Planit:UK Sale of a Business Exercise Answer Key
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This case study is specific to financial planning in the United Kingdom, so has fixed values rather than indices by country. For a similar case study applicable to other countries, please see Planit:Malaysian Sale of a Business Exercise Answer Key, Planit:Canadian Sale of a Business Exercise Answer Key, Planit:Singapore Sale of a Business Exercise Answer Key or Planit:Entering Other Revenues Exercise Answer Key.
Question Three:
45-year old Kathy Black owns a small Spa with an ACB of $100,000 that she plans to sell when she retires at age 60. The business is currently worth $460,000. She expects the business will grow at a rate of 5.0% every year. What would you put into the following data fields on the detailed Pensions screen?
- To Year:____
- Percent Taxable:____%
- % Amount on Death:____%
- Model As:____
Answer:
Continue to the Pensions and Other Revenues screen. Click on Add above any existing entries. Amount: £120,000 To Year: 15 years from the current year (year of Kathy’s retirement) Index Rate: 5.0% Percent Taxable: 10.6% (Taxes are only payable on the portion of the business above the initial value, and above the tax exemption of £9,600 for capital gains. Thus the amount that is tax-liable at a rate of 18% is the value of the business (£120,000) – the initial value of the business (£40,000) – the exempt amount (£9,600) = £70,400. 18% x £70,400 = £12,672. This £12,672 in taxes needs to be expressed as a percent of the value of the business. £12,672 divided by £120,000 x 100% = 10.6%) Amount on Death: 100% Model As: Defer with Retirement (the entire goal would be pushed back until he retires, not just the start year). There are some fields that will also need to be completed before you can properly add the revenue: Owner: Client; From Year: year Harold is age 62 (20 years from now); Index Rate: 6.0%; Amount on Disability: 100%. Click Save.
Alternatively, you could enter two separate revenues: one for the tax-liable amount of £70,400 with a Percent Taxable of 18% and Index Rate of 6.0%, and one for the non-taxable portion of £49,600 with a Percent Taxable of 0% and Index Rate of 0%. All of the remaining data entry for these separate revenues would be the same as is described above.
