10.11 HAS A SUMMARY ON WHOLE CHAPTER. Chapter 10 – Indirect Investments (12 OR 13marks) Flashcards
What is the age range for lifetime ISAs?
Must be 18 or over but under 40
ie 18-39
Once open, investors can continue to save into the Lifetime ISA until their 50th birthday.
Watch for this in your R03 exam; the examiner has a habit of asking you about contributions to a LISA for a couple, but one of them is age 40 or over!
Additional Permitted Subscriptions (ASPs) - LOOK AT 10.2 TO SEE HOW DIFFERENT SCENARIOS ARE CALCULATED. USEFUL BEFORE EXAM!!!
LOOK AT EXAMPLE 10.1
What is a windfall?
a large amount of money that is won or received unexpectedly.
What is a continuing ISA?
What actually are pension schemes
effectively standard investment products (incorporating investments in many asset classes) but with additional tax benefits.
LLOK AT 10.3 FOR A COMPARISON BETWEEN THE MAIN REGISTERED PENSION SCHEMES
What is the annual allowance for pensions?
£60000
This reduces by £1 for every £2 of excess income over £260000
The max the annual allowance can reduce to is £10000. So if your income is over £360000 your annual allowance will always be £10000
if 60% or more of assets is interest-bearing (cash and fixed interest) income is deemed to be interest - classed as a ‘non-equity collective’.
If less than 60% of the assets are interest-bearing, then the income is deemed to be dividends - classed as an ‘equity collective’
Are unit trusts and OEICs subject to CGT?
Yes, ALWAYS
This is regardless if it holds any underlying assets that would be exempt from CGT if held directly, such as Gilts or qualifying corporate bonds
Their income is taxed differently dependant on whether they are classed as a equity fund or a non equity fund
What are Offshore Collectives / Funds?
Offshore funds are collective investment schemes established outside of the UK, usually in tax havens like the Channel Islands and Luxembourg. They are normally just OEICs
DO NOT CONFUSE WITH OFFSHORE BONDS, which are non qualifying single premium whole of life assurance based outside of the UK
How are offshore funds taxed differently to onshore funds?
Offshore funds are either classed as reporting or non reporting
Reporting - Pay out income. Taxed in same was as onshore. Normal CGT rules, & either equity or non equity funds (same as onshore funds) - NORMAL ALLOWANCES GIVEN such as CGT, divid allowance, savinsg allowance etc
Non reporting - Often ‘roll up funds’ (ie no income such as interest/dividends is paid). Therefore, full gain when investment is realised. Gains upon realisation of the fund are subject to CGT at INCOME TAX rates. NO ALLOWANCES GIVEN
because non reporting have no allowance people often prefer reporting funds
BUT, A large incentive for investing offshore is that the fund itself often suffers lower internal taxation than in the UK, e.g. corporation tax in Jersey is 0.5% compared to the onshore main rate of 25%., meaning investments can grow better
What is the European Savings Directive?
Provides an automatic exchange of information between member states and was set up to counter cross-border tax evasion on savings income. SEEN IN CHAPTER 6
When introduced, they must be listed on a recognised stock exchange (this can be the AIM market). They must also be UK resident for tax purposes and have only one class of share. They are closed ended
what IA THIS DESCRIBING?
REITs
A REIT has two elements, separate for tax purposes: What are they?
To qualify as a REIT, certain conditions must be met?
Income paid to the investor is in two parts, one from each of the two elements?
Ring fenced element (no corporation tax) - Property letting side of the business
Non ring fenced element 0 (subject to corporation tax) - the remaining part of the business such as property management services
To qualify as a REIT, certain conditions must be met:
At least 75% of the company’s total gross profit must be from the ring-fenced tax-exempt element and at least 75% of the entire assets must be in the ring-fenced element
Interest on borrowings must be at least 125% covered by rental profits (they cannot borrow heavily)
At least 90% of the profits from the ring-fenced element (income, not gains) must be distributed within 12 months of the end of any accounting period
Property development is allowable but must be intended to generate future income if it isn’t then it will be classified as non-ring-fenced activity and liable to corporation tax
Income paid to the investor is in two parts, one from each of the two elements.
