Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

R05 - 2023 > 5 - The taxation of life assurnace and pension-based policies > Flashcards

5 - The taxation of life assurnace and pension-based policies Flashcards

1
Q

What is a qualifying policy?

A

Type of life assurance policy that any gain is not taxable

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is a non-qualifying policy?

A

Type of life assurance policy that any gain could be subject to higher and additional rates of of income tax

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is the limit for qualifying policies that you can not be taxed on?

A

£3,600

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Typically what makes a life assurance qualifying

A

If it builds a surrender value or maturity value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What are the main types of policy for qualifying rules

A
  • Temporary insurance >10 years
  • Temporary insurace < 10 years
  • Whole life assurances
  • Endowment Assurances
  • Exempt Assurances
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What are the benefits that include surrender values

A

Every policy except endowment assurances

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is the value of a surrender in temporary insurance fewer than 10 years

A

Surrender value cannot exceed value of premiums paid

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

In temporary insurance more than 10 years, how much total premium can they receive in one year

A

It must not exceed twice the total premiums payable in any other year
or
1/8 of total premiums payable over whole term

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

In endowment assurances , how much total premium can they receive in one year

A

Same as temporary assurance >10 years

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is the qualifying term for temporary insurance exceeding ten years

A

10 years

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is the qualifying term for temporary insurance < ten years

A

Not less than 1 year

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is the qualifying term for whole life assurances

A

No set time - whole of life

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is the qualifying term for endowment assurances

A

Policy must be at least 10 years

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is the 75% rule

A

The capital sum on death must be not less than 75% of the premiums that would be payable if death were to occur on the life assured’s 75th birthday.

For whole life assurances and temporary assurances generally

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

How long do joint life policies have to be in order for it to qualify

A

Policy must be 10 years + , or first death

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Friendly society policies

Maximum premium, annual premium

A

Maximum premium: £25
Annual premium: £270

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Friendly society policies

Policy length, and premium pricing

A

Policy term: At least 10 years
Premium must be level and payable at annual or shorter levels

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

When will a policy be activated if backdated up to 3 months

A

The policy will be made on date it which it was backdated

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

When will a policy be activated if backdated more than 3 months

A

Being made on date contracted was completed

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

If a change of life assured when does new contract begin and who organises this

A

On date of the change by HMRC

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

When a policy is replaced by a new qualifying policy as a result of change in lives assured when is the new policy started

A

**Date of original policy **for purpose of income tax

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What is consideration (advisory)

A

Commission, also a divorce settlement is consideration

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Offshore Policy - what must they do to be qualified

A

Life office becomes uk-authorised and premiums are payable to uk branch
Policyholder becomes resident in uk and life fund income is chargeable as corporation tax

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What does annual premium limit not apply to

A

Pure protection qualifying policies (usually issued on non-qualifying basis) - no surrender value
Mortgage endowment policies for sole purpose of repaying interest only mortgage

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

When does annual premium limit apply to all policies

Dates

A

From 6th April 2013
Within transitional period from March 2012 - April 2013
Before 2012, where these becaome restricted relief qualifying policies

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

Assignment of qualifying policies after 2013

A

Making any of these assignments will cause policy to become Restricted relief qualifying policies
Assignment as part of divorce
Assignment as a result of court order
Assignment between husband an wife
Assignment into or out of trust

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

What is a Restricted Relief qualifying policies?

A

Restricted relief qualifying policies (RRQPs) are effectively taxed on a partly qualifying and partly non-qualifying basis.

28
Q

How long do beneficiaries have to provide a written statement to provider (policy qualifying)

A

3 months otherwise it becomes non-qualifying

29
Q

What does RQRP Include

A

21st March 2012 - 5 April 2013

30
Q

What is the taxed at 20% in life funds

A

Cash, bonds, equities and property

31
Q

What is exempt from tax in life assurance

A

UK dividends
Overseas dividends

32
Q

Offshore life funds benefits

A

Not much tax on gain of underlying life fund
Allows for gross roll-up which is valuable to higher or additiona rate tax payer.

