Shaun has a cousin named Lilly, who owns a successful cosmetics business and pays income tax at the higher rate. In 2021/22 Lilly made the following disposals of assets:May 2021: Sold a painting at auction for £8,400. The painting had been a gift from her grandmother. Lilly paid auction fees of £320.May 2021: Sold a second painting to Shaun. This painting had cost Lilly £7,200 in 2014 but she sells it to Shaun for £5,000, which is the estimated market value.July 2021: Lilly gifted the goodwill in her cosmetics business to her twenty year old daughter who works in the business. The goodwill was acquired for £12,000 when Lilly purchased the business in 2010 and its market value in July 2021 is £65,000. December 2021: Sold 2,000 shares in Jabo plc. for £28,000. Lilly had purchased 1500 shares in 2008 for £2,000 and another 1,800 shares in 2012 for £5,400. Required:Calculate Lilly’s capital gains tax liability for 2021/22 and explain how holdover relief might be claimed on any of the above transactions.

i. Capital gain on sale of First painting Sale Proceeds = £ 8,400 Less: fees…

Answered: Shaun has a cousin named Lilly, who…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Shaun has a cousin named Lilly, who owns a successful cosmetics business and pays income tax at the higher rate. In 2021/22 Lilly made the following disposals of assets:

May 2021: Sold a painting at auction for £8,400. The painting had been a gift from her grandmother. Lilly paid auction fees of £320.
May 2021: Sold a second painting to Shaun. This painting had cost Lilly £7,200 in 2014 but she sells it to Shaun for £5,000, which is the estimated market value.
July 2021: Lilly gifted the goodwill in her cosmetics business to her twenty year old daughter who works in the business. The goodwill was acquired for £12,000 when Lilly purchased the business in 2010 and its market value in July 2021 is £65,000.
December 2021: Sold 2,000 shares in Jabo plc. for £28,000. Lilly had purchased 1500 shares in 2008 for £2,000 and another 1,800 shares in 2012 for £5,400.

Required:

Calculate Lilly’s capital gains tax liability for 2021/22 and explain how holdover relief might be claimed on any of the above transactions.

Definition Definition Tax imposed by the government on the "gain" or increase in the value of an asset at the time of its sale by the owner. Capital gain is computed based on the purchase price and sale price of the asset. If the sale price of the asset is more than the purchase price, there is a gain on the sale of asset. A tax is imposed on such gain in accordance with the applicable tax rates at the time of sale.

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