THE CHARTERED INSTITUTE OF TAXATION
APPLICATION AND PROFESSIONAL SKILLS
Taxation of Individuals
May 2021
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.
• Except as set out below or indicated by additional information in the question, you may
assume that 2020/21 legislation (including rates and allowances) continues to apply for
2021/22 and future years.
1) You MUST assume that the UK remains within the European Union.
2) You MUST ignore all temporary Covid related legislation including furlough, grants, loans
and the reductions in VAT and SDLT rates.
Except in relation to points 1) and 2) above, 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 a tax senior in a firm of Chartered Tax Advisers. Julia Anderson has been a client of
your firm for many years.
Julia has emailed your manager, Malcolm Clark, requesting tax advice in relation to her future
plans (EXHIBIT A).
Julia has included further information in an attachment to her email (EXHIBIT B).
The following exhibits are provided to assist you:
EXHIBIT A: Email from Julia Anderson
EXHIBIT B: Attachment to email from Julia Anderson
EXHIBIT C: Pre-seen information
Requirement:
Prepare a draft report advising Julia Anderson on the issues raised in her email and
recommending the best way to structure her tax affairs going forward.
Continued
Page 2 of 6 APS IND
,Continuation
EXHIBIT A
Email from Julia Anderson
To: Malcolm Clark
From: Julia Anderson
Date: 30 April 2021
Subject: Tax Advice
Dear Malcolm
I would like to let you know of some changes which I believe may impact my tax position. I will
be having major work carried out at 2 Orchard Road, Bournemouth, and also buying a new
property at 7 High Street, Coventry. Details are as follows:
2 Orchard Road, Bournemouth
The long-term tenants moved out of this property on 31 March 2021 and it has been empty
since, as I was unable to find suitable new tenants.
Therefore, I have decided to let the house short-term to holidaymakers instead. Before the
letting starts, I am going to have some building work carried out. The work will involve a
complete re-design of the interior structure and an extension to add an additional bedroom.
This will cost £200,000 and should make the house both more attractive to the holiday rental
market and easier to sell in due course as the house will be significantly improved by the work
done.
I have recently had both 2 Orchard Road and my residence at 15 Round Road valued. It is
anticipated that once complete, the work at 2 Orchard Road will add £200,000 to the value of
the property, so it should pay for itself. I have attached a copy of the property valuation report
covering 2 Orchard Road and 15 Round Road along with a breakdown of the projected income
and expenses from the letting of 2 Orchard Road (EXHIBIT B).
Letting the house to holidaymakers will bring in around £7,000 profit each year. Furniture in the
property will be hired rather than bought, in order to ensure it is always in good condition for
tenants, and to reduce my financial exposure to the risk of damage.
7 High Street, Coventry
As part of my employment, I spend one week every month working in Coventry. Currently, my
employer covers all costs of accommodation and travel relating to this, because my workplace
in Coventry is 100 miles away from my normal workplace in Bristol.
From 1 September 2021, my son Steven will be attending University in Coventry.
As a result of both of the above, I have decided to buy a house in Coventry: 7 High Street. I
made an offer of £250,000 for this property, which has been accepted by the seller. I expect
house prices in Coventry to rise substantially over the next few years, due to planned
infrastructure improvements in the area, so I believe buying the house will turn out to be a good
financial decision.
7 High Street has four bedrooms. Steven will use one room and, depending on your advice, I
will also use one bedroom myself if I stay at the house while working in Coventry. I will let the
spare bedrooms to students at a rent of £500 per month for each room. Steven is not very good
with money and therefore I am considering charging him the same rent as the other students.
If I do so, I will put aside all the money he pays me to give back to him after he graduates.
Continued
Page 3 of 6 APS IND
, Continuation
Therefore, if I stay at the house there will be two rooms to let, if I don’t stay there will be three
rooms to let.
If I stay at 7 High Street while working in Coventry, my employer will pay me a round sum
allowance of £500 per month instead of paying for my hotel accommodation as they have done
previously. Otherwise, they will continue to pay for my hotel accommodation. My travel costs to
drive to Coventry and back will still be covered by my employer at 45 pence per mile regardless
of where I stay while there.
I anticipate that my allowable expenses relating to the rental will be £3,000 per year (not
including mortgage interest). This amount will not change significantly regardless of whether I
stay at 7 High Street, because the tenants will each be responsible for paying their own portion
of council tax and utility bills.
I would like your advice on whether I would be better off with the £6,000 round sum allowance
from my employer, or the £6,000 I would get from renting the extra room at 7 High Street, once
tax and National Insurance are taken into account.
Funding
The purchase of 7 High Street and the refurbishment of 2 Orchard Road will cost £450,000 in
total. I will use the funds in my ISA account to pay £250,000 towards this, and will raise a
further £200,000 through a mortgage. I will pay any additional acquisition costs from my
savings.
The interest rate on my mortgage will be fixed at 5% for the next five years. I anticipate that I
will repay the mortgage within the five-year fixed rate period by selling 2 Orchard Road.
My mortgage adviser has advised me that the mortgage can be secured against either 7 High
Street or 2 Orchard Road.