33
Q

What happens if offshore life fund is surrendered

A

Chargeable of income tax at gain of progressive (basic, additional ya yaya)

34
Q

What are the 5 chargeable events on non qualifying policies

A

Death
Assignment for money
Maturity
Part surrender
Surrender

35
Q

What are the 2 potential chargeable events on qualifying policies and in which circumstance are they chargeable

A

Death and maturity if made paid up within ten years or 3/4of the term

36
Q

In what circumstances on death does a chargeable event occur

A

if the surrender value immediately before death, plus any relevant capital payments, exceeds the premiums paid plus the total gains on previous chargeable events

37
Q

In what circumstances do maturity or surrender cause a chargeable event

A

If the amount paid out, plus any relevant capital payments, exceeds the premiums paid plus the total gains on any previous chargeable events. Where the sum assured is payable by instalments, the amount taken for the calculation is the capital value of the instalments

38
Q

In what circumstance does assignment cause a chargeable event

A

if the consideration, plus any relevant capital payments, exceeds the premiums paid plus the total gains on previous chargeable events.

39
Q

What is meant by”relevant capital payments” in relation to determining whether a chargeable event has occurred

A

5% tax deferred withdrawals

40
Q

What is the formula for working out the tax relief on RRQPs

A

Tax relief = (Total allowable premium/Total premium payable) * gain

41
Q

How are chargeable gains taxed

A

Only at higher and additional rate as basic rate is deemed to be paid within the fund

42
Q

What happens if a tax payer moves up in tax bracket as a result of gain in policy (basic - higher rate)? What is this called

A

If the gain would cause the taxable individual to move from the basic- to higher-rate bracket, or from the higher- to additional-rate bracket, ‘top slicing relief’ applies. This recognises that the gain has actually been made over a number of years and should not simply be applied in full to the current year’s income to calculate a tax charge

43
Q

What is the tax difference between a basic rate gain and additional rate gain (if gain pushes the income to next tax bracket)

A

25% - difference between basic and additional rates

44
Q

What is the personal allowance?

A

£125,140. £1 is removed per £2 of income - £12,570.

45
Q

In what circumstances is the trustee liable for tax on a chargeable gain

A

If event occurs in tax year after the individual dies and 1 or more trustee is a uk resident
If creator still alive but resident outside uk immediately before the event

46
Q

In what circumstance is a beneficiary liable for tax on a chargeable gain

A

If none of the trustees live in the uk

47
Q

Does a beneficiary receive top slicing relief if they have to pay tax on chargeable gain

A

No

48
Q

How is tax on a chargeable gain administered

A

It is the responsibility of the person liable to declare it on tax return

49
Q

Are pension policies affected by chargeable gain taxation

A

NO

50
Q

How much is PCLS can an individual take out

A

25% of lump sum - tax free

51
Q

How much of uncrytallised funds pension lump sum is tax free

A

25%

52
Q

Are exceoted group life policies exepmt from chargeable gains

A

Yes

53
Q

How are second hand policies taxed

A

Selling could be chargeable event subject to income tax and when second hand owner recieves the proceeds could be subject to CGT

54
Q

How are offshore policies taxed

A

This ‘gross roll-up’ on offshore funds means that tax will be due on the full amount of a chargeable gain, rather than being charged only to the extent that the gain exceeds the higher-rate threshold.

55
Q

What is the rate of IHT over the nil rate band

A

40% or 36% if 10% of estate left to charity

56
Q

What is the nil rate band

A

£325,000

57
Q

What is the residential nil rate band

A

£175,000

58
Q

What is the annual exemption for IHT

A

£3000

59
Q

Who are exempt from IHT gifts

A

Chartities
Souse or civil partner

60
Q

Chargeable Lifetime transfers tax cost exceeding nil rate band

A

20% - trustees pay tax

61
Q

When does the IHT on PET start from

A

From the failed transfer “individaul dies within 7 years of transfer of gifts”. Person looking will look from last date of failed pet and go back 7 years, any gifts from the date of failed transfer will be liable to taking nil rate band.

14 year shadow

62
Q

Taper relif on IHT on PETS and CLTS

A

0-3 = 40%
3-4 = 33%
4-5=24%
5-6=16%
6-7=8%

63
Q

Valuing gifts - how can sometimes a transfer of gift lose more value to estate than gift itself

A

If gift is worth more in pairts

64
Q

What might be a good assurance for decreasing PET tax

A

Term assurance - decreasing for taper relief (0-7 years)
Level term assurance - if PET exceeds nil rate band leads to 40% tax on all estate (not decreasing - 40% will be flat tax)

65
Q

What is the amount received to spouse with children if husband dies instestate

A

first £322,000 given spouse then spouse takes 50% of remaining. other 50% given child/ren.

66
Q

What is the maxiumum length a disclaimer can be used

A

within 2 years of death
and intended for CGT or IHT

67
Q

Where is deed of variation often used

A

Where IHT or CGT is not tax efficient

R05 - 2023 (11 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions