22/23 set 1

Question 1

John (self-employed) accounts run to 31st August each year. His taxable trading income for 22/23 will be based on his profits from:

Answer 1

31st August 2021 - 31st August 2022

Question 2

Thomas is a higher-rate taxpayer and makes a gift aid payment of £5,000 to a charity. How much can the charity reclaim from HMRC?

Answer 2

£1,250

Y: (£5,000 = 80%, £6,250 = 100%)

Question 3

If an employer has an income protection policy and is paying you the benefits, how do the insurers pay it?

Answer 3

Directly to the employer. It is then treated as a trading receipt.

It’s the employer’s policy so naturally it will be paid to them.

Question 4

How much do you have to earn as an employee before paying NICs (weekly or annually)?

Answer 4

£11,908 p.a.

Moving forward £242 per week or £12,584 per year

It’s just over the basic rate tax band. This is per employer.

Question 5

How are class 2 NICs normally paid? Who pays them? When is it paid?

Answer 5

Self-employed individuals pay Class 2 NICs. They are collected via self-assessment in one lump sum on the 31st of January after the completion of the tax year which they relate to.

PN: Same as CGT. You would need to at least complete the tax year before you’d know how much to pay.

Question 6

In the event of a married couple dying without anyone knowing exactly who died first, what is the assumption in General Law and what is the assumption for IHT purposes?

Answer 6

General law: the eldest died first
IHT: they died at the same time

PN: Generals are old

Question 7

What exactly is a trading receipt?

Answer 7

The taxable income for a business for the year.

In the context of IP benefits, they are treated as income from trading for tax purposes.

Question 8

How many days per year must you spend in the UK to be treated as automatically resident?

Answer 8

At least 183 days

PN: 365/2 = 182.5 so at least half a year

Question 9

What are the “split year rules” (in general)?

Answer 9

When considering residency, sometimes the tax year can be split into parts providing you fit certain conditions.

Question 10

What are the conditions for split year treatment?

Answer 10

1. When a person moves for full time work overseas
2. When a person leaves the UK to live overseas
3. When a person comes to live in the UK

PN: Think full time work or permanent move. It’s for if someone moved out of the UK half way through and wanted to get away with tax benefits from that so they split up the year. Or if someone moves in halfway through again.

Question 11

What is the “sufficient UK ties test” (in general)?

Answer 11

When considering residency, a last resort if you do not meet any of the other automatic tests.

Question 12

What are the potential UK ties (in the sufficient UK ties test)?

Answer 12

1. Having a spouse, civil partner, or minor children resident in UK
2. Having accommodation inside the UK which is used for this exact purpose (not let out)
3. Working 40 or more days in the UK within that tax year
4. Spending more than 90 days in the UK during either of the previous 2 tax years
5. Spending more time in the UK than any other country

PN: family, home, work, familiarity “potential UK fives test”

Question 13

A VAT return has reported output of £10,000 and input of £6,000. What is the VAT due?

Answer 13

They owe £800 to HMRC.

Y: Output is the money that the owner gets out of the business. Input is the money they put into it. So, profit of £4,000. Taxed at 20%: £800.

Question 14

What is the liability for shares purchased through an online platform provider vs. through stock transfer forms?

Answer 14

Online: Stamp Duty Reserve Tax of 0.5%
Paper: Stamp Duty of 0.5% rounded up to the next £5

PN: Paper is always going to be more expensive than online. They’re both SDRT:
Online = Stamp Duty Reserve Tax
Paper = Stamp Duty (Rounded Tax)

Question 15

If Pauline incurred a Capital Gain on a sale of some shares on the 4th May 2022, when would the CGT liability have to be paid?

Answer 15

31st Jan 2024

Y: You’ll have to complete the tax year before figuring out your total gain (so at least up to 5th April 2023). Then it’s the next nearest January 31st.

Question 16

How do you calculate the benefit of a company car?

Answer 16

It is a % of the list price of the car. The exact % depends on CO2 emissions alone:
- At 55 g/km your benefit is 16% of the list price
- Every 5 g/km above that your benefit increases by 1%
- Your emissions are rounded down to the nearest 5

Y: List price so that discounts given to the employer are ignored (to stop dodgy dealings).
PN: They are encouraging people to get more efficient cars with tax incentives.

Question 17

With regards to a trusts assets, when is a chargeable disposal for CGT purposes deemed to have taken place?

Answer 17

When a beneficiary becomes absolutely entitled to the trust’s assets.

NB: I actually couldn’t figure out a way of making this into a good flashcard. I’m pretty sure there are more ways for chargeable disposal to take place other than this.

