22/23 Set 2 Flashcards
How are purchased life annuities paid out (gross/net)?
Net
When completing a tax return, if you have been paid an income from a purchased life annuity, what figure do you include & how do you find it?
- Gross pay figure
- Divide by 0.8 as it will have been paid net of basic tax
N.B. it’s unclear from the test whether PLAs are always charged at 20% or at your tax band.
In a commercial sale, what price is used for the disposal figure when calculating CGT?
The Sale Proceeds
This is in contrast to the “Market Value” which is used in disposals to a connected person, not at arm’s length, or if the asset is given away.
When an asset is given away, or disposed to a connected person, or “not at arm’s length”, what price is used when determining the disposal figure for calculating CGT?
The market value
It’s to stop me from giving my friend a house and claiming that it would have been worth peanuts and getting no CGT liability. Instead, they use the market value of the asset to keep things fair.
What does it mean for a person to be “at arms length”?
Someone without a close connection
If you make a gain, when must you tell HMRC and when must you have paid the CGT by?
- Must inform HMRC within 6 months of the end of the tax year in which the gain took place (October 5th)
- You have until the 31st of January following the tax year which the gain took place to pay
Do you need to claim holdover relief?
Yes
Think about how you need to report gains to HMRC within 6 months of the end of the tax year which the gain took place so holdover relief would also need to be claimed.
What are the conditions for holdover relief to be allowable?
- The recipient must be a UK resident
- It cannot be for transfer of shares to a company
- It must be chargeable to IHT - even if no IHT is due (e.g. PETs)
When must you inform HMRC of transferred NRB?
Within 2 years of the second death
- can be end of month
2 years after 2nd death - don’t need to keep HMRC up to date just let them know when it’s necessary
How long do you have to report a PET to HMRC?
Trick question you don’t have to report PETs to HMRC
just like transferred NRB just let them know if/when it becomes important don’t have to keep them up to date with everything
Deadline for online tax returns for the TY 22/23?
31st Jan 2024 - “the deadline for submitting returns online”
What would 543L mean on your payslip?
L = 9: £5439
This is the amount of tax free pay you get this year so £5439/12 = £453.25 per month tax free pay
I honestly don’t know why they don’t just put 9 but easy enough to remember. Just make sure you know it’s the year’s tax free income
How often do VAT traders pay VAT?
Quarterly
Are group income protection premiums (paid by employer) considered a taxable benefit?
No they are exempt
It’s possible it’s because it’s a group policy I’m not sure though
Is rent free accommodation considered a taxable benefit?
Yes
I guess you could just take the piss and pay for someone’s £million rent if not
Also, think about gift with reservation with similar examples
Do you get any tax benefits for working from home?
Yes you get a £6 per week allowance
With overseas income, how do you forfeit your entitlement to the personal allowance?
If you have over £2,000 overseas income and claim the remittance basis
”Claiming the remittance basis forfeits the Personal Allowance”
Who pays the income tax on a post ‘06 IIP trust? How is it paid? How much is it?
- Trustee pays 20%
- Difference paid/reclaimed by beneficiary
What kind of expenses on a rental property are allowable against the income?
“Only ongoing expenses are allowable against rental income”
So not upgrades to the place which are called enhancement costs
What is the name given when an employee pays into their pension from their gross pay?
Net pay arrangement
How would one receive basic rate tax relief on payments into a personal pension plan? (Name - not looking for “grossing up”)
- Tax relief at source
- The pension provider will reclaim the 20% through grossing up
After selling a house for a gain, why might Lisa invest in an EIS?
To defer the gain until she disposes of the EIS shares
Don’t get relief on gains reinvested, just deferred
A company pays a basic rate taxpaying director a dividend. What is the tax liability of both the company and the director?
- No tax liability for the company
- The director will need to pay his marginal rate once the dividends exceed the allowance of £2,000
It is also paid gross to the director
How is interest paid, what is the income tax position, and what is the CGT position of gilts?
- Interest usually paid gross (option to pay net)
- Taxed as savings income
- No CGT applicable
What is the dividend allowance of an additional rate taxpayer in 2022/23 TY?
£2,000
Same as everyone else, it doesn’t change
What is the dividend allowance for 22/23?
£2,000
What is the dividend allowance for 23/24?
£1,000
If Alan made £8,000 in non-savings income and £3,000 in dividend income, what would his tax liability be in 2023/24?
£0
Personal allowance applies to dividends
What are the dividend tax bands 23/24?
8.75% basic rate
33.75% higher rate
39.35% additional rate
What is the restriction on premiums of qualifying life policies? When did this come into force?
Max contribution of £3,600 per year. Policies since 2013.
If a life policy is subject to a trust, who is usually chargeable?
The settlor provided they were alive in the tax year the gain took place and UK Resident. It is taxed based on their income.
How are class 3 NICs collected?
Quarterly payment or monthly direct debit
Is there a residence/domiciled condition on class 3 NICs?
There is a residence condition
Joanne sold an investment property to her sister for £120,000 making a gain of £40,000. She has allowed her sister 2 years to pay for the house. What are Joanne’s options with regards to CGT payments?
Joanne must pay any CGT based on the contract date, but she can pay in instalments.
In this case, as the “deferred consideration” was payable more than 18 months after the disposal, HMRC will usually agree to the tax being paid in instalments.
What is “deferred consideration”?
When the consideration (CGT) for the sale of an asset is not payable at the time of the sale but is deferred
If Hattie gifts a house worth £120,000 but reserves benefit, and then when she dies it is worth £150,000: what is the tax position?
The initial gift was a disposal for CGT purposes, and it is a PET. Then when she dies, the £150,000 is included in her estate for IHT purposes.
Gift with reservation is bad news
What is an excluded property trust? What happens in the event that the settlor becomes UK domiciled?
A non-domiciled individual with worldwide properties outside of the UK can put them into trust, become UK-domiciled, and the properties will not be subject to UK tax laws.
In the following scenario, why would the child’s income not be treated as if it belonged to their grandad?
“Simon opens a building society account for his grandson which earns £110 interest”
The £100 rule does not apply with grandparents.
Elaine is a basic rate taxpayer and has received an income of £1,650 from a discretionary trust. How will this be included on her tax return?
- Gross figure
- Always as if 45% had been paid (£3,000)
Because, even though the first £1,000 is taxed at 20%, it is always deemed as having been taxed at the additional rate.
How is the transferrable Nil Rate Band claimed? (Who)
By the legal representatives of the person who died second.
What is the maximum increase to your NRB from the spousal exemption?
100%
What is the remittance basis?
- A tax status for UK-residents who are not domiciled with overseas income.
- It allows to only pay UK tax on income and gains that are brought (“remitted”) into the UK.
- They don’t get a personal allowance.
What is the tax charge on the remittance basis?
£30,000 if you want to claim it and have lived in the UK for 7 out of the last 9 years
£60,000 if you want to claim it and have lived in the UK for 12 out of the last 14 years
How do you avoid the tax charge on the remittance basis?
- Under 18
- Income under £2,000
- Don’t fit the 7/9 or 12/14 rule
If the settlor of a life assurance policy in trust is dead and a gain is realised, who organises the payment of the tax?
Settlor
Seems unlikely - might be worth checking
If the settlor of a life assurance policy in trust is dead and a gain is realised, who organises the payment of the tax?
Trustees
How are dividends taxed in 22/23?
£2,000 allowance
Basic rate 8.75%
Higher rate 33.75%
Additional rate 39.35%
What is the Chattels relief & how is it calculated?
Relief allowable against gains on personal chattels
Gmax = (Disposal price - £6,000)*5/3
(Chattels relief restricts gain to “Gmax”)
If a life policy subject to a trust makes a chargeable gain, and the settlor is dead, how is the gain taxed?
- The trustees pay it
- It is treated as trust income (same as discretionary trusts) so 20% for the first £1,000 and then 45% thereafter.
If settlor died then it’s taxed as a discretionary trust
The beneficiary can reclaim tax paid
IHT % payable on death can be reduced from 40. To what % is it reduced, and how is it determined?
It can be reduce to 36%.
This happens when your charitable donations are equivalent to more than 10% of your total estate less the NRB
Do not take the MRNRB too
Self-employed individual earns £55,000 p.a. What are the NICs they are subject to?
- Class 2 £3.15 p/w after income exceeds £6,725 p.a.
- Class 3 flat rate of £15.85 p/w
- Class 4 10.25% between £11,908 and £50,270 then 3.25% thereafter
Bernadette gifted a portfolio of shares worth £600,000 after exemptions. She dies 3 and 1/2 years later when he portfolio was worth £750,000. How much IHT is due?
£88,000
IHT based on value at date of gift (£600,000)
((£600,000 - £325,000) * 0.8) * 0.4 = £88,000
Don’t forget NRB
Gail sets up a discretionary trust for her grandchildren for £400,000. What IHT is due?