Ring fenced element - pays PID income (property income distribution, ie property income)
Paid 20% net (with deduction of 20%).
-Non tax payers can reclaim
-BRTP have no further liability
-HRTP have to pay a further 20%
-ARTP have to pay further 25%
Because it is PID income it is NOT classed as savings income so savings allowance cannot be used
Non ring fenced -
Income is classed as dividends (Cii refer to this as non PID income in exam so be careful not to confuse with the above)
Dividend allowance is available
NOTE: REITs can be placed within an ISA wrapper in order to avoid all income tax and any CGT liabilities.
REITs can be placed within an ISA wrapper in order to avoid all income tax and any CGT liabilities.
tRUE OR FALSE
TRUE
What are Special Purpose Vehicles (SPVs)?
Limited partnerships set up in tax havens (such as the Channel Islands) or exempt UK unit or investment trust for property investments
They allow investments to be made from:
Registered pension scheme tax wrappers such as self-invested personal pension plans (SIPPs) and small self-administered schemes (SSASs)
Registered charities
SPVs usually involve a high level of borrowing, so although the rental income received might be impressive, it is often used to service the debt
Instead of buying directly in property, an investor can buy shares in one of the many property companies listed on the LSE (such as Persimmon, Barratt Development, Bovis Homes etc.).
Once purchased, the shares are taxed in exactly the same way as we saw for direct share ownership in chapter 9.
What are the qualifying rules for life assurance policies?
RULES =
Remember. If the rules are met, the proceeds tend to be free of higher rates of tax, even if the investor is a higher or additional rate taxpayer. If the rules are not met, the proceeds can be liable for additional income tax
READ 10.6 key info at the start. VERY USEFUL. Make some questions about this
What is a good way to tell the difference between a life assurance product and a collective investment
NOTICE HOW IT SAYS ‘LIFE FUND’ meaning it is insurance related
It is worth being clear about the taxation of the life fund first. It can be quite complex, but to simplify the situation for onshore (UK) life funds:
The fund is deemed to have paid 20% internally
These taxes are paid directly by the life office and so cannot be reclaimed by policyholders (even those who are non-taxpayers)
This means:
-Non tax payers pay 20%, but no further liability
-BRTP have no further liability
-HRTP have to pay a further 20%
-ARTP have to pay further 25%
onshore (UK) life funds are bad for non tax payers
These further liabilities are based on the value of the ‘chargeable gain’ that occurs after a chargeable event (DAMPS)
With any luck, the bond may have increased in value and the investor has got back more than they put in
Simplistically, the chargeable gain is therefore based on the difference between what they get back less the amount they invested. Once the chargeable gain is calculated, it is added to the investor’s income for that tax year to establish what tax band they are after the addition of the gain. LOOK AT 10.6 FOR A TABLE WHICH SHOWS THIS CLEARLY
ALWAYS THINK ABOUT CHARGEBLE GAINS RELAT TO ONSHORE INVESTMENT FUNDS. IF THERE IS A CHARGEABLE GAIN IT IS SUBJECT TO THE RATES ABOVE DEPENDING ON WHAT BRACKET IT PUSHES THE INDIVIDUAL INTO WHEN IT IS ADDED TO THEIR INCOME.
THE CHARGEBLE GAIN IS ADDED TO THEIR INCOME and whatever breacket they fall iunto because of this determines the tax paid on teh gain!!!!!!!! LOOK AT EXAMPLES
Income from Onshore & Offshore Investment Bonds is treated as savings income. Personal Savings Allowance can be used
Top slicing can also be used
Income from Onshore & Offshore Investment Bonds is treated as savings income. True or false
True, therefore can use any available Personal Savings Allowance
What is ‘top-slicing’?
This relates to the chargeable gain of an investment bond
Calculate average gain over number of years it has been accrued in the bond.
Take this average gain (sliced gain) and add it to current years income.
Calculate tax for the year.
Assume same tax has been paid all previous years so multiply back up again the number of years you originally divided by (add 1 year if the question includes any deferred withdrawals - Look at examples!!!!)
REMEMBER:
- For full surrenders, you average the gain only on fully complete years
- For part surrenders you can average the gain by full and PART years
BENEFIT of top slicing
This can be very beneficial for individuals who have been, for example, higher-rate taxpayers while they were funding the investment, but are now basic-rate taxpayers when they are looking to take the benefits because The ‘sliced’ gain, when added to their income, may keep them in the basic rate band for that tax year of assessment so therefore less tax will be assumed to have been paid in the previous years, because 20% is deemed to have already been paid. This means that no more taxed would have deemed to be paid in the previous years too resulting in 20% less tax (if the were a HRTP in previous years)
Under the rules of investment bonds, an investor can take:
5% of their original investment per year from the bond and it be deemed to be a return of capital
The 5% rule is cumulative, so if an individual had held the bond for just over 2 years, they could take up to 15% (they are in the third year) from their investment and not be liable for an immediate tax charge
Up to a maximum of 100% of the original capital can be taken this way (so if taking 5% each year, that would be a maximum of 20 years)
The withdrawals are TAX DEFERRED!!! Not tax free
Any withdrawals made are added back to the gain when the chargeable event occurs
SEE EXAMPLE 10.6
Any amounts taken in excess of 5% of the original investment (cumulatively) creates an immediate chargeable event
remember this for any deferred withdrawals in teh calculation: The calculation very similar to the ones we have already done for a full surrender, except the averaged gain after the 5% permitted withdrawals can be calculated by dividing by 1 additional year.
The reason for this is that the 5% allowance is available immediately a new policy year commences so that a policy in force for over 6 years has had 7 potential 5% withdrawals that could have been taken with no immediate tax liability.
You must also do something slightly different at the start LOOK AT EXAMPLES
For questions calculating chargeable gains and using top slicing be careful as to whether it is a part surrender (where more than the 5% withdrawal cumulative amount as been used creating a chargeable event) or full surrender
Life companies segment investment bonds into clusters or segments. So, a £10,000 investment could be ‘segmented’ into 40 different investments of £250.
The number of segments can be any figure and varies from life office to life office.
Each segment is identical in value and asset composition. This provides options for the investor when surrendering part of their bond. They can choose to either cash in whole segments or take a part-withdrawal from all the segments
SEE EXAMPLE
How do offshore bonds differ to onshore bonds?
Unlike onshore life assurance policies where 20% tax is deemed to have been paid in the fund, no tax has been deemed paid in an offshore life assurance policy fund.
Offshore bond income is treated as savings income. True or false
True, so an individual’s Personal Savings Allowance can be used to eliminate or reduce a tax liability arising from the product.
Same as onshore bonds
Taxing gains works in a similar way for offshore bonds as it does for onshore:
Average the gain by dividing by the full number of years for full surrenders
Average the gain by dividing by the full and part complete number of years for partial surrenders
iE Top slicing is used in the same way. ONLY BIG DIFFERENCE IS THE INTERNAL TAXATION IN RELATION TO THE CALCULATIONS SO WHEWN YOU COME TO THE END OF THE CALC IT IS SLIGHTLY DIFFERENT BUT IS STILL EASY. LOOK AT 10.9
LOOK AT EXAMPLE 10.9
ONLY REAL DIFFERENCE IS THE INTERNAL TAXATION IN RELATION TO THE CALCULATIONS
What is the time apportionment relief?
A relief available for onshore and offshore bonds
This reduces the amount of the gain that is liable to UK tax, based on the proportion of the time that the investor was resident for tax purposes in the UK during the term of the investment.
Using time apportionment relief, the chargeable gain is calculated by multiplying the total gain by the following fraction:
Total gain X Number of days the policyholder was resident in the UK/Number of days the policy has run
look at 10.10
THIS IS EASY IF U UNDERTSAND HOW THE CALC WORKS. LOOK AT EXAMPLES
what are Traded endowment policies?