Kind regards
Julia
Continued
Page 4 of 6 APS IND
APPLICATION AND PROFESSIONAL SKILLS
Taxation of Individuals
May 2021
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.
• Except as set out below or indicated by additional information in the question, you may
assume that 2020/21 legislation (including rates and allowances) continues to apply for
2021/22 and future years.
1) You MUST assume that the UK remains within the European Union.
2) You MUST ignore all temporary Covid related legislation including furlough, grants, loans
and the reductions in VAT and SDLT rates.
Except in relation to points 1) and 2) above, 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 a tax senior in a firm of Chartered Tax Advisers. Julia Anderson has been a client of
your firm for many years.
Julia has emailed your manager, Malcolm Clark, requesting tax advice in relation to her future
plans (EXHIBIT A).
Julia has included further information in an attachment to her email (EXHIBIT B).
The following exhibits are provided to assist you:
EXHIBIT A: Email from Julia Anderson
EXHIBIT B: Attachment to email from Julia Anderson
EXHIBIT C: Pre-seen information
Requirement:
Prepare a draft report advising Julia Anderson on the issues raised in her email and
recommending the best way to structure her tax affairs going forward.
Continued
Page 2 of 6 APS IND
,Continuation
EXHIBIT A
Email from Julia Anderson
To: Malcolm Clark
From: Julia Anderson
Date: 30 April 2021
Subject: Tax Advice
Dear Malcolm
I would like to let you know of some changes which I believe may impact my tax position. I will
be having major work carried out at 2 Orchard Road, Bournemouth, and also buying a new
property at 7 High Street, Coventry. Details are as follows:
2 Orchard Road, Bournemouth
The long-term tenants moved out of this property on 31 March 2021 and it has been empty
since, as I was unable to find suitable new tenants.
Therefore, I have decided to let the house short-term to holidaymakers instead. Before the
letting starts, I am going to have some building work carried out. The work will involve a
complete re-design of the interior structure and an extension to add an additional bedroom.
This will cost £200,000 and should make the house both more attractive to the holiday rental
market and easier to sell in due course as the house will be significantly improved by the work
done.
I have recently had both 2 Orchard Road and my residence at 15 Round Road valued. It is
anticipated that once complete, the work at 2 Orchard Road will add £200,000 to the value of
the property, so it should pay for itself. I have attached a copy of the property valuation report
covering 2 Orchard Road and 15 Round Road along with a breakdown of the projected income
and expenses from the letting of 2 Orchard Road (EXHIBIT B).
Letting the house to holidaymakers will bring in around £7,000 profit each year. Furniture in the
property will be hired rather than bought, in order to ensure it is always in good condition for
tenants, and to reduce my financial exposure to the risk of damage.
7 High Street, Coventry
As part of my employment, I spend one week every month working in Coventry. Currently, my
employer covers all costs of accommodation and travel relating to this, because my workplace
in Coventry is 100 miles away from my normal workplace in Bristol.
From 1 September 2021, my son Steven will be attending University in Coventry.
As a result of both of the above, I have decided to buy a house in Coventry: 7 High Street. I
made an offer of £250,000 for this property, which has been accepted by the seller. I expect
house prices in Coventry to rise substantially over the next few years, due to planned
infrastructure improvements in the area, so I believe buying the house will turn out to be a good
financial decision.
7 High Street has four bedrooms. Steven will use one room and, depending on your advice, I
will also use one bedroom myself if I stay at the house while working in Coventry. I will let the
spare bedrooms to students at a rent of £500 per month for each room. Steven is not very good
with money and therefore I am considering charging him the same rent as the other students.
If I do so, I will put aside all the money he pays me to give back to him after he graduates.
Continued
Page 3 of 6 APS IND
, Continuation
Therefore, if I stay at the house there will be two rooms to let, if I don’t stay there will be three
rooms to let.
If I stay at 7 High Street while working in Coventry, my employer will pay me a round sum
allowance of £500 per month instead of paying for my hotel accommodation as they have done
previously. Otherwise, they will continue to pay for my hotel accommodation. My travel costs to
drive to Coventry and back will still be covered by my employer at 45 pence per mile regardless
of where I stay while there.
I anticipate that my allowable expenses relating to the rental will be £3,000 per year (not
including mortgage interest). This amount will not change significantly regardless of whether I
stay at 7 High Street, because the tenants will each be responsible for paying their own portion
of council tax and utility bills.
I would like your advice on whether I would be better off with the £6,000 round sum allowance
from my employer, or the £6,000 I would get from renting the extra room at 7 High Street, once
tax and National Insurance are taken into account.
Funding
The purchase of 7 High Street and the refurbishment of 2 Orchard Road will cost £450,000 in
total. I will use the funds in my ISA account to pay £250,000 towards this, and will raise a
further £200,000 through a mortgage. I will pay any additional acquisition costs from my
savings.
The interest rate on my mortgage will be fixed at 5% for the next five years. I anticipate that I
will repay the mortgage within the five-year fixed rate period by selling 2 Orchard Road.
My mortgage adviser has advised me that the mortgage can be secured against either 7 High
Street or 2 Orchard Road.
Kind regards
Julia
Continued
Page 4 of 6 APS IND
