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Ella SQE > 7 - BL - Tax individual* > Flashcards

7 - BL - Tax individual* Flashcards

1
Q

How much is the personal savings allowance?

A
  • Basic rate taxpayers = 0% for first £1,000
  • Higher rate taxpayers = 0% for first £500
  • Additional rate taxpayers = NO personal savings allowance
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2
Q

What is the order of taxation of income?

A
  • Non-savings
  • Savings
  • Dividends

(Never Squash Donuts)

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3
Q

What is the basic rate limit for taxable income & tax for rate for savings/non-savings/dividends?

A

£0-37,700

Non-savings/Savings - 20%

Dividends - 8.75%

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4
Q

What is the higher rate limit for taxable income & tax for rate for savings/non-savings/dividends?

A

£37,701-125,140

Non-savings/Savings - 40%

Dividends - 33.75%

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5
Q

What is the additional rate limit for taxable income & tax for rate for savings/non-savings/dividends?

A

£125,140+

Non-savings/Savings - 45%

Dividends - 39.35%

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6
Q

How much is the dividend rate allowance?

A

First £500 is tax free for ALL tax payers

NB: dividend rates applied AFTER nil rate applied to first £500

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7
Q

How are benefits in kind taxed?

A
  • subject to income tax but not deduction under PAYE
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8
Q

What are qualifying loans for tax purposes?

A
  • loan to buy an interest in a partnership
  • loans to contribute to capital or make loans to a partnership
  • loans to buy shares in a close company
  • loans to buy shares in an employee-controlled company

These allow you to deduct interest from your income

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9
Q

How is relief given for pension scheme contributions?

A
  • An amount equivalent to the pension scheme contributions made by a taxpayer during the year are deducted from their total income for that year.
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10
Q

What is the personal allowance for 2024/25?

A

£12,570.

The amount is reduced by £1 for every £2 of Net Income above £100,000

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11
Q

How do you calculate the reduced allowance for individuals with Net income between £100,001 and £125,140?

A

£12,570 - (Net Income - £100,000 / 2) = reduced allowance

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12
Q

What is the order of taxation for different types of income? Step 4 - split the taxable income

A

Non-savings
Savings
Dividends

(Never say die)

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13
Q

When is CGT charged?

A

Where there is:
- a chargeable disposal,
- of a chargeable asset,
- by a chargeable person,
- which gives rise to a chargeable gain

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14
Q

Is there a chargeable disposal on death for CGT purposes?

A

No

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15
Q

What are the main types of asset excluded for CGT purposes?

A
  • Principle Private Residence (if occupied as main/only residence through whole ownership period - but exempt for last 9 months of ownership)
  • Cars for private use
  • Government securities, ISAs and life assurance policies
  • GBP & foreign currency held for personal use
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16
Q

Is CGT chargeable on donations to charities?

A

No - made on no gain/no loss basis

exempt if gain applied for charitable purposes

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17
Q

Is CGT chargeable on disposals to spouses?

A

No - made on no gain/no loss basis

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18
Q

What value will HMRC deem a disposal to be between connected persons

A

Market value (regardless of actual sale proceeds)

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19
Q

Who are connected persons for CGT purposes?

A
  • Persons lineal ancestors and descendants (including each of their spouses) 👨‍👧
  • Companies under common control 🏭
  • Partners in business 🎩🎩

NOT their own spouse

NOT aunts, uncles, nephews, nieces

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20
Q

What value is brought into charge for CGT if a sale is undervalue between unconnected parties?

A

Will still be market value (even if seller just made a bad bargain)

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21
Q

Basic calculation of chargeable gain

A

Consideration received (sale proceeds or market value)

less

Allowable expenditure

= chargeable gain

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22
Q

What are the categories of allowable expenditure for CGT

A
  1. Disposal expenditure (incidental costs of disposal e.g. agents’ commission)
  2. Initial expenditure (base cost of asset + incidental costs of acquisition e.g. surveyor fees)
  3. Subsequent expenditure on the asset WHICH ENHANCES ITS VALUE
    - Expenditure incurred in ESTABLISHING, PRESERVING OR DEFENDING TITLE to the asset
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23
Q

CGT calculation formula

A

Sale proceeds/market value

less disposal expenditure

= net sale proceeds

less initial expenditure

less subsequent expenditure

= chargeable gain

less carried forward or carried-across losses

less AE

= taxable chargeable gain

24
Q

Can a gift be used to create losses?

A

NO

25
Q

Can losses be carried forward?

A

Yes - must be set off against gains in the same tax year first

no time limit on taking it forward

26
Q

What is the Annual Exempt Amount for individuals

A

£3,000

Note: companies do not get an AEA

27
Q

What are the rates of CGT

A

When income fall within the basic rate = £10%

Otherwise = 20%
If CGT takes the taxpayer out of the basic rate, then the gain is apportioned between rates.

28
Q

What is the rate of CGT for Business Asset Disposal Relief?

A

Reduces higher rate of CGT from 20% to 10%

29
Q

What are qualifying assets for BADR?