Question 18

Why wasn’t James, who made a gain of £120,000 on selling his main residence, deemed to have made a chargeable disposal for CGT purposes?

Answer 18

The sale of a main residence is exempt from CGT.

Y: CGT is for investors not for the average Joe living in their home.

Question 19

Johnny sold an antique vase making a net chargeable gain of £10,000 after the exempt amount and allowable losses. What rate of tax will he be charged if his total taxable income is £20,000?

Answer 19

10%

Y: Basic rate CGT is 10% and higher/additional is 20%

Question 20

Johnny sold an investment property making a net chargeable gain of £10,000 after the exempt amount and allowable losses. What rate of tax will he be charged if his total taxable income is £60,000?

Answer 20

28%

Y: For properties, you have to add 8% onto what their CGT rate would have been. Johnny was a higher rate taxpayer so its 20+8%

Question 21

What is a gift with reservation?

Answer 21

A gift in which you get a financial benefit from the gift still

NB: Specifically financial benefit

PN: you reserve the right to cheap rent etc.

Question 22

What is an interest in possession trust?

Answer 22

A trust where one of more beneficiaries have a right to the trust income as and when it arises.

NB: It can be contrasted to a discretionary trust, where the trustees have discretion over how they distribute the income. Most trusts fit into one of these two categories.

Question 23

What is POAT and when does it take place?

Answer 23

POAT: “Pre-Owned Assets Tax” is an income tax charge on the free use of an asset you used to own.

Question 24

Out of VCTs, EISs and SEISs, which ones can you get tax free dividends on? What are the limits?

Answer 24

Only VCT up to £200,000

PN: Dividends = VCT only one with V in

Question 25

With non-reporting bonds, how much can you withdraw without triggering a chargeable event?

Answer 25

5% of the original investment amount per year

PN: After 20 years you can withdraw the full original investment

Question 26

How do corporate bonds and gilts differ with regards to tax?

Answer 26

Only corporate bonds are always paid as gross.

Y: You can opt for gilts, government bonds, to have the tax taken before interest is paid out if you want. This isn’t available elsewhere.

Question 27

Why could reporting status be of benefit?

Answer 27

All gains on disposals are subject to normal CGT values of 10% and 20% unlike non-reporting bonds which are charged income tax

Y: Reporting funds report their income & the investor owes tax on it so the income and gains can be split

Question 28

Bill and Ben are brothers and jointly own an investment bond. A chargeable event has occurred resulting in a gain of £10,000. How is this apportioned between them?

Answer 28

The gain is split in the same proportion as their ownership

PN: You can own a portion of a bond and you are responsible for it. Think like tenants in common for houses.

Question 29

Why would a higher rate tax paying risk F client want to invest a lump sum into an EIS?

Answer 29

To gain CGT exemption after a 3 year holding period.

Question 30

Steven received £2000 interest from his deposit accounts. Assuming that is all, and he is a higher rate taxpayer, how is it paid and what is his tax position?

Answer 30

The income is paid gross. He has a personal allowance of £500 and the remainder is taxed as income (40%).

NB: Remember the personal allowance and then it is just taxed as usual.

Question 31

How is income taxed within a discretionary trust?

Answer 31

The first £1000 is charged at basic rate and then anything after is charged at additional rate. This applies to dividend and savings.

NB: The £1000 is per settlor

PN: Income generating discretionary trusts are charged a lot of income tax.

Question 32

Adrian transfers assets of £150,000 into a trust without interest. The gain would have been £40,000 but he claimed holdover relief. What does this mean?

Answer 32

He does not pay CGT on the disposal of the assets, but the trust takes on the original acquisition cost and therefore the CGT liability.

PN: Hold(ing period) Over(to the recipient)

Question 33

What is the spousal exemption? How does it apply with non-domiciled spouses?

Answer 33

The spousal exemption why you can transfer an unlimited estate size to your spouse without triggering an IHT liability. With non-domiciled spouses, this is limited to £325,000.

PN: The clue’s in the name & it’s the same amount as NRB

Question 34

How long do you have to report a PET to HMRC?

Answer 34

Trick question - you don’t have to report them.

Y: HMRC don’t need to know about every single movement of gifts in your lifetime. However, when you die, they will ask you to disclose the ones which ended up being relevant.

Question 35

If a PET becomes IHT chargeable, who pays the liability?

Answer 35

The recipient

PN: It’s not going to be the donor because they’re dead

Question 36

Giving up a company car is not an effective strategy for mitigating NICs. Why?

Answer 36

Because employees don’t pay NICs on taxable benefits

Y: The employer will pay the NICs for taxable benefits.

