THE CHARTERED INSTITUTE OF TAXATION
APPLICATION AND PROFESSIONAL SKILLS
Taxation of Owner-Managed Businesses
May 2022
TIME ALLOWED
3 HOURS 30 MINUTES
• In order to secure a pass in this exam, you will be required to demonstrate competence in each of
three skills.
You will be assessed across your answer as a whole for Structure. A pass or fail grade will be
awarded.
You will be assessed for competence in a number of broad topics for the following skills:
➢ Identification and Application
➢ Relevant Advice and Substantiated Conclusions
For each topic for each of these two skills, a grade will be awarded. The grades for those topics will
be weighted and averaged to produce a final grade for each skill of 0, 1, 2, 3 or 4. A grade of 3 or 4
is required to demonstrate competence.
• 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.
,You are employed by Tillia Taxation, a firm of Chartered Tax Advisers, where you work primarily for Julia
Tillia.
Julia has recently met with Anne and Robert Simpson (EXHIBIT A), the shareholders of Simpson
Engineering Ltd, a successful company which manufactures joinery equipment. The Simpsons and their
company have recently become clients of Tillia Taxation.
Anne is unwell so the couple have decided to retire as soon as possible. The couple require advice
regarding passing ownership of their company to their son, Simon, together with other connected matters.
It was agreed that Julia would draft a report to the Simpsons addressing the issues discussed at the
meeting.
EXHIBIT A: Notes of meeting between Julia Tillia and Anne and Robert Simpson
EXHIBIT B: Notes of a telephone conversation between Julia Tillia and Robert Simpson
EXHIBIT C: Extract from share valuation report prepared by ZYX Valuation Services Ltd
EXHIBIT D: Pre-seen information
Requirement:
Prepare a draft report to Anne and Robert Simpson, for review by Julia, providing advice and
recommendations on the issues discussed at the meeting.
Continued
Page 2 of 7 APS OMB
, Continuation
EXHIBIT A
Notes of meeting between Julia Tillia and Anne and Robert Simpson
Meeting Date: 22 April 2022
Present: Julia Tillia, Anne and Robert Simpson
Subject: Transfer of shareholdings in Simpson Engineering Ltd and ancillary issues
Anne explained that six months ago, she was diagnosed with a serious life-limiting disease. With
treatment she currently feels fine and is still working for the company, although this is expected to continue
for only another six months or so. She has been informed that her life expectancy is only a further three
years. Robert, who was working part-time, is in good health. To help Anne run the company, he is now
working full-time again.
It has always been intended that ownership of the company would eventually transfer to their son, Simon,
and the time has now come to fully consider how this might be achieved. Simon has been working for the
company as its production manager since leaving school and knows the business extremely well.
They intend to gift all their shares to Simon, who will become the Managing Director. Robert said that
Simon has no plans to sell the shares once they are transferred to him. Ideally, they would like to make
the gifts soon but are prepared to wait if it is advisable to do so. The couple require advice on the tax
implications of these proposed gifts, including when the transfers should occur.
With the exception of Robert’s gift of Simpson Engineering Ltd shares to Anne in June 1985 the only
previous gift made by either of them was to Simon on 30 June 2019, when they gifted their former jointly
owned main residence to him. The house was valued at £675,000 at that time. No chargeable gain arose
on the gift of this house and Simon has continued to live in it since then.
Robert mentioned that the company currently has a healthy bank balance. Based upon the most recent
cashflow projections he estimated that approximately £75,000 of this was in excess of the company’s
trading requirements, a situation that has prevailed for several years. Robert said that he would provide
further information regarding the company’s fixed assets, including capital expenditure for the year ended
30 September 2022, and investments over the next few days (EXHIBIT B).
Whilst discussing the company’s investments Julia confirmed that WR Woodturning Ltd is not a joint
venture company for the purposes of the Taxes Acts.
In anticipation of our meeting, Andrew Crouch of ZYX Valuation Services Ltd was appointed to value the
couple’s shareholdings. An extract from his report is attached to this memo summarising his conclusions
(EXHIBIT C). The company has been growing in a fairly steady way under Anne’s stewardship. It is
anticipated that this will continue into the foreseeable future such that the shares will have increased in
value by 15% after a further three years and 40% after a further seven years. It was agreed that these
increases in value can be used in our analysis.
Robert also mentioned that he wants to sell the warehouse that he personally owns to the company to
raise some additional cash for the couple’s retirement. The warehouse would be sold for its full market
value of £100,000. Robert explained that he has never charged any rent for this warehouse. Robert
therefore also wants some advice regarding the tax implications for him of selling his warehouse to the
company and when this should occur.
It was agreed that a report would be prepared to address the above issues and detail our advice and any
recommendations. With regards to Inheritance Tax advice, it was further agreed that only the Inheritance
Tax implications arising from the gifts of the shareholdings would be looked at in the report, and not any
wider implications. The meeting then ended.
J Tillia
Continued
Page 3 of 7 APS OMB
APPLICATION AND PROFESSIONAL SKILLS
Taxation of Owner-Managed Businesses
May 2022
TIME ALLOWED
3 HOURS 30 MINUTES
• In order to secure a pass in this exam, you will be required to demonstrate competence in each of
three skills.
You will be assessed across your answer as a whole for Structure. A pass or fail grade will be
awarded.
You will be assessed for competence in a number of broad topics for the following skills:
➢ Identification and Application
➢ Relevant Advice and Substantiated Conclusions
For each topic for each of these two skills, a grade will be awarded. The grades for those topics will
be weighted and averaged to produce a final grade for each skill of 0, 1, 2, 3 or 4. A grade of 3 or 4
is required to demonstrate competence.
• 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.
,You are employed by Tillia Taxation, a firm of Chartered Tax Advisers, where you work primarily for Julia
Tillia.
Julia has recently met with Anne and Robert Simpson (EXHIBIT A), the shareholders of Simpson
Engineering Ltd, a successful company which manufactures joinery equipment. The Simpsons and their
company have recently become clients of Tillia Taxation.
Anne is unwell so the couple have decided to retire as soon as possible. The couple require advice
regarding passing ownership of their company to their son, Simon, together with other connected matters.
It was agreed that Julia would draft a report to the Simpsons addressing the issues discussed at the
meeting.
EXHIBIT A: Notes of meeting between Julia Tillia and Anne and Robert Simpson
EXHIBIT B: Notes of a telephone conversation between Julia Tillia and Robert Simpson
EXHIBIT C: Extract from share valuation report prepared by ZYX Valuation Services Ltd
EXHIBIT D: Pre-seen information
Requirement:
Prepare a draft report to Anne and Robert Simpson, for review by Julia, providing advice and
recommendations on the issues discussed at the meeting.
Continued
Page 2 of 7 APS OMB
, Continuation
EXHIBIT A
Notes of meeting between Julia Tillia and Anne and Robert Simpson
Meeting Date: 22 April 2022
Present: Julia Tillia, Anne and Robert Simpson
Subject: Transfer of shareholdings in Simpson Engineering Ltd and ancillary issues
Anne explained that six months ago, she was diagnosed with a serious life-limiting disease. With
treatment she currently feels fine and is still working for the company, although this is expected to continue
for only another six months or so. She has been informed that her life expectancy is only a further three
years. Robert, who was working part-time, is in good health. To help Anne run the company, he is now
working full-time again.
It has always been intended that ownership of the company would eventually transfer to their son, Simon,
and the time has now come to fully consider how this might be achieved. Simon has been working for the
company as its production manager since leaving school and knows the business extremely well.
They intend to gift all their shares to Simon, who will become the Managing Director. Robert said that
Simon has no plans to sell the shares once they are transferred to him. Ideally, they would like to make
the gifts soon but are prepared to wait if it is advisable to do so. The couple require advice on the tax
implications of these proposed gifts, including when the transfers should occur.
With the exception of Robert’s gift of Simpson Engineering Ltd shares to Anne in June 1985 the only
previous gift made by either of them was to Simon on 30 June 2019, when they gifted their former jointly
owned main residence to him. The house was valued at £675,000 at that time. No chargeable gain arose
on the gift of this house and Simon has continued to live in it since then.
Robert mentioned that the company currently has a healthy bank balance. Based upon the most recent
cashflow projections he estimated that approximately £75,000 of this was in excess of the company’s
trading requirements, a situation that has prevailed for several years. Robert said that he would provide
further information regarding the company’s fixed assets, including capital expenditure for the year ended
30 September 2022, and investments over the next few days (EXHIBIT B).
Whilst discussing the company’s investments Julia confirmed that WR Woodturning Ltd is not a joint
venture company for the purposes of the Taxes Acts.
In anticipation of our meeting, Andrew Crouch of ZYX Valuation Services Ltd was appointed to value the
couple’s shareholdings. An extract from his report is attached to this memo summarising his conclusions
(EXHIBIT C). The company has been growing in a fairly steady way under Anne’s stewardship. It is
anticipated that this will continue into the foreseeable future such that the shares will have increased in
value by 15% after a further three years and 40% after a further seven years. It was agreed that these
increases in value can be used in our analysis.
Robert also mentioned that he wants to sell the warehouse that he personally owns to the company to
raise some additional cash for the couple’s retirement. The warehouse would be sold for its full market
value of £100,000. Robert explained that he has never charged any rent for this warehouse. Robert
therefore also wants some advice regarding the tax implications for him of selling his warehouse to the
company and when this should occur.
It was agreed that a report would be prepared to address the above issues and detail our advice and any
recommendations. With regards to Inheritance Tax advice, it was further agreed that only the Inheritance
Tax implications arising from the gifts of the shareholdings would be looked at in the report, and not any
wider implications. The meeting then ended.
J Tillia
Continued
Page 3 of 7 APS OMB