A
  • all or part of a trading business
  • assets used in a business that used to trade
  • shares in a trading company
  • shares in a company that used to trade
30
Q

What are the qualifying conditions for BADR for disposing of all or part of a trading business?

A
  • must be trading business
  • must be owned for at least 2 years prior to the disposal
31
Q

What are the qualifying conditions for BADR for disposing assets used in a business that used to trade?

A
  • business must have been owned for at least 2 years before it ceased to trade
  • assets must have been used in business when it ceased; and
  • assets must be disposed of within 3 years of the business ceasing to trade.
32
Q

What are the qualifying conditions for BADR for disposing of shares in a trading company?

A
  • trading company for at least 2 years before the disposal
  • shares held for 2 years prior to the disposal
  • the person disposing must be:
    • an officer or employee of the company
    • holds at least 5% of the ordinary voting shares and entitled to at least 5% of the
      profits available for distribution and 5% of the assets on winding up.
    • for at least 2 years prior to the disposal
33
Q

What are the qualifying conditions for BADR for disposing of shares in a company that used to trade?

A
  • shares held for at least 2 years prior to the company cessation to trade
  • the person disposing must be:
    • an officer or employee of the company
    • holds at least 5% of the ordinary voting shares and entitled to at least 5% of the
      profits available for distribution and 5% of the assets on winding up.
      for at least 2 years prior to the cessation of trade.
    • shares must be disposed of within 3 years of the company ceasing to trade.
34
Q

Is a claim required for BADR?

A

Yes (on or before first anniversary of 31 Jan following the tax year relevant disposal was made)

35
Q

What is the lifetime allowance for BADR?

A

£1 million

first £1m of qualifying gains in a lifetime taxed at 10% (then 10 or 20% depending on rate they pay CGT)

36
Q

What kind of company is BADR not available for

A

Investment businesses/companies

37
Q

What are the conditions for Investor’s Relief?

A

Shares will be qualifying shares if:
- fully paid ordinary shares issued for CASH on or after 17 March 2016
- The company is (and has been since the shares were issued) a trading company or the holding company of a trading group
- At the time of issue, none of the company’s shares were listed on a recognised stock exchange
- shares held for at least 3 years from 6 April 2016 (and continuously since issue)
- the individual is NOT an officer or employee of the company

38
Q

What is the rate for Investor’s Relief

A

10%

39
Q

What is the lifetime allowance for Investor’s Relief

A

£10m

40
Q

What assets does CGT Rollover Relief apply to?

A

Business:
- Land and Buildings
- fixed plant and machinery
- Goodwill

NB: the new asset need not be the same type, just within the above categories

41
Q

How does Rollover Relief work for CGT?

A

Any gain is then carried forward & rolled into cost of a qualifying replacement asset

The new asset’s base cost is reduced by the gain on disposal of the replaced asset.

The whole gain must be rolled over (it is not possible to use AEA)

42
Q

How does Gift of business asset (hold over) relief work for CGT?

A

Reduces the asset’s base cost by the donor’s gain to market value (postponing the liability until donee ultimately disposes of asset)

Cannot use AE exemption to reduce gain held over

Can also be claimed where asset sold at undervalue (but holdover relief only available on gift element)

43
Q

What assets can Gift of business asset (hold over) relief for CGT apply to?

A
  • Goodwill
  • Assets used in business
  • Shares in a trading company not quoted on a stock market
44
Q

What is the value of a transfer for IHT purposes for a PET and LCT?

A

The amount by which the transferor’s estate is reduced.

45
Q

What is the value of a transfer for IHT purposes on death?

A

Market Value

46
Q

What IHT reliefs are available for both lifetime transfers and death estate?

A
  • Spouse exemption
  • Charity exemption
  • Business property relief
  • Agricultural property relief
  • Political party exemption
  • Exememption for gifts made for a national purpose or to maintain heritage funds
  • Exemption of gifts to EBTs
  • Exemption for gifts to housing associations
47
Q

What assets does Business Property Relief apply to for IHT?

A
  • a business or interest in a business
  • shares in an unquoted company
  • share is a quoted company (if shareholder has control)
  • land, buildings, machinery or plant owner by the transferor but used for a business purpose by either a company controlled by the person or a partnership of which the person was a partner.
48
Q

How long must the person have owned the assets for Business Property Relief to apply for IHT?

A

2 years immediately prior to the transfer.

49
Q

Is Business Property Relief available for a company that consists wholly or mainly of making investments?

A

No

50
Q

What assets attract 100% BPR for IHT?

A
  • business / interest in a business
  • shares in an unquoted company (regardless of shareholding)
51
Q

What assets attract 50% BPR for IHT?

A
  • shares in a quoted company if the shareholder has control of the company
  • Land, buildings, machinery and plant used in a business
52
Q

What is the condition for BPR need to be met if the person dies within 7 years of a lifetime transfer?

A

The property transferred still qualifies for BPR in the transferees hands when the transferor dies.

53
Q

What’s the CT rate

A

25% main
19% smaller (profit less than 50k)

54
Q

What’s the high rate limit 2023/24?

A

125,140

55
Q

What are the dividend rates

A

Basic 8.75%
Higher 33.75%
Additional 39.35

Ella SQE (13 decks)

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