LPC question- laws regarding taxation on shares
Hi sorry that this is an academic question rather than a real life issue, but I have been given some pre-work for the LPC course which is on taxation- I have been looking through books and googled it for over two hours now but cannot come out with a simple answer, everything I look at leads on to other variables that I needn't know of just yet.
I understand most of the rules laid out in ITTEPA 2003 & ITTOIA 2005 but just need to know a simple bit of advice in order to continue with my calculations.
The question is a standard exam style scenario where the person in question has numerous aspects of liability. I have outlined all of the issues and have been able to address what is taxable and by how much etc, but I cannot find any information on the sale of shares. I need to calculate the taxable income, but without knowing whether the sale of shares carries any certain rules I cannot begin to make calculations as using the wrong figure to start with will obviously give me an incorrect answer.
So here is the section of the scenario question that I do not know what to do with;
The person in question sold 300 shares in this tax year for £30,000.
They were purchased in 1999 for £4,000.
The company is owned by her brother but she has never been an employee of the company.
It is because of this background information that I am reluctant to simply class the £30,000 as taxable income. Otherwise why am I told the information about the purchase price of £4,000 and her affiliations with the company? This suggests that there is a particular rule that calculates tax based on;
i) the original purchase price of the shares
ii) the year the shares were purchased
iii) the buyer's association with the company.
I have been able to find out all kinds of information on shareholder dividend tax and apply it (10% source taxation, "grossing up" etc), but when it comes to the sale of shares I am finding nothing more than it falls under the laws of Capital Gains Tax.
The reason I ask for this is because the question in the LPC workshop is asking me to calculate the income that is subject to tax, which I then need to use for further calculations. However as I do not know the laws on selling shares I am halted at the first hurdle. Its not as though I can skip a question as question 10 is reliant on question 1 being answered correctly. I am asking out of desperation as I dread starting the LPC with a blank sheet and having to simply copy the answers down at my first seminar- especially as the answer itself is unimportant, I only need the rules and/or formulae and I can work it out by myself.
Any help would be greatly appreciated.
You do not say precisely what
You do not say precisely what the question is but the receipt of £30000.00 on the sale of shares would not attact income tax. There is a potential gain which would attract capital gains tax.
Hi thanks for the reply. The
Hi thanks for the reply.
The question in simple terms is what aspects of her income are taxable (it is too long to type out on here and I don't need help on any other issue than the shares sold).
The scenario is asking me to outline what would be tax deductable (for a sole trader);
To bullet point these are;
Turnover- Not deductable
Office rental- Deductable (ITTOIA 05)
Utility bills- Deductable (ITTOIA 05)
Stationery- Deductable (ITTOIA 05)
Low carbon emitting machinery- 100% Deductable (Capital Allowances 2001)
Expenditure on networking & entertainment for clients- Not deductable
Part time work income- Not deductable
ISA income- Not deductable and taxed at source 20%
Share dividends- Not deductable and taxed at source 10%
Income from renting room at house to lodger- Deductable as sum is less than allowance of £4,250 under rent-a-room scheme
and then there is the issue of shares sold;
£30,000 (making a £26,000 profit)- which I could not find out whether either of these values were tax deductable.
The questions do not mention Capital Gains Tax, so following your answer it would seem that I should not include the £30,000 in the Income Tax calculations.
The questions are in grid form that ask for a breakdown of figures. So Q1 asks for the;
Salary-
Trade Profits-
Interest Income-
Dividend Receipt-
TOTAL INCOME-
I was stuck on the second part of the above question, as I didn't know whether the sale of shares would be classed as "trade profits". Without knowing this it is impossible to work out the Total Income, which is a figure that I would then need to use to work out Q2 Net Income.
Currently sitting LPC examinations and tearing my hair out at the ambiguously phrased Multiple Choice Questions!
The profit from the shares
The profit from the shares would only be a trading profit if the holder of the shares was running a business buying and selling shares.
In this case it would appear that this is not the case.
The shares were acquired some years ago and in a family context.
This suggests there is no on-going business and the profit made from the sale has no income tax implications - only CGT.