1 Flashcards
What is the scope of residence?
Those resident in the UK are subject to UK income tax and CGT
How are UK residents taxed on their worldwide income? (2)
Taxable on worldwide income and gains as it arises
Does not have to be remitted to UK to be taxable
How are overseas residents taxed (IT and CGT) on their worldwide income? (2)
IT on income arising in the UK
No CGT except for gains on UK residential property
For double tax relief, what is the Exemption method/bilateral relief? (2)
UK has agreement with another country
Individual is taxed in country of employment
For double tax relief, what is the Credit relief method/unilateral relief? (3)
- No agreement in place
- Credit against foreign tax paid
- Relief is lower of UK tax vs Foreign tax on overseas income
What is purpose of the statutory residence test?
To determine UK residency
What are the statutory residence tests? (3)
- Automatic overseas test
- Automatic resident test
- Sufficient ties test
How does the Sufficient ties test work?
The number of days present in the UK determines number of ties required to be UK resident (fewer days = more ties)
What are the different ties in the Sufficient ties test? (5)
- Family tie
- Employment tie
- Accommodation tie
- 90-day tie: More than 91 days in UK in either of previous two tax years
- Location tie: Present in UK more than any other single country
What are the proposed changes to domicile? (2)
- move to a residence-based scheme
- remove deemed domicile status
How does domicile affect taxation of an individual? (2)
- Affects IHT but also for taxation of foreign income and gains for tax purposes
- Can elect to be taxed on a remittance basis
How are UK doms and Non doms taxed on their assets?
UK domi IHT on worldwide estate
Non-dom IHT on UK estate only
What are the four types of domicile?
- Domicile of origin - Acquired from parents
- Domicile of choice - Age 16+, moving to a country with intention of living there permanently
- Domicile of Dependency - Age <16, domicile is dependent on their parents
- Deemed domicile - If resident in the UK for more than 15 out of past 20 years.
What is remittance basis?
non-doms can election for overseas income and gains to be taxed on a remittance basis
What is the remittance basis charge? (3)
- 7 out of last 9 years: £30,000
- 12 out of last 14 years: £60,000
- No RBC if less than £2,000 unremitted foreign income/gains
What happens to IT personal allowance and CGT annual exemption when you elect remittance basis?
You lose allowance
What is the Foreign Income and Gains (FIG) Regime?
From 6 April 2025 (fy 25/26), Abolish remittance basis / non-Dom regime
What is included in non-savings income? (2)
Income from employment, pensions and social security benefits
Profits from trade, profession and rental property
What is included in savings income and how are they paid out? (2)
Interest from bank, building societies, bond and debentures
Savings income is usually paid gross
[Savings income] How much is the personal saving allowance?
Personal saving allowance (£1,000/£500/£0) is taxed at 0%
What are the three sources of taxable income?
Non savings, savings and UK dividend
How much is the basic personal allowance and when can you use it? (3)
- Basic personal allowance of £12,570
- Use it or lose it
- Cannot be rolled forward if not used
What is taxable income?
Income after deduction of personal allowance
How are dividends paid out and how much is the allowance?
- Paid gross
- Dividend allowance - £500 taxed at 0%
In what order is personal allowance deducted from each source of income?
non-savings -> savings -> UK dividend
How much is the blind persons allowance and what can you do if it can’t be fully utilised? (2)
- Extra personal allowance of £3,070
- Can transfer to spouse/civil partner if cannot utilise all
Who do you register to be certified blind or blind persons allowance and are there restrictions? (2)
- Local authority register - certified blind
- No age/income restrictions
What are exempt incomes? (6)
- Interest on National Savings
- Premium bond prizes
- Gambling and National Lottery
- Interest and dividends ISAs
- Compensation for loss of employment
- Dividends received on VCTs
What happens to personal allowance after earning above income limit?
Allowance reduced £1 for every £2 of income over £100,000 and could be reduced to nil
What is the marginal income tax rate for income between £100,000 and £125,140?
60%
How much is the income tax relief on finance costs on Buy to Let?
Tax relief at basic rate on finance costs (Tax reducer)
What is the tax relief on charitable donations?
Tax relief at donor’s marginal rate of tax
How are charitable donations made via gift aid considered?
Deemed paid net of basic-rate income tax
How do charities claim tax relief from donations made via gift aid? (2)
- Charity can reclaim BRT from HMRC
- Further claim for HRT/ART relief made with HMRC through PAYE code or tax return (extend bands)
How does charitable donations made via payroll tax relief work? (2)
- Deducted from gross salary by the employer
- Do not require a subsequent claim
What is the tax relief on pension contributions and what is the maxium contribution?
- Tax relief at donor’s marginal rate of tax
- Maximum contribution £60,000 gross
How are contributions into a personal pension scheme considered?
Deemed to be paid net of basic-rate income tax
How does tax relief work for contributions into a personal pension scheme? (2)
- Pension can reclaim BRT from HMRC
- Further claim for HRT/ART relief made with HMRC through PAYE code or tax return (extend bands)
How are contributions into an occupational pension scheme considered and how do you claim tax relief? (2)
- Deducted from gross salary by the employer
- Do not require a subsequent claim
What is CGT a tax on? (3)
Chargeable persons
Chargeable disposals
Chargeable assets
For CGT, what are chargeable persons? (3)
Individuals
Trustees
Partnerships
What are chargeable disposals? (4)
- Sale of whole or part of an asset
- Gift of whole or part of an asset
- Capital sum received for a surrender of rights
- Loss or destruction of an asset
For CGT, what are excluded transfers and gifts? (2)
- Excludes transfers between spouses/civil partners
- Excludes gifts to charities
For CGT, what are exempt assets? (7)
- Property and land covered by principal property relief
- Gilts and qualifying corporate bonds (QCBs)
- Premium Bonds
- Investments in ISAs
- Shares in VCTs
- Proceeds from life assurance
- Personal injury compensation
What is the CGT annual exemption and how much is it? (2)
- Chargeable gains not subject to CGT
- Annual exemption = £3,000
How can you use losses to reduce CGT liability? (2)
- Current year losses offset against gains in same tax year
- Losses from previous tax years used to reduce gains not covered by annual exemption
How many years can you roll forward realised losses?
Unused losses can be carried forward indefinitely
What is the CGT consideration transferring assets between assets and civil partners? (2)
- Transfers at nil gain/nil loss
- Base cost is unchanged
What are the use cases of transferring assets to spouse/civil partners? (2)
- Transfer assets to a lower rate taxpaying partner
- Use their annual exemptions before paying any CGT between them
What is CGT on death? (2)
- No CGT on disposal of assets following death of an individual
- Beneficiaries acquire the assets at market value on date of death
For CGT, what is share matching rules?
Rules to determine the cost of shares that have been sold
Share matching rules: What is the order of disposal? (4)
- Shares purchased/sold on same day
- Shares acquired within 30 days (FIFO basis)
- Shares from the share pool (section 104 holding)
- Shares purchased more than 30 days after date of disposal
What is the tax relief of Business Asset Disposal Relief (BADR) and how do you qualify? (2)
- Gains taxed @ 10% (£1 million lifetime limit on gains)
- Has to be a sole trader or business partner of a company they’ve owned for at least 2 years
What are the qualifying assets for BADR? (4)
- Disposal(part) of a business run as a sole trader
- Disposal of a share in a partnership by a partner
- Disposal of shares in a trading company (at least 5% shareholding and an employee of the company)
- Assets that an owner has loaned to their own business
What kind of CGT relief is Business Asset Rollover Relief?
Form of CGT deferral
When can businesses claim business asset rollover relief?
when they sell assets used in the business and buy other assets for the business at the same time or soon afterwards
How does Business Asset Rollover Relief work? (2)
- CGT is not payable until the ‘new’ asset has been sold
- Base cost of ‘new’ asset is reduced by gain arising on the ‘old’ asset
What are the conditions for Business Asset Rollover Relief? (3)
- The business must be trading
- New asset purchased witihn one year before to three years after disposal of old assets
- New assets must be used for the business
What kind of CGT relief is reinvestment relief into EIS/SEIS shares?
Form of CGT deferral on chargeable gain of a disposed asset
How does CGT relief from reinvesting into EIS/SEIS shares work?
No CGT on disposal of asset if gains is reinvested in EIS/SEIS shares
How do you qualify for CGT relief when reinvesting into EIS/SEIS shares?
EIS/SEIS shares purchased within period starting one year before to three years after disposal of old asset
What is the CGT reinvestment relief for EIS and SEIS shares?
100% relief for EIS/50% relief for SEIS
What is Hold-Over relief (gift relief) and what needs to happen to qualify? (2)
- Deferral of payment of CGT
- Joint election between donor and recipient
What are the qualiftying assets for Hold-Over relief (gift relief)? (3)
- Assets subject to immediate IHT charge
- Transfers of unlisted shares and listed shares (holding of at least 5%)
- Assets used in a business or personal trading company
What is the scope of IHT? (2)
UK domiciled individuals pay UK IHT on worldwide assets.
Non-domiciled pay UK IHT on UK assets.
What is the basic NRB and in what order is it applied?
Basic NRB = £325,000 applied chronologically seven years prior to death
What are the different IHT rates? (3)
£0 - £325,000 : 0%
Over £325,000 : 20% (for chargeable lifetime transfers, such as some trusts)
Over £325,000 : 40% (for transfers within seven years of death)
How can you reduce IHT rate by 10%?
Rate is reduced to 36% if charitable gifts on death exceed 10% of the baseline estate
For IHT, what are the four types of transfers?
- Exempt
- Potentially exempt
- Chargeable
- Transfers on death
For IHT exempt transfers, what is the ‘annual exemption’?
£3,000 per fiscal year per donor
For IHT exempt transfers, how far can you roll forward the annual exemption?
If unused, can be rolled over for one year only
For IHT exempt transfers, in what order does the annual exemption apply?
The exemption is applied chronologically in the year
For IHT exempt transfers, what is the small gift exemption and how do you lose it? (2)
- Exempt up to £250 per recipient per tax year
- No exemption if total gifts to a recipient exceed £250 in the tax year
What is IHT a charge on?
IHT is charged on certain transfers on value - it is not just a death duty
‘Normal expenditure exemption’ allows gifts to be exempt from IHT if they meet which three conditions? (3)
- They are regular gifts i.e. monthly or annual payments.
- Made out of the donor’s income not their capital
- donor have enough income left to maintain standard of living
What are the IHT exempt transfers in consideration of marriage or civil partnership? (3)
- £5,000 from each parent
- £2,500 from grandparent or greater grandparent
- £1,000 from any other person
For gifts in consideration of marriage to be considered IHT exempt they have to be made within what time frame?
Gift must be made on or shortly before the wedding (those made after the date do not count)
Up to when are gifts for education and maintenance IHT exempt?
Until the child’s 18th birthday or on ending full-time education (if later)
For a transfer to be considered IHT exempt, the receiving charity must be:
Charity must be recognised by HRMC
What makes a political party qualified for IHT exempt transfers? (2)
- Have at least one MP
- Have at least 150,000 votes at the last election prior to gift
For IHT exempt transfers, what is included in gifts for the national benefit?
Includes gifts to museums, libraries, universities
For IHT, to which recipients are transfers considered exempt transfers? (2)
- Spouse or civil partner
- Charitable donations
For IHT, what are exempt assets? (3)
- Pensions
- Life policies written into trust
- Unquoted shares if held for 2 years
What are chargeable lifetime transfers (CLT) and who are the transfers to? (2)
- Transfers which are not exempt or potentially exempt
- Transfers to a discretionary trust or interest in possession trust
What is the tax on chargeable lifetime transfers (CLT)? (2)
- Lifetime tax is due @ 20% on transfers exceeding NRB
- If settler survives seven years, no tax is due
What happens if the CLT is made within seven years of death? (4)
- It is reassessed for IHT purposes
- Transfer amount (after NRB) is subject to IHT at 40%
- Taper relief is given on tax due
- A credit is given for any lifetime tax paid
What is the IHT charge on CLTs?
10-year charge - IHT is charged on CLTs upon each 10-year anniversary
What is the taper relief given on any tax arising on transfers made within seven years of death?
- Up to 3 yrs: 0%
- 3 - 4 yrs: 20%
- 4 - 5 yrs: 40%
- 5 - 6 yrs : 60%
- 6 - 7 yrs: 80%
- +7 yrs: 100%
What is a Potentially exempt transfer (PET)?
A PET is lifetime transfer to an individual, a bare trust or a disabled trust
What IHT is due when a PET is made?
No tax is charged at the date of the gift
What is the IHT on PETs if the donor dies within seven years? (3)
- If the donor dies within seven years = failed PET
- Tax is due @ 40% on amounts exceeding relevant NRB (used chronologically)
- Taper relief is given on tax due
For IHT, what are related property rules? (3)
- IHT is charged on certain transactions of property or value.
- A ‘transfer of value’ is a reduction in the donors estate.
- The ‘loss to the estate’ amount may not be the same as the actual value of the gift.
For IHT, what are the features of gift with reservation of benefit? (4)
- Can’t transfer an asset but retain a beneficial interest to avoid IHT
- HMRC will just add asset back into estate
- Can avoid IHT by paying pre-owned asset tax (POAT)
- Income tax on the annual benefit
What does a Deed of Variation do and what are the conditions? (2)
- Beneficiaries may change the terms of a will
- Done in writing within 2 yrs of death and all beneficiaries agree to changes
What are the tax advantages of makings gifts to charity via will? (2)
- Gifts to charity made via will are exempt from IHT
- If gift is at least 10% of the ‘baseline estate’ then rate of IHT reduced by 10% (36%)
What is baseline estate?
‘Baseline estate’ is taxable estate before the charitable gift
How does NRB utilisation work? (3)
- Any unused percentage of nil band is transferred to a surviving spouse or civil partner
- Upper limit of 100%
- Benefit from any increase in allowance
What business assets are included in BR and how much is the business relief? (4)
- unincorporated businesses - 100%
- Unquoted shares inc AIM shares - 100%
- Shares controlling >50% of votes in listed company - 50%
- Land, buildings, plant or machinery used in business controlled by the donor - 50%
What is the tapering of the RNRB? (2)
- Tapered withdrawal of RNRB if estate net value is more than £2 million threshold
- At withdrawal rate of £1 for every £2 over threshold
How much is the RNRB and what are the rules to qualify? (3)
- Additional nil-rate band (RNRB) of £175k
- Estate must include main residence
- Residence must pass to direct descendants
How does property value affect RNRB? (2)
- Property value must be above RNRB to receive entire amount
- If property value is less than RNRB, it will be capped to property value
Some assets do not qualify for BR. For example, if the business: (3)
- Is an investment company
- Is a not-for-profit organisation
- Is being sold/wound up
How much of the RNRB is passed to spouse/civil partner if not used?
Unused percentage of RNRB is transferable to surviving spouse or civil partner
What are the features of Business Relief (BR)? (3)
- Applies to lifetime or death-bed transfers
- Applied prior to other reliefs or exemptions
- Must have been owned for at least two years at the date of transfer or death
BR cannot be claimed for relief on assets that: (3)
- Also qualify for Agricultural Property Relief (APR)
- Were not used mainly for business in the two years prior to transfer
- Are not needed for future use in the business
What is the purpose of business relief?
BR ensures family businesses (for example) are not crippled by IHT
When is agricultural property relief (APR) applied? (2)
- Applies to lifetime or death-bed transfers
- Applied prior to other reliefs or exemptions
What is included in agricultural property relief (APR)? (4)
Agricultural land
Growing crops
Farm buildings
It excludes animals and equipment
What is the APR for owner-occupied farms and for landlords? (2)
- 100% relief for owner-occupied farms - if owned for previous two years
- 50% relief for landlords (where farm is leased) - if owned for previous seven years
What was BADR used to be known as?
Entrepreneur’s relief
What did reinvestment relief into EIS/SEIS shares used to be called?
Previously called deferral relief
What limits the relief on Hold-over relief?
Relief limited if consideration is received for the gift
