11 - Tax in the financial affairs

Question 1

Promoters of tax avoidance schemes have to disclose their arrangements to HMRC, which registers it and issues a reference number under which arrangement?

Answer 1

Disclosure of Tax Avoidance Schemes (DOTAS)

Question 2

The disclosure and issue of a reference number from HMRC for a tax avoidance scheme, makes it approved.

True or false?

Answer 2

False.

Question 3

What is the the purpose of the general anti-abuse rule (GAAR)?

Answer 3

Special regulatory rule that targets tax avoidance schemes that are outside the general tax legislation, because they are complex or novel.

Question 4

GAAR may attack a tax planning arrangement not initially caught by targeted anti-avoidance rules (TAAR). True or false?

Answer 4

True

Question 5

TAAR may attack a tax planning arrangement not initially caught by general anti-avoidance rules (GAAR). True or false?

Answer 5

False

Question 6

What are the 4 ways in which you can “enable” a tax avoidance scheme?

Answer 6

Design
Manage
Market
Facilitate

Question 7

Do taxpayers who use registered tax avoidance schemes have to declare this on their tax return.

Answer 7

Yes, and must show its reference number too

Question 8

Transferring of assets to your partner is possible in order to transfer the investment income it produces, saving YOU income tax. Why might this instead create a CGT or IHT liability, and therefore make it less appealing?

Answer 8

If you are not married

Question 9

How long do separating couples have after ceasing to live with each other, in which to make no gain, no loss transfers, for CFR purposes?

Answer 9

Up to three years after the end of the tax year when they cease to live together

Question 10

How many and which types of JISA can a child have, if they don’t have a CTF?

Answer 10

Stocks and shares, and cash JISA; one of each

Question 11

If a child is a beneficiary of a discretionary trust that was not created by a parent, how much tax can the child reclaim on any distributions by the trustee?

Answer 11

45%

Question 12

What are the 2 elements to child tax credits, and what are the rates?

Answer 12

Family element - £545, only if at least one child was born before 6 April 2007.
Child element - £3,235 per child, but up to max. of 2

Question 13

How is CTC claimed and how far can it be backdated?

Answer 13

Claimed via HMRC and cannot be backdated by more than 1 month

Question 14

What is the income threshold for those entitled to CTC?

At what rate does the child element of the benefit become withdrawn when the income threshold is exceeded?

Answer 14

£18.725

41p for every £1 income over the threshold

Question 15

For people who work enough hours to be entitled to WTC, WTC and CTC are withdrawn when and at what rate?

Answer 15

When income exceed £7,455, by 41p for every £1 over.

Question 16

You can only make a claim for CTC if you’re getting what other benefit?

Answer 16

WTC

Question 17

You cannot claim CTC if you’re receiving what other credit?

Answer 17

Universal credit

Question 18

Receipt of CTC affects your other child benefit income. True or false?

Answer 18

False

Question 19

If all of your children were born after 6 April 2017, what element(s) of CTC could you receive?

Answer 19

Family element only

Question 20

How much income can be generated by a child from a parent’s gift and it not be treated as the parent’s income?

Answer 20

£100 gross pa

Question 21

Which class of NICs stop when the individual reaches state pension age?

Answer 21

Class 1 and 2

Question 22

Which class of NICs stop at the end of the tax year that the individual reaches state pension age?

Answer 22

Class 4w

Question 23

How often does the Pensions Act 2014 review the state pension age?

Answer 23

At least every 6 years

Question 24

Which state benefits depend on an individuals NICs record?

Answer 24

New state pension
New jobseekers’ allowance (class 1 NICs only)
Bereavement payments
New style contribution-based employment and support allowance (ESA)
Maternity allowance

Question 25

Taking dividends as opposed to a salary, will benefit which type of taxpayer more in order to save on NICs?

Answer 25

Basic

Question 26

State two ways that directors might be able to reduce their NICs

Answer 26

Paying themselves in dividends instead of salary
Increasing employer pension contributions by salary sacrifice (pension contributions are not earnings)

Question 27

The tax-free PCLS is usually restricted to a maximum of how much?

Answer 27

£268,275

Question 28

Why might someone have pension death benefits paid into trust instead of their spouse, when considering long-term residential care?

Answer 28

Funds in a trust cannot be taken into account by a local authority when assessing assets or income.

Question 29

Do you have to use the NRB upon first death?

Answer 29

no

Question 30

How often should a will be reviewed and particularly after which circumstances?

Answer 30

Every 2 years or:

Change in client circumstances
Change in legislation (especially IHT)

Question 31

What is a deed of variation?

Answer 31

A deed of variation is a legal document that allows you to change a Will or, in the instance there is no Will, change how the intestacy rules operate and apply to the estate

Question 32

In which circumstances might you advise a client to make use of their nil rate band on first death?

Answer 32

When the asset transferred away from the spouse is expected to grow in value faster than the nil rate band or when second marriages are involved

Question 33

The RNRB is not available when property is left to a discretionary trust. True of false?

Answer 33

True

Question 34

What are the 3 main types of trust used in IHT planning?

Answer 34

Bare trust (absolute)
Interest in possession (IIP)
Discretionary

Question 35

Transfers of property to which type of trusts are treated as CLTs for IHT purposes?

Answer 35

IIP and discretionary

Question 36

Transfers of property to which type of trust is treated as a PET for IHT purposes?

Answer 36

Bare (absolute)

Question 37

If an asset in a discretionary trust increases in value, is the capital increase subject to IHT on the donor?

Answer 37

No

Question 38

Why is business relief unnecessary on a gift to a spouse or civil partner?

Answer 38

Because the transfer is exempt anyway. This is known as the inter-spouse transfer exemption.

Question 39

A share in a partnership will
not qualify for business relief if the partnership agreement states that on the death of a
partner, ‘the surviving partners shall acquire the share of the deceased partner at market
value’. How can business relief instead be preserved?

Answer 39

If the clause is replaced with an option to buy the share of a deceased partner at market value. This then removes the binding contract for sale element so that business relief is available again.

Question 40

As Henry has approached retirement, he has run down the trade of his company, Hen Ltd.
Over the previous five years, he has instead invested surplus profits in quoted shares. Why might Henry not qualify for business relief?

Answer 40

Because he is not using the business assets for business use. Business relief may be restricted or lost because of this.

Question 41

At what point do trusts need registering on TRS? (in days)

Answer 41

Taxable trust = within 90 days of it becoming taxable
Non-taxable trust = within 90 days of the trust creation

Question 42

How much is the potential penalty for deliberately failing to register a trust?

Answer 42

£5,000

Question 43

What does it mean to ‘bed and breakfast’ shares?

Answer 43

Sell late evening and buy back in the morning