Question 37

Why would sacrificing salary to increase company pension contributions be an effective NIC reduction strategy, but increasing contributions to a personal pension not be?

Answer 37

Because personal pension contributions come from the net salary after NICs are taken anyway. Salary sacrifice would reduce your NIC liability because your salary will be lower.

Question 38

How much can you contribute to your personal pension?

Answer 38

Up to 100% of your salary or £40k, whichever is lower.

Question 39

At what age can you no longer contribute to your pension?

Answer 39

75 years old

PN: Think V&E age

Question 40

What does it mean to “carry forward” with regards to your pension allowance?

Answer 40

You can carry up to 3 previous tax years’ pension allowances providing you can satisfy the condition that it is 100% of your pay.

i.e. if your salary is £170k per year and you didn’t use any of your allowances then you can contribute up to £160k.

Q: I don’t know if this is relevant for any other allowances or not.

Question 41

What is the tax position on income of an Interest In Possession trust?

Answer 41

The trustees will only ever pay basic rate tax on income from the trust.

NB: This applies to dividend and savings income

Question 42

What is the small profits threshold?

Answer 42

If a self-employed individual earns less than £6725 in profits for the year then they have the option to pay Class 2 NICs

PN: Small profits implies it will be self-employed. We know it’s class 2 NICs from that too & then it’s not having to pay it but you can.

PN: It started at £125 per week (£6500) and crept up

Question 43

If you’re paying interest on a business loan, how do you find the amount of interest paid that can be deducted from your income for tax purposes?

Answer 43

Take the higher of 25% of adjusted income (after pension contributions) or £50,000 - whichever is higher.

Question 44

Robert’s income for the year is £10,000. He received £4,000 in interest payments from his building society account. Figure out his tax liability.

Answer 44

£0:

Your personal allowance of £12,570 counts for savings and non-savings income. There is £1,430 (£14,000 - £12,570) left to allocate. The starting rate band will then cover this up to £5,000 further.

Question 45

What is the starting rate band for savings income?

Answer 45

When your non-savings income falls between £12,570 and £17,570, your savings income can supplement your total income up to the £17,570.

X: Gerry non-savings income of £11,570 p.a. and deposit income of £7,000.
The first £11,570 falls within the personal allowance and so does not incur a tax liability.
The first £1,000 of savings income also falls within the personal allowance.
There is £6,000 left to allocate. Because of the starting rate band, another £5,000 of this will not incur a tax liability (£11,570 + £1,000 + £5,000 = £17,570)
Following this, the remaining £1,000 is taxed as basic rate income.

Question 46

If Charlie gifts £425,000 into a discretionary trust after already using annual exemptions, how much IHT is due?

Answer 46

£25,000

Y: NRB of £325,000 leaves £100,000 exposed to IHT. As this is a trust, it is a CLT so it must be grossed up. i.e. £100,000 = 80%, £125,000 = 100%. So the tax due at outset is £25,000

PN: Trust = CLT = 20% at outset (grossed up)

Question 47

Amanda is selling her flat and buying a larger residential property in Manchester for £255,000. She has agreed with the vendor that this includes £5,500 for all of the white goods, carpets, and curtains. How much SDLT is due?

Answer 47

£2,490

Y: Take the £5,500 from the purchase price: £249,500. The first £125,000 pays no SDLT leaving £124,500 taxable at 2%: £2,490

PN: You don’t pay stamp duty on curtains…

Question 48

What are the SDLT rates for residential properties?

Answer 48

Up to £125k : 0%
£125k - £250k : 2%
£250k - £925k : 5%
£925k - £1.5m : 10%
£1.5m and above: 12%

Question 49

What is the negligible value claim and how long can it be before you claim it?

Answer 49

For assets worth so little it can be written off as a loss to HMRC. The loss relief can be backdated to either of the two previous tax years from which the claim took place.

PN: Think TYE and 2 full years.

Question 50

Kim is an additional rate taxpayer and has recently created a trust for her 10 year old daughter Amelia. This produces £150 in gross interest. What is the income tax liability if any?

Answer 50

£67.50

Y: If a parent donates an income generating gift which generates an income over £100 then the income will be charged at the parent’s marginal rate

Question 51

What are the income tax bands?

Answer 51

0% up to £12,570
20% £12,570 - £50,270
40% £50,270 - £150,000
45% £150k and above

NB: you do lose your personal allowance after a certain income

Question 52

What is a guaranteed income bond?

Answer 52

An NS&I account
Works a bit like a fixed interest deposit account
Can be held in an ISA
Can grow in value
Gains charged under CGT rules