Endowment policies that have been assigned to a new owner
The new buyer pays the premiums and on death of the original life assured all the benefits of the policy are paid to the new owner
If qualifying rules are met: No income tax on chargeable gain at surrender
If non qualifying chargeable gains are taxed in normal way
What are Friendly Society Policies?
How are they taxed? (they are known as exempt policies so this may give a clue)
Friendly societies (special mutual organisations) can sell qualifying policies where the funds are free of UK tax on investment income and capital gains (i.e. no tax paid in the fund), but the premiums are limited in return.
They are known as exempt policies
The limits are: £270 per annum; or £25 per month (£300 for year)
THEY ARE TAX FREE
What are baby bonds?
Friendly Society Policies that have been taken out for a child
As a result, parents can each have their own £270 annual policy, plus one for each of their children
What are annuities?
How are they taxed?
Annuities are contracts based on providing a lump sum of money to provide:
a given amount (the annuity) every year whilst the annuitant (on whose life the contract depends) is alive
Tax status:
CGT = They are a form of income so no CGT
IHT = They end on death so no IHT
Income tax = Depends on type of annuity
LOOK AT END OF 10.6)
What are Protected and Guaranteed Equity products?
These are investment products where the performance of the bond is actually linked to the performance of an index of equity investments (such as the FTSE 100) with some element of the return protected or guaranteed
These are often ‘structured products’, made up of a guaranteed element and a speculative element.
What are Closed-ended investment account?
These issue special classes of shares, issued by companies based in offshore centres like Dublin. The tax treatment is:
Income is paid gross and treated as dividend income
Gains are subject to CGT in the normal way
The investments can be held within an ISA wrapper
What are Listed bonds / medium-term notes?
These are fixed term contracts issued by UK or EU banks.
The tax treatment is:
Income is taxed as savings income paid gross
Gains are subject to CGT in the normal way
The investments can be held within an ISA wrapper
What are deposit accounts?
These are issued by banks and other institutions such as NS&I (who structure all their guaranteed equity bonds as deposit accounts when available).
The tax treatment is:
Income and gains are taxed as savings income
The investments can be held within an ISA wrapper
What are Enterprise Investment Schemes?
LOOK AT MY R02 flashcards for more deets but only tax is important for this one
“Tax relief is only given to qualifying individuals who subscribe for eligible shares in a qualifying company carrying on a qualifying business activity”
You invest into shares of an unlisted company which qualifies as an EIS. High risk and give generous tax breaks through a tax reducer.
Tax:
30% tax reducer on investments of £1 million (or 2 million if held in knowledge intensive companies). (This limit can be carried back to the previous year (i.e. it is possible to invest £4m in one tax year, if the previous year’s allowance is still fully available)). Clawback occures if shares are disposed of within 3 years
Exempt from CGT (subject to a minimum holding period of 3 years),
Has ‘reinvestment relief’ (Where a CGT bill can be reinvested into an EIS and the bill is DEFERRED until the EIS shares are disposed of.
100% IHT relief as they qualify for Business Relief if owned for at least 2 years.
What is the absolute maximum that can be invested in EIS’s whilst gaining the full 30% tax reducer benefit
£4m in one tax year, if the previous year’s allowance is still fully available as you can carry forward unused investments from previous years. This amount is specifically for knowledge intensive company
2 mill is possible for other EIS’s
What are Seed Enterprise Investment Schemes?
look at r02 COMPARISON TABLE in flashcatrds
An EIS scheme but for even smaller companies; often start-ups, and offer a way for investors to buy shares in the new company.
They run aside the EIS but recognise the fact that smaller companies face even greater risks. Therefore, more tax relief is available.
Tax:
Income tax relief is given at 50% on the cost of the shares with a maximum annual investment of £200,000
CGT relief on reinvestment into SEISs is different from EIS’s
For SEIS, 50% of any deferred gain becomes CGT exempt when the SEIS shares are sold.
The same rules as EIS apply to investment periods, term of holding the shares and for Business Relief.
