10 - Indirect Investments Flashcards
What ISA is the only age 18+? And what is age limit of most others?
Stocks and shares ISA
16+ other than JISA
ISA limit for tax yr?
£20k
HTB ISA
Max. 1st payment of £1,200
Max. £200pm
£12k max. balance
25% bonus
Lifetime ISA
Max. £4k per yr
Counts towards £20k annual limit
Over 18, must be under 40, stop contributions at 50, can get from age 60
25% bonus for FTB purchase or retirement
What is main difference between HTB ISA and LISA?
LISA bonuses added as you go where as HTB ISA is on completion
JISA max annual contribution and rule
£9k per annum
Must make one payment per tax yr
Benefit from age 16 - 18 for having a JISA?
Can contribute £20k + £9k as this limit is on top of normal ISA limit
What happens to an ISA on death?
Lose tax exempt status and form part of the estate for IHT
What if there is a delay to closing the ISA?
Keep tax exempt status on gains during delay
What if spouse dies and they had an ISA?
Partner then gets their ISA sum added to their ISA limit. Have 3yrs to use allowance from date of death.
What is the withdrawal limit on an ISA?
No limit
Can you withdraw and add cash back into cash ISA without a tax implication?
Yes, providing it is within the same tax yr
Child trust fund
Given £250 at start and supposed to receive further £250 at age 7 but most didn’t
£9k contribution limit per birth yr
Not taxed
Can you have a JISA and a CTF?
No, one or the other.
Stakeholder pension
Personal pension plan
Self invested personal pension (SIPP)
Stakeholder pension - low cost simplified advice process but do not offer drawdown facility and cannot buy commercial property
Personal pension plan - wide range of funds, easy to understand can can be transferred but often do not offer a drawdown facility and cannot buy commercial property
Self invested personal pension (SIPP) - most hands on and offers widest range of options and can drawdown. Usually expensive and most complex.
Pensions income tax, CGT & IHT
IT - Can withdraw 25% tax free and get £3,600 tax relief on at source contributions
CGT - tax free
IHT - vast majority do not suffer IHT as written in discretionary trust
At what age can you draw pension?
Age 55
Annual contribution allowance towards pension
£40k limit however can use unused allowance from previous 3yrs but limit on this as max tax free possible can be 100% of annual earnings
Unit trust and OEIC:
- non equity collective
- equity collective
- non equity collective - atleast 60% of assets are interest bearing
- equity collective - less than 60% of assets are interest bearing
Unit trust and OEIC - Income tax, CGT & IHT
IT
Non equity based
- Tax on income tax bands and has personal savings allowance of £1k, £500 or £0
Equity based - Taxed as dividends using dividend tax bands and has dividend allowance of £2k
CGT - subject to usual CGT rules
IHT - If not written in trust then form part of the estate
SICAV
A type of offshore fund
Offshore collectives/funds - Income tax, CGT & IHT
Reporting:
- IT - Usual IT rules for equity and interest distributions with income and dividend rules and allowances
- CGT - Usual CGT rules
- IHT - Form part of the estate unless in trust
Non-Reporting:
- IT - tax arises only on disposal and is taxable on accumulated return using standard CGT principle but without the exemption. The gain is then liable to IT brackets and rates
- CGT - Gains taxes as income within IT so no CGT due
- IHT - Form part of the estate unless in trust
Real estate investment trust aim
Provide a liquid market within property investment and be widely available as a close ended company
Ring fenced and non-ring fenced real estate investment trust sums up taxation for REIT
Ring fenced - property letting and exempt to corporation tax
Non-ring fenced - all other activities other than letting. Subject to corporation tax
Real estate investment trust taxation for investor - income tax, CGT, IHT
IT
- Taxed at income tax bands but deducting 20% as use property income distribution (PID) and no allowances or exemptions allowed because of this.
- Dividend income taxes with usual bands and £2k allowance is allowed
CGT - Gains subject to CGT
IHT - A part of estate unless in trust
Property income distribution (PID)
Tax paid by REIT meaning that investor is allowed 20% reduction on income tax but no allowances can then be used for income, only dividends.
SPV
Limited company set up for finance specific projects
What is a life assurance investment/bond
Collective investment which has an extra 1% on top of the fund value as a death benefit which then changes the taxation treatment
5 Qualifying rules for a life assurance policy
Max. annual premium of £3,600 per individual
Premiums must be atleast annual
No more than 1/8 of total contributions in a year
Premiums no more than 2x last year
Death benefit atleast 75% of previous year
Taxation of onshore life policy for individual
Fund deemed to have already paid 20% tax so deduct this from income tax bracket and that is the rate to use for tax. Tax paid already cannot be reclaimed.
