVANCED TECHNICAL
Taxation of Individuals
May 2022
TIME ALLOWED
3 HOURS 30 MINUTES
• All workings should be shown and made to the nearest month and pound unless the question specifies
otherwise.
• Candidates who answer any law elements in this paper in accordance with Scots law or Northern
Ireland law should indicate this where relevant.
• Scots law candidates may provide answers referring to Land and Buildings Transaction Tax rather
than Stamp Duty Land Tax.
• Unless otherwise indicated by the provision of additional information in the question, you may assume
that 2021/22 legislation (including rates and allowances) continues to apply for 2022/23 and future
years. Candidates answering by reference to more recently enacted legislation or tax cases will not
be penalised.
• You must type your answer in the space on the screen as indicated by the Exam4 guidance.
,1. Paintlite Ltd is an unquoted paint-manufacturing company which was incorporated in the UK in
1995. The company has always been owned by four siblings: Dennis, Liz, Kate and Matthew. There
are currently 100 ordinary shares of £10 each in issue, which rank equally for dividends, votes and
on a sale or winding up. Dennis and Liz hold 30 shares each and Kate and Matthew hold 20 shares
each. The company has recently been valued at £1,800,000. All shares were subscribed for at par
value.
Dennis would like to retire in the next six months and has offered to sell his shares to the other
shareholders. Kate and Matthew would like to buy them, but they do not have enough cash
available.
They are not keen on offering the shares for sale to external investors.
Paintlite Ltd has a significant cash reserve, so Kate has suggested that company funds could be
used to purchase the shares.
As Dennis has spent so many years building Paintlite Ltd, he would like to keep a small
shareholding for sentimental purposes. Kate and Matthew have agreed that he can keep two
shares. He is to receive proceeds of £336,000 which is considered to be market value for the 28
shares he will sell.
Although she has not expressed any desire to retire or sell her shares, Kate and Matthew have
asked Liz to sell her shares too, since she significantly reduced her involvement in the company
two years ago when she bought a house in Spain. She now very rarely visits the factory and is
resident in Spain. Liz will receive proceeds of £360,000 which is the market value for her 30 shares.
Jon is a key employee in the factory management team at Paintlite Ltd and receives an annual
salary of £60,000. Kate and Matthew would like to grant Jon an unapproved share option, allowing
him to buy 10 shares at an exercise price of £9,000 per share. The option will be granted by Kate
and Matthew, rather than by Paintlite Ltd. They expect Jon to exercise the shares in around three
years’ time when they anticipate the shares will be worth £12,000 per share.
Requirement:
1) Discuss how the purchase of Dennis and Liz’s shares should be funded and explain
any tax implications for Dennis and Liz if the company’s funds are used. (15)
2) Discuss the tax implications of the proposed share option for Kate and Matthew.
You are NOT required to comment on Jon’s tax position. (5)
Total (20)
,2. Ellie Harris is UK domiciled and was resident in the UK from birth until May 2018, when she left the
UK for employment in Portugal. This employment ended on 5 April 2021 and she returned to live
in England on 6 April 2021. Ellie’s Portuguese employer paid her final salary payment of £1,400 on
8 April 2021. All the duties of Ellie’s employment were carried out in Portugal and she did not visit
the UK during this time.
In November 2020 Ellie sold her shareholding in Happy Holidays plc, making a capital gain of
£21,720. She paid tax of £608 on this gain in Portugal. Happy Holidays plc is a UK company. Ellie
originally purchased the shares in September 2015.
On 20 July 2021 (in the sixteenth week of the tax year), Ellie was appointed as a director of Seaside
Photos Ltd. She was paid £16,000 gross salary during 2021/22. Prior to the company’s year-end
on 31 March 2022, the board of Seaside Photos Ltd met on 1 March to discuss bonuses for the
company directors. It was agreed that each director would receive a bonus of £3,000. The bonuses
will be paid on 30 June 2022.
In October 2021, Ellie sold a piece of jewellery for £5,200. Ellie inherited the jewellery from her
Grandmother. The probate value was £7,100.
At 6 April 2021, Ellie had capital losses brought forward of £1,631.
Requirement:
Calculate, with explanations, Ellie’s Tax and National Insurance liabilities for the year ended
5 April 2022. (15)
, 3. Lenny Jones is UK tax resident and lives in England with his wife, Jenny. Until 31 August 2021 he
was employed by Purple Stories Ltd as the manager of their London warehouse. Purple Stories Ltd
operates a book distribution business.
Purple Stories Ltd opened up a new warehouse in Birmingham and asked Lenny to be its manager.
Lenny agreed and he and Jenny moved to Birmingham, where Lenny started his new duties on
1 September 2021. After living in temporary accommodation, Lenny and his family purchased a
new house on 30 November 2021.
During 2021/22 he was paid a basic salary of £75,600 from which PAYE of £7,000 was deducted
and he received the following expense reimbursements:
Date Description Amount
£
9 June 2021 Family trip to Birmingham to find suitable new property 1,750
31 August 2021 Costs of Lenny’s temporary accommodation in Birmingham 1,250
until house purchase
30 November 2021 Stamp Duty Land Tax on Lenny’s new house in Birmingham 3,750
31 December 2021 Cost of redecorating bedrooms in Lenny’s house in 700
Birmingham
Total 7,450
Lenny also received a round sum allowance of £1,750 on 30 April 2021 to cover general business
expenses in 2021/22. Lenny has receipts which show that his actual expenses were:
Date Description Amount
£
19 October 2021 Subscription to trade association 850
31 October 2021 Entertaining customers 900
Total 1,750
Purple Stories Ltd made a loan to Lenny in 2020/21, £12,500 of which was still outstanding on
6 April 2021. Lenny was advanced a further £3,500 on 6 September 2021. He paid interest of £150
during 2021/22 and did not make any repayments.
Lenny subscribed for 2,000 shares in an EIS qualifying company, Hazel Trouser Ltd, on 1 March
2019 and paid £50,000 for them. He received EIS Income Tax relief of £15,000. Lenny sold the
shares for £30,000 on 19 September 2021.
In 2018, Lenny subscribed £10,000 for shares in an unquoted software development company,
White Skirt Ltd. The company ceased to trade on 10 March 2022 and appears to be insolvent so it
is unlikely that Lenny will see any return on his investment.
During 2021/22:
1) Lenny and Jenny jointly borrowed £40,000 which Lenny alone used to buy 15% of the
shares in Green Shawl Ltd, a close company in Northampton which manufactures furniture.
The interest paid on the loan in the year was £2,000 and was paid from a joint bank
account.
2) Lenny paid £750 of interest on a loan of £10,000 to acquire 10% of the shares in Turquoise
Belt Ltd, an Australian unquoted company, which manufactures electronic goods.
3) Lenny made a gift of 10 shares in Indigo Sandal Ltd to a UK charity when the shares were
worth £2,000. Indigo Sandal is an unquoted company based in Dorset, which manufactures
phones. The shares were acquired for £1,000.
4) Lenny received interest from his £40,000 4% Treasury stock 2020 investment which is paid
(gross) twice a year on 31 March and 30 September.
5) Lenny received a dividend distribution of £2,480 from a UK unit trust.
6) Lenny and Jenny received interest of £1,750 from a jointly owned Eurobond.
7) Lenny received interest of £300 from an overseas bank account, net of overseas taxes of
20%. There is no double tax treaty in place between the UK and the source country of the
interest.
Requirement:
