6

Question 1

What are the tax rates?

Answer 1

20% is the basic rate on income. Higher rate is 40%. 45% payable on income over £150,000

Question 2

What is the rate band for savings income?

Answer 2

0% starting rate band of £5,000 for savings income, but this is not available if taxable non savings income exceeds the £5,000 limit. If the starting rate is not available, then savings income is taxed at the investor’s marginal tax rates after applying the personal savings allowance.

Question 3

What is personal allowance deducted from?

Answer 3

Fron income to arrive at the amount which is taxable. Pension contributions and gift aid payments reduce the tax liability for higher and additional rate tax payers

Question 4

How is savings income paid?

Answer 4

Most savings income is paid gross

Question 5

What is the savings allowance?

Answer 5

A personal savings allowance of £1,000 is available for basic rate taxpayers, with a £500 allowance for higher rate taxpayers. Additional rate taxpayers do not benefit from the personal savings allowance

Question 6

What is the dividend allowance?

Answer 6

Allowance of £2,000 can be used to shield dividend income from tax. This is available for all taxpayers

Question 7

What is the rule for employees under state pension age (SPA)?

Answer 7

Employees under SPA working in the UK have to pay Class 1 National Insurance contributons (NICs) if their income is above the primary threshold

Question 8

Capital gains tax?

Answer 8

CGT is payable by UK investors at a rate of 10% for basic rate taxpayers and 20% for higher and additional rate taxpayers. A portion of any gains made during each tax year is not subject to CGT

Question 9

What gains are taxable?

Answer 9

Only net chargeable gains are taxable

Question 10

When does inheritance tax apply

Answer 10

Only applies if the taxable value of a person’s estate when they die is over £325,000 (plus a further £175,000 if a main residence is inherited by children or grandchildren)

Question 11

What is IHT on death?

Answer 11

Levied at a rate of 40% of the excess above the amount of unused nil rate band

Question 12

What can spouses and civil partners do at death?

Answer 12

To transfer their unused nil rate bands at death to the estate of the surviving spouse or civil partner

Question 13

What is a potentially exempt transfer (PET)?

Answer 13

A lifetime gift that is free of IHT if the person who makes the gift lives for seven years after the gift is made

Question 14

What may influence a person’s tax status?

Answer 14

A person’s residence and domicile are different concepts and may influence their tax status. A person may be UK resident but not UK domiciled, or vice versa.

Question 15

What is stamp duty land tax (SDLT)

Answer 15

A self-assessed tax on land transactions involving any estate, interest, right or power in or over land in the UK. In Scotland and Wales, land and buildings transaction tax (LBTT) and land transaction tax (LTT), respectively, apply instead of SDLT

Question 16

What rate is tax relief on pension contributions?

Answer 16

Tax relief on pension contributions is at the taxpayer’s marginal tax rate

Question 17

What is a tax-free pension commencement lump sum (PCLS)?

Answer 17

A PCLS of up to 25% can be taken from a pension fund upon retirement

Question 18

What are exempt from tax?

Answer 18

Investments held within an individual savings account (ISA)

Question 19

What is a UK collective investment scheme?

Answer 19

They are exempt from tax on gains made within the fund. The tax treatment of dividend distributions from such funds is the same as the tax treatment of direct holding of equities. For income funds, distributions are taxed as savings income not dividend income. Disposals of units/shares in collective investment are subject to CGT.

Question 20

What are proceeds from a qualifying life assurance policy free from?

Answer 20

Of income and CGT for the original beneficiary

Question 21

What do one-off or regular payments from a single premium UK life assurance bond incur?

Answer 21

For a basic rate taxpayer they usually incur no further income tax

Question 22

What is an investor allowed to do with life assurance?

Answer 22

An investor is allowed to take a payment from a life assurance bond of up to 5% of the original premium each year, until 100% is reached (20 years) without an immediate liability to income tax. Any gains on maturity/encashment (including any previous withdrawals) are taxed as income on maturity

Question 23

What is the tax for real estate investment trusts (REITs)?

Answer 23

For REITs, any rental income and chargeable gains are exempt from tax at the REIT level, but are taxed at the investor’s marginal rate when they are paid as dividends

Question 24

What is the tax for investors in venture capital trusts (VCTs)?

Answer 24

They obtain a tax reduction of 30% of the amount invested, provided they hold the investment for at least five years. VCT investments are expent from CGT

Question 25

What is true about an enterprise investment scheme (EIS)?

Answer 25

Provided an EIS qualifying investment is held for three years, an individual can reduce their income tax liability by an amount equal to 30% of the amount invested.

Question 26

Is there CGT on EIS?

Answer 26

No CGT is payable on the disposal of an EIS investment, provided the investor has held the shares for three years.

Question 27

What is an SEIS?

Answer 27

The seed enterprise investment scheme provides 50% income tax relief for investment of up to £100,000 per tax year, and there is also a CGT exemption for 50% of any reinvested gains. There is also no CGT on the disposal of a SEIS investment

Question 28

What is IHT planning?

Answer 28

Often focuses on lifetime gifts, but most gifts into trusts are chargeable

Question 29

What does the gift with reservation rules mean?

Answer 29

It means that it is difficult to gift an asset and continue to enjoy an ongoing benefit

Question 30

How can income tax be mitigated?

Answer 30

By using investments where the investment returns are not treated as taxable income. Spreading ownership of investments between family members can also save income tax

Question 31

How can CGT be reduced?

Answer 31

By managing the timing of disposals to make the most of annual exempt amounts and capital losses