When is the only time a life policy will cause a chargeable gain and tax implication?
Upon surrender or partial surrender above 5% cumulative allowance, encasing investment
What allowance can an individual use when calculating tax income for life policy?
Personal savings allowance of £1k, £500 or £0 as classed as savings income
Is 5% allowance for withdrawing original investment in a life policy tax free or taxable?
Taxable at 0%
How do you calculate timeline when calculating tax on full and part surrenders of a life policy?
Part surrender - include both full and part years
Full surrender - calculate using full years only
Segmentation of a life policy
Segments of an investment with different categories which are identical in value.
When part cash in investment can either cash in a whole segments or set % of every segment
Offshore life policies taxation rules and can you use PSA?
Can use personal savings allowance of £1k, £500 or £0
Taxable on gains with usual income tax brackets
Are endowment policies taxable?
No, unless sold then the buyer pays CGT on gain
Friendly society policies maximum premium
£270 per annum or £25 per month
Age limit on friendly society policies
None
Are friendly society policies taxable for the individual?
No tax
Annuity
Pay a lump sum to receive a set income whilst alive
Types of annuities and their tax implications:
- purchased life annuity
- purchased annuities certain
- pension annuity
- deferred annuity
- annuities for beneficiaries
- immediate needs annuity
- purchased life annuity - paid from lump sum til death and pays capital and interest element - taxed only on interest received and can use PSA to reduce tax liability
- purchased annuities certain - paid for a set term regardless of death - same tax as PLA (above)
- pension annuity - paid as a result of a pension scheme - taxable in full as earned income
- deferred annuity - capital is handed over but annuity does not begin for set period - same tax as PLA (above)
- annuities for beneficiaries - paid as per trust or will - taxable in full as savings income
- immediate needs annuity - often used to fund care home fees and pay larger annuity payments as shorter life expectancy - if paid directly to care home then no tax liability
Close-ended investment account taxation rules
Taxed as dividend income and subject to usual CGT rules
Listed bonds & medium term notes and how are they taxable
Fixed term contracts issued by banks
Taxable with income tax brackets and allowed PSA of £1k, £500 or £0
Subject to usual CGT rules
EIS max. Contribution in one year
Limit is £2m however can carry backwards for previous year so can invest max. of £4m in one year
EIS, SEIS, VCT income tax reduction % and limits of each
EIS - 30% income tax reduction of original investment after held for 3yrs - £1m limit
SEIS - 50% income tax reduction of original investment after held for 3yrs - £100k limit
VCT - 30% income tax reduction of original investment after held for 3yrs (no losses claimable) - £200k limit
What are eligible shares for EIS tax relief (qualifying company)
- unlisted company
- fewer than 250 employees
- gross assets of less then £15m
- less than £5m in venture capitalist investment in last 12months
- company less than 7yrs old or 10yrs if considered knowledge intensive
Out of EIS, SEIS, VCT which one has exempt dividend income tax for the individual?
VCT
EIS, SEIS, VCT are they subject to CGT?
EIS - 3yr minimum holding period for CGT exemption. No exemption but pay upon disposal of share
SEIS - 3yr minimum holding period for CGT exemption. 50% exemption on CGT.
VCT - Subject to CGT immediately and no exemption
Social enterprise - what is this? And what are the below?
tax relief %
max investment
minimum holding period
Carry back contributions allowed?
CGT deferred until disposal?
Minimum holding period for CGT exemption
Eligible for business relief?
Government give tax benefit known as social investment tax relief for those that invest in social enterprises and some community projects
30% tax relief
£1m max investment
3yr minimum holding period
Yes, carry back contributions allowed
Yes, CGT differed until disposal
3yr minimum holding time for tax exemption
Yes, eligible for business relief
Which of EIS, SEIS, VCT are eligible for business relief?
EIS & SEIS
When is a collective investment classes as interest bearing or an equity collective fund?
60%+ interest bearing - non-equity collective
<60% interest bearing - equity collective
Can an ISA be written in trust?
No
Requirements to be classed as a REIT (3)
Atleast 75% of assets and gross profits from ring fenced element
90% of profits must be distributed within 1yr of end of accounting period
Initeredt on borrowing must be covered by 125% by rental profits
