4 - Taxation of Investors and Investments (16/80) Flashcards
Income Tax Bands
Personal allowance = £12,500
(Tapered at 50% above £100,000)
20% on £0 to £37,500
40% on £37,501 to £150,000
45% on >£150,000
Charity Tax
Exempt from tax
May have to become VAT-registered if trading profits >£85,000
Trust Taxation
Trustees pay tax based on their position -> pay out of trust assets
CGT = 20% on investments, 28% on property
CGT allowance = £6,150 (half of an individual’s)
Dividend = 38.1% rate
Types of Trust
Bare/Absolute
Discretionary
Interest in possession (income only)
Accumulation
Taxation of Savings Income
Saving Allowance
Basic rate = £1000
Higher rate = £500
Additional rate = £0
Starting Rate = £5000 over personal allowance
i.e. can earn £12,500 income and £5,000 savings before paying taxes
Dividend Taxes
Basic = 7.5% Higher = 32.5% Additional/Trust = 38.1%
Fund income counts as dividend if bonds < 60%
Rental Income Taxes
Taxed as business income
Income = revenue - expenses
20% tax relief on mortgage interest
Fund Income Taxation
If bonds > 60%, counts as saving income
If bonds < 60%, counts as dividend income
Equalisation Payment
Received to make up for paying extra for a fund that has already priced in income payments
The first income payout of any fund includes regular income and an equalisation payment
EP is not taxable, as it is ‘returning’ part of your initial investment
Franked Income
Post-tax dividend income received
Businesses receiving this pay no extra corporation tax on it
REIT Taxation
No CGT or corporate tax as long as they:
- Payout 90% of profits
- > 75% of NAV is in property
- Must have more than 5 owners
20% withholding tax
Taxed either as dividend or normal income (up to REIT)
National Insurance
Class 1 (employed)
- £184-967 / week = 12%
- > £967 / week = 2%
Class 2 (self-employed)
- Threshold = £6,515 / year
- £3.05 / week
Class 3
- £15.30 / week
Class 4 (self-employed/business)
- £9,569-50,270 / year = 9%
- > £50,270 / year = 2%
Voluntary Contributions - can pay in to get full benefits if unemployed
Capital Gains Tax
‘Chargeable Event’ = Disposal Value - Incidental Costs - Allowable Costs
Incidental = valuation, agency, advertising
Allowable = acquisition, CAPEX
£12,300 allowance
10% basic (18% for property)
20% higher and additional (28% for property)
Product exemptions:
- Primary residence
- Gilts and corporate bonds
- Collectibles
Inheritance Tax - Nil Rate Band
NRB = £325,000
Additional £175,000 for primary residence (Tapered by 50% above £2m)
Can be transferred to spouse on death
Inheritance Tax - Potentially Exempt Transfers
Gift will be exempt from IHT if the gifter survives for 7 more years
Inheritance Tax - Lifetime Transfer Allowances
Annual = £3000
Small gifts = £250 per person
Out of income (w/o diminishing standard of life) or for under 18 = Unlimited
Spouse, charities, political = Unlimited
Inheritance Tax - Gifts with Reservation
Gifting an asset but still getting income/other benefits from it
Counts as a transfer and will be subject to IHT if gifter dies within 7 years
Inheritance Tax - Estate Valuation
Shares = ‘quarter up’ = bid + (spread / 4)
Unit trusts = bid price
OIECs = company rules
Dying Intestate
Married, Children -> £250k to spouse + half, half to children
Married, No children -> All to spouse
Single, Children -> All to children
Single, No children -> Next of kin
Residency Tests
Automatic Overseas Test
- Not UK resident for past 3 years
- Less than 16 days in last year
- Works <30 days in the UK
Automatic Resident Test
- Spend at least 183 days per year in the UK
- Only/main home is the UK
- Work full time in the UK for whole year
Sufficient Ties Test
- Family tie
- Accommodation tie
- Work tie
- 90-day tie
Ties needed to be declared a resident, depending on stay length: 16-45 = 4 ties 46-90 = 3 ties 91-120 = 2 ties >120 = 1 tie
Tax resident vs Non-tax resident taxation
Tax resident = ARISING tax = pay tax on UK income as it arises (can’t hold on until lower tax band)
Non-tax resident = REMITTANCE tax = pay tax on foreign income when it is brought into the UK (REMITTED)
Income and CGT Depending on Residency/Domicile
UK resident and tax resident = ARISING on income and CGT
UK tax resident and NOT domiciled = REMITTANCE for income and CGT
Domiciled but NOT a tax resident = remittance for income, arising for CGT
Double Taxation Agreements and Withholding Tax
DTA = some countries won’t tax your income and apply UK taxes at the same time
WH = some countries hold a % before the funds are remitted to the UK
Remittance Basis Charge
£30-60,000 annually if
- Income is over £2,000
- Willing to give up personal allowances
Types of Domicile
Origin (birth/father)
Choice (move to)
Dependency (children inherit)
Deemed (resident for 15 years)
Stamp Duty
0.5% on shares and options
Not payable on UTs, OIECs, gilts, corporate bonds, ETFs
Stamp Duty Land Tax Bands
Payable on land and property
0% on first £125,000 2% on £125,000 to £250,000 5% on £250,000 to £975,000 10% on £975,000 to £1,500,000 12% on >£1,500,000
15% for investment companies if >£500,000
Must sell house within 3 years of buying another or pay 3% extra SDLT
Value Added Tax
Charged when a business buys or sells something (can reclaim when buying)
Standard = 20% Reduced = 5%
Have to VAT register if revenue >£85,000
Exemptions
- Insurance
- Education
- Credit
- Charity
- Subscriptions
- Medical
- Renting
Corporation Tax
Standard = 20% UTs/OIECs = 19%
Pension Relief
£40,000 annual allowance
£3,600 for non-earners
Can carry forward 4 years (£160k max)
Tapered above £240,000 ‘threshold’ income at 50% reducing rate, up to £312,000
Allowance at £312,000 income becomes £4,000
Life Policy Taxation
Can take out 5% of premiums paid so far (annually)
Inheritance Tax - Charges
Instant chargeable action over £325k
Must be worked out to be PET or not
Withholding Tax
Tax deducted ‘at source’ (fund etc.) rather than gross paid out to investors who then pay the tax themselves
Foreign countries withhold certain taxes before income is remitted - DTAs reduce this or offset against UK tax liabilities
Calculating Income/CGT Tax
- Subtract allowances (e.g. £12,570) to get ‘taxable income/disposal’
- Split into bands (e.g. £0-37,500, £37,500-150,000)
- Calculate individually and add up