£13,800
Y: £400,000 - £325,000 - (£3,000*2) = £69,000
£69,000 * 0.2 = £13,800
NB Don’t forget the annual exempt gift amount
How much SDLT is due if Phil, a first-time buyer, purchases a house worth £275,000 including £5,000 of curtains and carpets?
£0 because he’s a first time buyer
What are the conditions for Business Asset Disposal Relief?
- Less than £1m lifetime gains (qualifying)
- Must have owned the business for at least 2 years prior to selling
- Need to own 5% of the voting rights
What is the benefit of claiming Business Asset Disposal relief?
Up to the lifetime limit is always 10%
On documents transferring share ownership, who pays, how much do they pay, and who actually sends the money to HMRC?
The purchaser will pay 0.5% but the stockbroker will usually pay it to HMRC.
With onshore single premium life assurance bonds, when does a chargeable gain occur?
Death, Assignment (for money), Maturity, Encashment, and Surrender
Which bonds benefit from top slicing relief?
Onshore and Offshore
How does the tax position between a CTF and a JISA differ?
It doesn’t - trick question
What age can you withdraw from a JISA?
18
Which investment vehicles are exempt from the £100 parent rule
JISAs and CTFs
How much income tax is
charged on gilts when paid to non-UK residents?
Nothing - trick question
How are offshore bank accounts to non-residents taxed by HMRC?
They aren’t
If you move abroad, how is your tax-free status in your ISA affected?
It remains tax free but you can’t contribute any more
How many years of qualifying NIC contributions do you need to qualify for full state pension?
35 years
Of the following trusts, which are PETs and which are CLTs?
IIP
Discretionary
Bare
Disabled
IIP & Discretionary = CLTs
Bare & Disabled = PETs
If a beneficiary of a discretionary trust dies, what IHT is due?
None
Because the beneficiary has no entitlement to the assets
What is “uplift” on a IIP trust?
It’s when the unrealised gains within the trust are “extinguished” on death of the life tenant.
Importantly, this only occurs on trusts created before March 2006
How much can Married Couple’s Allowance can reduce your tax bill by?
Married Couple’s Allowance can reduce your tax bill by between £364 and £941.50 a year.
Lower band is like the number of days in a year
What are the conditions for not paying the tax charge for the remittance basis tax-status?
- Less than 18 years old
- Resident for less than 7 out of the last 9 years
- Less than £2k unremitted income
£30,000 tax charge if:
Resident for more than 7 out of the previous 9 tax years
£60,000 tax charge if:
Resident for more than 12 out of the previous 14 tax years
How would a chargeable gain be taxed on a single premium, onshore, qualifying, life assurance policy?
Tax is due at the income tax band of the investor. 20% is taken at the outset, and then the investor will pay the difference to HMRC
What is time apportionment relief?
If the policyholder of an investment bond is not resident for a part of the period when they owned the policy, they benefit from relief on the gain.
What is time apportionment relief, what does it apply to, and how is it calculated?
- For both offshore and onshore bonds
- Proportion of UK taxation based on time spent in UK
- (Days the policyholder was not resident in UK) / (Days the policy has run)
If the policyholder was not resident in the UK for the full policy length then the proportion of time spent resident in the UK is the proportion of the bond subject to UK taxation
Which bonds benefit from time apportionment relief?
Onshore and Offshore
Which bonds benefit from gross roll up?
Offshore
What is the age limit for NICs?
State Pension Age (66 now)
Should Hayley, who is moving to Portugal for a year after selling the UK based business she has owned for 10 years, pay Class 3 NICs?
Yes to avoid a gap in her NIC contributions
Should Hayley, who is moving to Portugal for a year after selling the UK based business she has owned for 10 years, pay Class 3 NICs?
Yes to avoid a gap in her contributions
Should Mary, who has an incomplete NIC record after taking the last 2 years off to study, pay Class 3 NICs?
Yes to avoid a gap in her contributions
How are capital distributions taxed in a discretionary trust?
Via an exit charge
Which type of trust gets access to a £1,000 standard rate band on income? What is the tax position on this £1000?
Discretionary
First £1,000:
Dividends - 7.5%
All other income - 20%
What rate are most gains charged at on an IIP trust?
20% (or 28% if residential property investment)
What are the conditions for the Married Couples Allowance?
- you’re married or in a civil partnership
- you’re living with your partner
- one of you was born before 6 April 1935
What does holdover relief apply to?
Disposal of trading assets
What is a trading asset with relation to holdover relief?
- an asset used in the trade of the donor or by their personal company
- shares and securities providing that they are unlisted and the donor holds at least 5% voting rights
