Raising Individual Financial Awareness
PART A
Answer questions 1 and 2. You must use the format taught in class to obtain full marks. All questions indicate the marks available.
Question 1
In the tax year 2019/20 Henry Murray has:
- Been working as a finance manager earning £75,000 per annum. He is provided with a petrol car by his employer, list price £24,000, with CO2 emissions of 123g/km. His employer pays for all the fuel for the car. He is also provided with a parking space at work in the centre of London that is worth £875 a year. There is a staff canteen available to all staff where Henry has a subsidised lunch each day; this costs him £1.50 and he estimates an equivalent meal elsewhere would be approximately £5.50. Henry had to pay professional subscriptions to the ICAEW of £395 this year.
- During the year Henry received interest on his bank savings account of £1,600 and dividends of £1,825. He has an ISA, on which he received £750 of interest during the year.
- In August 2019 Henry sold a painting for £23,400. He had to pay £400 for special packaging and agents fees of £1,000 from the proceeds. He bought the painting years ago at an auction for £250. In 1999 he had the the frame repaired at a cost of £75.
- Henry also runs his own consultancy business, teaching personal finance workshops. This year he made profits of £7,800 after deducting personal withdrawals of £3,000. He kept accurate mileage logs and charged £245 in business petrol costs to arrive at this profit, and also deducted the cost of gifts to his clients, amounting to £970.
Required:
Calculate Henry’s income tax liability for the year 2019/20. (25 marks)
Calculate Henry’s capital gains tax liability for the year 2019/20. What rate of tax will he pay on this gain? (4 marks)
29 marks
Question 2
Anne Murray is planning to buy a property, in addition to the family home she and Henry own, for rental purposes. She is considering a property in Bristol costing £250,000. She has savings of £70,000, which she will use as a deposit, but will need to borrow the remaining amount for the purchase. She requests you to research and find a suitable buy-to-let mortgage for her.
She also wants to know what income she might expect to get as a return on her investment. Local agents have estimated that the monthly rent may be £1,850 per month, with agent’s fees for managing the property being charged at 5% of the rent.
Having found a relevant real product for the mortgage, work out an estimation of the relevant costs of renting the property and the net rental income that she might expect to get annually. Anne estimates some of the other costs she will incur as follows:
| Repairs and maintenance per year | £1,700 |
| Property insurance per year | £395 |
| Surveyors fees | £375 |
| Solicitors conveyancing fees | £1350 |
| Gardener | £1250 |
Required:
- Find a real buy-to-let mortgage for Anne and explain the details to her.
3 marks
- Which of the above expenses can only be claimed against Capital Gains tax?
1 mark
- Calculate the net annual income (for income tax purposes) that Anne can expect from her rental property. 6 marks
- Calculate the potential return on income from her investment (ROI). 2 marks
- What are the two main taxes on a rental property and against which tax can SDLT be deducted?
Calculate the SDLT on this purchase. 4 marks - 16 marks