In relation to CGT
EIS = Investment is exempt from CGT (if held for 3 years)
Can defer an existing CGT bill with reinvestment relief
SEIS = Investment is exempt from CGT (if held for 3 years)
Has reinvestment relief but 50% of any deferred gain becomes CGT exempt when the SEIS shares are sold.(therefore better than EIS)
VCTs do not have the CGTR deferral relief
What are VCTs?
What is the tax relief?
LOOK AT R02 COMPARISON TABL E
instead of investing in one company like with EIS & SEIS they invest in several small, unlisted trading companies. (like a collective investment for private equity)
Tax status:
30% tax reducer up to a maximum investment of £200,000 in new issues only of ordinary shares in VCTs.
CGT = Instant CGT exemptions on any growth in the VCT without the need to wait 3 (or 5) years. It is instant; no minimum holding period. Due to this, no losses are allowable or claimable.
Dividends received are tax exempt.
Tax relief is withdrawn if they are not held for 5 years.
The qualifying criteria for VCTs are also different and they must be approved by HMRC:
The VCT must be listed on the stock exchange
All money raised by a VCT must be ‘used for the purpose of the qualifying activity’ within 2 years
It cannot retain more than 15% of the income it generates, and this must be wholly from shares
At least 80% of its investments by value must be in qualifying holdings, which are newly issued shares in qualifying unlisted trading companies
At least 10% of the total investment in any one company must be in ordinary shares
250 or fewer employees
Maximum £5 million raised under VCTs in past 12 months.
To remain as a VCT, 80% of the value of a VCT’s holding must be in qualifying holdings. If this is breached, the VCT has 6 months to put things right.
To remain as a VCT, 80% of the value of a VCT’s holding must be in qualifying holdings. If this is breached, the VCT has 6 months to put things right.
look at comparison table for eis, vct & seis in RO2 flashcards and at end of 10.9
Investment into venture capital, be it direct via the EIS and SEIS regimes or indirectly through VCTs is a popular area of testing in the R03 exam and the questions often appear in the multi-response questions.
The comparison table on the previous page is a crucial part of your learning but you also need to be able to apply an understanding of how tax relief is given through the tax reduction method.
What are Social Enterprises?
How are they taxed?
Those that invest in social enterprises and certain community projects receive Social Investment Tax Relief (SITR)
TAX relief = SAME AS WHAT IS OFFERED BY EIS AND SAME RULES
LOOK AT TABLE IN 10.10
ALSO:
SITR is also available if the investment is debt (akin to corporate bonds) which is not available under EIS.
A social enterprise cannot raise more than £1.5m in its lifetime.
LOOK AT ALL COMPARISONS ON 10.11
Craig and Helen have 3 children, Jessica, Jamie and Alex, who are aged 18, 17 and 15 respectively. What is the maximum contribution that the family can make to ISA and Junior ISA investments in the current tax year?
£107,000
£100,000
£98,000
£78,000
£78,000
People aged under 18 can no longer contribute to adult ISA investments. Three of the family are eligible for this, so 3 x £20,000 = £60,000. Individuals who are eligible for Junior ISAs can also have £9,000 paid in. That includes Jamie and Alex, so 2 x £9,000 = £18,000.
Add the two figures together to arrive at £78,000.
Penny is a higher rate taxpayer who holds 1,500 units in an equity unit trust. If she received a dividend payment of 50p per unit, her only dividend payment in the tax year, what is her tax liability on the dividend income?
£0
£84.38
£219.37
£253.12
£84.38
The gross dividend of 50p is multiplied by the number of units held = £750 gross dividend received.
As an HRT, Penny would be liable to tax at 33.75% of the gross dividend: £750 x 33.75% = £253.12. However, and this is where we’ve been a bit sneaky, Penny can use her Dividend Allowance (as we are told she hasn’t had to use it elsewhere) deduct the £500 allowance from the £750 dividend received, that leaves £250 x 33.75% = £84.38 (rounded up)
Lipsi is resident in the UK but is non-UK domicile. She has invested in an offshore fund that has received reporting status. She should be aware that…
(Choose more than 1 answer)
Once reporting status has been granted, the fund will retain this status as long as it complies with the reporting fund rules
UK investors are subject to income tax on their share of the fund’s income, whether it is distributed or not
Any profit on the eventual encashment is subject to CGT at either 10% or 20%
The annual CGT exemption cannot be set against a gain on an offshore reporting fund
Any equity distributions are taxed at 20%, 40% or 45%
A, B & C
Effectively, offshore reporting funds are taxed in the same way as UK collectives for UK resident investors
Lileth invested £100,000 in an onshore life assurance bond from which no withdrawals have been made. She fully surrendered the bond 8 years later for £132,000. Lileth’s other income, less allowances, in the year of surrender is £37,900, including £700 of interest from her savings account. What amount of income tax will Lileth have to pay on surrender?
£800
£4,000
£6,400
£8,960
£6,400
lileth, as an HRT, is liable for a further 20% of the gain; the gain is £32,000 so 20% = £6,400. Top slicing is irrelevant for Lileth, as we can see she has no Personal Savings Allowance available due to the £700 interest exceeding the PSA for HRT’s of £500
You can use the process of Top slicing if u want tho and end up in same answer
Which of the following options correctly describes the tax treatment of a Purchased Life Annuity?
The income is all taxed as investment income
The income is all taxed as savings income
Part of the income is treated as a return of capital and is therefore tax-free. The remaining element is treated as an interest payment and taxed as non-savings income
Part of the income is treated as a return of capital and is therefore tax-free. The remaining element is treated as an interest payment and taxed as savings income
Part of the income is treated as a return of capital and is therefore tax-free. The remaining element is treated as an interest payment and taxed as savings income
Many people remember that PLAs are split into a capital element and an interest element for tax purposes. Not so many remember that the interest element is taxed as savings income as opposed to non-savings income! If you think about it, you chose to buy the annuity, and it never gets any capital growth, so ‘savings’ makes sense.
Freda, aged 45, invested £200,000 in an offshore assurance bond on 1 September 2009. She has taken five regular withdrawals of £10,000. She fully encashes the bond on 30 September 2022 for £250,000.
How is the bond taxed, assuming she has fully utilised her Personal Savings Allowance, has a full Personal Allowance, and that her tax status remains unchanged
(Choose more than 1 answer)
If Freda is a basic-rate taxpayer, there will be no further tax to pay
If she is a basic-rate taxpayer, she will be liable to 20% income tax on £100,000
If she is a higher-rate taxpayer, she will be liable to 40% income tax on £50,000
If she is a higher-rate taxpayer, she will be liable to 20% income tax on £100,000
If she is a higher-rate taxpayer, she will be liable to 40% income tax on £100,000
B & E
The key here is that we are talking about an offshore bond and that there has not been a previous chargeable event (because the £10,000 withdrawals were all within the 5% tax deferred allowance). As these withdrawals have not been taxed previously, they are included in the calculation on full surrender. The chargeable gain is therefore (£250,000 + £50,000) - £200,000 = £100,000. No tax is deemed to have been paid in the fund, so Freda would be liable at either 20% or 40% depending on whether she is a basic or higher rate taxpayer. Top slicing could keep her a basic rate taxpayer, even if the gain is for £100,000.
Beatrice, 28, is a non-taxpayer. Eugenie, 25, is an additional rate taxpayer. Both of them are considering investing in Real Estate Investment Trusts (REITs). They should be aware that
(Choose more than 1 answer)
To be exempt from corporation tax, at least 75% of the company’s total gross profits have to originate from property letting
The interest on borrowing by any REIT has to be at least 90% covered by rental profits
Neither Beatrice nor Eugenie can reclaim tax deducted from the tax-exempt element
Neither Beatrice nor Eugenie can use their Personal Savings Allowance to reduce any income tax liability
Both Beatrice and Eugenie could be liable to CGT when they dispose of their REIT investment
A, D & E
Interest on borrowing by any REIT has to be at least 125% covered by rental profits (the relevance of ‘90%’ to a REIT, is that at least 90% of the profits from the ring-fenced element must be distributed within 12 months of the end of any accounting period). Beatrice, as a non-taxpayer, can reclaim any tax deducted from the tax-exempt element of the REIT distribution (the ‘PID’) as it is classed as non-savings income. None of the income is savings income therefore you cannot use the PSA.
David, a higher-rate taxpayer, incurred a Capital Gains Tax (CGT) liability last year of £80,000. He has just made the following investments:
– £60,000 into an Enterprise Investment Scheme (EIS)
– £40,000 into a Venture Capital Trust (VCT).
In respect of his personal taxation:
He can defer a maximum of £60,000 of the CGT liability and claim maximum income tax relief of £12,000
He can defer a maximum of £60,000 of the CGT liability and claim maximum income tax relief of £30,000
He can defer the full amount of the CGT liability and claim maximum income tax relief of £12,000
He can defer the full amount of the CGT liability and claim maximum income tax relief of £30,000
He can defer a maximum of £60,000 of the CGT liability and claim maximum income tax relief of £30,000
An individual can only defer CGT by investing into an EIS, not a VCT. As a result, David can ‘only’ defer £60,000 of his £80,000 CGT liability, as that is the amount he is investing into the EIS. As far as income tax relief goes, both EIS and VCTs allow tax relief at 30% (assuming David has a tax bill sufficient to warrant this relief)
William, a higher-rate taxpayer, has invested £100,000 in his first Enterprise Investment Scheme. Harry, an additional-rate taxpayer, has invested £100,000 in his first Seed Enterprise Investment Scheme. When considering their respective situations
(Choose more than one answer)
Harry will receive more income tax relief than William
Only William will be able to invest in knowledge-intensive companies
William will have to hold his shares for longer in order to keep the income tax relief
Any dividends produced for either investor could be fully taxable
Only Harry’s investment is eligible for a CGT exemption on reinvesting previous gains
a, d & e
Both investors need to hold their investments for 3 years to keep their income tax relief. SEIS provides 50% income tax relief and dividends are liable to income tax just like any other dividend.
Both can invest in knowledge-intensive companies.
EIS investments qualify for reinvestment relief (where the taxation of the gain is deferred) but with the SEIS 50% of the reinvested gain becomes EXEMPT.
For EIS and SEIS the dividends are taxable
Yes, just like any other dividend
Vanessa, an additional rate taxpayer, has a portfolio of various equity and fixed-interest unit trusts and open-ended investment companies (OEICs). She should be aware that…
(Choose more than one answer)
she will be able to utilise both her Personal Savings and Dividend Allowances to offset income from the investments
the taxation of any dividends paid from the OEICs held will be treated the same way as and dividends paid from the unit trusts
only some of her portfolio will be subject to income tax at 45%
only the proceeds of sale of the OEICs or unit trusts with predominantly fixed-interest investments are exempt from Capital Gains Tax
only the unit trusts will automatically be outside of her estate for IHT purposes
B & C
Vanessa will only have her Dividend Allowance available because, although she is receiving savings income, additional rate taxpayers do not get a Personal Savings Allowance.
Dividends from OEICS and Unit Trusts are taxed identically.
Her portfolio consists of both savings income (taxed at 45% for an ART) and dividend income (taxed at 39.35% for an ART).
It does not matter what the underlying assets are, disposals from unit trusts and OEICs will always be subject to CGT.
Similarly, unless steps are taken to put them in trust, both unit trusts and OEICs will form part of the owner’s estate for IHT on death (the ‘trust’ part of ‘unit trust’ is a bit deceptive here)
Ian, 47, his wife Cathy, 44, and their son Clark, 12, are interested in investing in tax-exempt Friendly Society policies. What is the maximum that the family can contribute on an annual basis?
£270
£540
£810
£900
£810
All three individuals can start a plan for a maximum of £270 per annum x 3 = £810
