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r03 personal taxation 2023/24 > 11 - Tax in the Financial Affairs of Individuals and Trusts > Flashcards

11 - Tax in the Financial Affairs of Individuals and Trusts Flashcards

1
Q

Why might it be suitable to choose an investment for an individual that’s subject to CGT instead of income tax?

A

CGT lower rates

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2
Q

Broadly, what’s the best general tax planning strategy for ALL individuals?

A

Making use of any tax allowances and reliefs, and reduce any income charged at the higher income tax rates

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3
Q

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

A

Disclosure of Tax Avoidance Schemes (DOTAS)

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4
Q

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

True or false?

A

False.

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5
Q

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

A

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

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6
Q

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

A

True

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7
Q

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

A

False

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8
Q

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

A
  1. Design
  2. Manage
  3. Market
  4. Facilitate
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9
Q

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

A

Yes, and must show its reference number too

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10
Q

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?

A

If you are not married

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11
Q

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?

A

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

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12
Q

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

A

Stocks and shares, and cash JISA; one of each

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13
Q

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?

A

45%

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14
Q

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

A
  1. Family element - £545, only if at least one child was born before 6 April 2007.
  2. Child element - £3,235 per child, but up to max. of 2
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15
Q

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

A

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

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16
Q

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?

A

£18.725

41p for every £1 income over the threshold

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17
Q

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

A

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

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18
Q

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

A

WTC

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19
Q

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

A

Universal credit

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20
Q

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

A

False

21
Q

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

A

Family element only

22
Q

How can adjusted net income be reduced in order to avoid the high income child benefit charge between a couple?

A
  1. Pension contributions
  2. Transferring income between themselves (must be unconditional and outright)
  3. Donations to charity under gift aid
  4. Forgo the benefit completely (might be more ‘convenient’ to do this)
23
Q

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

A

£100 gross pa

24
Q

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

A

Class 1 and 2

25
Q

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

A

Class 4w

26
Q

What is the qualifying period for the maximum state pension?

A

35 years

27
Q

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

A

At least every 6 years

28
Q

Which state benefits depend on an individuals NICs record?

A
  1. New state pension
  2. New jobseekers’ allowance (class 1 NICs only)
  3. Bereavement payments
  4. New style contribution-based employment and support allowance (ESA)
  5. Maternity allowance
29
Q

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

A

Basic

30
Q

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

A
  1. Paying themselves in dividends instead of salary
  2. Increasing employer pension contributions by salary sacrifice (pension contributions are not earnings)
31
Q

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

A

£268,275

32
Q

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

A

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

33
Q

How can pension contributions reduce CGT?

A

By increasing a person’s basic rate tax band and therefore reducing the amount of gains taxed at 20% (or 28% for residential property gains).

34
Q

Do you have to use the NRB upon first death?

A

No

35
Q

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

A

Every 2 years or:

  1. Change in client circumstances
  2. Change in legislation (especially IHT)
36
Q

Why is the RNRB not usually used upon first death?

A

Because the home is likely to be passed to the surviving spouse first

37
Q

What is a deed of variation?

A

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

38
Q

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

A

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

39
Q

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

A

True

40
Q

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

A
  1. Bare trust (absolute)
  2. Interest in possession (IIP)
  3. Discretionary
41
Q

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

A

IIP and discretionary

42
Q

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

A

Bare (absolute)

43
Q

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

A

No

44
Q

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

A

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

45
Q

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?

A

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.

46
Q

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?

A

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

47
Q

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

A

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

48
Q

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

A

£5,000

49
Q

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

A

Sell late evening and buy back in the morning

r03 personal taxation 2023/24 (47 decks)

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