AFA 1 Flashcards
How to be Non-dom?
Domicile if Origin (birth)
Domicile of Choice
Current Non-Dom rules?
£30k/7/9
£60k/12/14
Non-Dom rules mean?
Only pay tax on funds brought in to UK. So if choose a low tax country, can save money.
New Non-Dom rules?
4yrs tax-free on moving to UK. If already Non-Dom; get 2yr transition period.
Net means?
Gross?
After expenses accounted for.
Before expenses accounted for.
Salary at which lose personal allowance?
£125,140
(£100,000 + (£12,570 x2))
Taxable income is?
Gross pay minus Pension, Allowable Expenses, Charity (PAC!)
Current tax rates?
PA: £12,570
BR: £37,700
HR: £125,140
AR: >£125,140
Amount at which you lose starting rate band?
Best for?
£12,570 + £5000 = £17,570
Getting interest.
Low income, high savings e.g. pensioners.
Highest amount of money to get tax-free?
£18,570 (PA + SRB + PSA)
Current dividend allowance?
Tax rate?
£500
BR: 8.75%
HR 33.75%
AR: 39.35%
Incomes not assessable to tax?
Redundancy payments, Lottery wins, Gambling profits, Wedding Presents, Scholarships.
Employees pay tax on what ‘perks’?
At what cost?
Any readily convertible assets, including vouchers, PMI, Expenses/Living Accomodation.
‘Annual Value’ = 20% of Market Value of asset when first provided to employee.
How are’In-house work perks’ taxed?
Limited to marginal cost to employer.
Income tax legislation?
Income Tax (Earnings & Pensions) Act 2003.
Income Tax (Trading and Other Income) Act 2005.
Income taxed in what order?
EPRSDL
Earnings, Pension, Rental, Savings, Dividends, Life Assurance (‘EPReSD Life’)
Types of national insurance?
1: Employees
2: Self-Employed
3: Voluntary Contributions
4: Additional from Self-Employed
Current capital gains tax allowance? Rate?
£3000 (£1500 for trusts)
24% Residential Property, 20% Other
Reduced primary residence CGT if?
Delay in moving in after buying, esp due to building/failure to sell.
Last 9 months.
Job-Related Accomodation, before moving home.
Proportion of exempt primary residence CGT gain?
Total Gain x (Absences/Total Ownership)
CGT only counts from? Acquisition cost is?
1982
Value in 1982
Capital gains losses can be carried forward (not backward) by how many years?
Indefinitely
What is ‘bed and breakfasting’?
Selling and repurchasing shares immediately to allow access to many years’ annual exempt amounts.
Business roll-over relief?
When businesses sell and replace assets, it defers CGT to ‘final disposal’.
Hold-Over relief?
No capital gains tax when you gift away business assets. Though receiver will pay on disposal.
Reinvestment relief?
Gain deferred by use of EIS (1yr pre - 3yrs post disposal)
Business asset disposal relief?
Lifetime limit: first £1m of gains charged at 10%.
Investors relief?
Reduces CGT on disposing ordinary shares from 20 to 10%.
Calculating CGT for shares?
Matched ‘Same day’, then within 30 days (B&Bing), then any other time (Section 104 Holding).
Life policies CGT?
Exempt
Are Unit Trusts/OEICs/Iv Trusts charged CGT?
Yes
Inheritance tax rate within 7 years?
In to trusts?
NRB?
40%
20%
IHT allowance and remarriage?
Ceiling of additional 100% of each NRB at time of second death.
IHT NRB? RNRB?
RNRB reduced if house worth over?
£325k +/- RNRB £175k
£2m, reduced by £1 for every £2 over this
Types of gift for IHT?
PERCs:
PET: Tapered if 3-7, Exempt >7
Exempts: Charity, Spouses, Weddings, ‘Normal Expenditure’
Reservations: Living in gifted house, Interest from gifted money
CLTs
14 Year Rule for IHT?
Any PETS within 7yr period, triggers prior 7 yr review of NRB-reducing CLTs.
IHT + Trusts?
Bare: As PETs
Discretionary: CLTs
I-in-P: CLTs
Disabled: As PETs
Additional charges for Discretionary & I-in-P trusts?
Regular 10yrly charge, at most 6% (Or 30% average IHT charges through lifetime of trust). Exit charge.
IHT Reliefs?
WABS
Woodlands: 100% after 2yrs
Agricultural: 100% if held 2yrs
Business: 100/50% if held 2 yrs
Succession: ‘Quick death’ within 5yrs
What is POAT?
(Pre-Owned Assets Tax):
Income tax charge on Land/Chattel/Property on chargeable person still receiving benefit.
IHT paid by?
6mths post persons death.
Corporation Tax paid by? Covering what period?
Limited Companies
Accounting period (Not financial year)
PCTCT? Which includes?
Profits chargeable to corporation tax.
TIC: Trading Profits, Iv Income, Chargeable Gains.
Exemption from corporate chargeable gains?
Disposals of substantial shareholdings.
Deductions for PCTCT
CRI: Plant/Machinery 18%. Long Life 6%.
Capital Allowances:
R&D Reliefs: 13% of costs for large companies, 230% on SMEs.
Intangible Assets: Intellectual property/goodwill.
If >75% shares in subsidiary what benefits?
Assets can be transferred, Gains/Losses balanced.
What is a close company? Why does it matter?
UK, Limited company, with 5 or fewer ‘participators’.
32.5% tax on outstanding loans at accounting period end.
VAT is? Register if? Flat rate eligible if? Uses what?
Input/Output tax.
>£85k/yr.
<£150k/yr, % of annual turnover
How is VAT paid?
Most every 3mths electronically.
Large businesses; monthly.
When do companies pay CT? Large companies?
9mths after end of accounting period.
Quarterly instalment.
What is ‘bad debt’? Still have to make VAT payments unless?
When customers fail to pay invoice.
<£1.35m, Certain age etc.
Financial Life Cycle?
WoRLd:
Wealth Creation
(obtainment)
Retirement
Legacy Planning
(on Death)
Income tax planning?
Share Allowances
Keep <£100k
- Maximise Pension Contributions (Directly or Salary Sacrifice)
- Save 40% income tax relief, 20% reinstatement of PA
Savings income planning?
ISA
Free from CCGT
Iv Bonds (with 5% withdrawals)
VCT/EIS
CGT Planning?
Transfer to spouse
Spread sale of assets (Rollover/Holdover)
Nominate Residence
Crystallise losses
IHT Planning?
Will
Exemptions (7yrs)
Trusts
- G&L
- DGT
IGT: G&L Trust?
Gift £3000 + Loan £? to buy Iv Bond. Witthdraw 5%/yr. Iv growth remains in trust IHT free after 20yrs.
IHT: DGT?
Donors fund immediately out estate.
Beneficiaries fund out after 7 yrs. If 5% withdrawals spent then no IHT on fund.
Boom?
Recession?
Depression?
Recovery?
Employment –> Goods Demand –> Inflation.
Caution –> Less Demand –> Unemployment.
Big Decline.
People spend more.
Monetary Policy?
Fiscal Policy?
Interest rates by BoE.
Taxation/Govt Spending by Govt.
Offshore vs Inshore Iv Bonds?
Onshore: 20% tax deducted in fund, cannot use PSA.
Offshore: No UK tax deducted, may be able to use PSA.
If Personal Allowance < Earned + Non-Savings Income < PA + NRB ?
o Basic Rate on Income over PA
o + Savings Interest >PA + NRB + PSA Marginal Rate Tax
Fixed Interest Iv?
GILTs
Corporate Bonds
Eurobonds: Long term, from Govt/company
PIBS: Like CBs for Building societies. Half yrly interest. Become Perpetual Subordinated Bonds if Demutualise.
GILT types?
Shorts (<7yrs), Mediums (7-15yrs), longs (>15yrs), Ultra-Longs (50-55yrs), Convertible
GILT Yield formula?
(Coupon/Price) x 100 = Yield
Corporate Bonds?
Debentures: secured against company assets
Loan Stock (+/- Convertible: at set time/price)
Deep-Discount: Very low coupon, company can buy back
Zero-Coupon: No interest, relies on capital gain
Are corporate bonds charged CGT?
No, free from CGT except Convertible loan stock.
How are bonds/GILTs issued?
Direct
Auction
Tender: issue sold to those offering take-up price
Does income from GILTs/Bonds qualify for SRB/PSA? CGT payable?
Yes
Nope, exempt from CGT.
How are shares offered?
IPO, or, when company needs to raise capital
How are shares sold?
Fixed Price
Tender (Auction)
Subscription: form of tender with reserve for predetermined number of shares
How do existing companies raise capital?
Placing: via FIs
Rights Issue: offer existing shareholders to buy more.
Adjustment issues for shares?
Scrip issue: Offers free shares, in place of dividends.
Share Splits
Types of Shares?
Ordinary: basic, voting rights, last to be paid back.
Preference: give fixed dividend, no voting rights.
- Cumulative: Pay previous poor-profit-yrs dividends
- Participating: Receive additional proportion of profits as dividends
- Convertible: To ordinary shares at fixed price/date
Warrants: Right to number of ordinary shares in future
Assessing share value?
PYND
Price-Earnings Ratio
Yield (Dividend)
Net Asset value
Dividend Cover
Costs of dealing shares?
Spread: Selling/Buying price difference
Commission: From stockbroker
Stamp Duty
Panel of Takeovers/Mergers Levy
Employee share schemes?
SAYE-Linked Share Options: Save then, option to buy shares
Share Incentive Plans:
- Free Shares
- Partnership: Like salary sacrifice.
- Matching: With Partnerships
- Dividend: ReIv in to shares
Employee share schemes tax?
CGT liability based on value increase from date of withdrawal (Nil if immediate!)
Derivatives are? Include?
Iv vehicles of underlying shares/commodities.
COWFee
Contracts for Difference: Agreement to settle opening/closing prices of shares at end of contract (open-ended)
Options: right to buy/sell asset.
Warrants: Right to buy asset at date.
Futures: like options, but must be exercised on specific date
How is rental income taxed?
As per income tax rate. Received gross then paid via self assessment.
What Special Purpose Vehicle (SPV)? Allows? Rental income taxed how?
Limited company. Deduct mortgage interest as an expense. As corporation tax.
REITs? Taxed how?
REIT: Iv trusts for property.
-Can be exempt from CT
- Must pay out 90% profits (As Property Income Distribution)
PAIFs vs REITs?
Open ended (vs Closed REITs)
100% distributed (vs 90% REITs)
Why were REITs/PAIFs introduced for ‘property companies’?
Save double taxation:
- CT on rental income
- Income tax on income from company
What are guaranteed equity/income bonds?
Iv instrument utilising ZCB + Call Option on chosen index to ensure payments received, even if default.
‘Capital at risk’ products?
Similar to Guaranteed Products but utilise derivatives more than ZCBs.
Taxation of Structured Products (Guaranteed Bonds, Captital-at-Risk)?
Income - Income Tax
Growth - CGT
Types of risk?
Systemic Risk: Domino after one person defaults.
Systematic: Market risk, related to confidence.
Non-Systematic: Specific sectors.
Gearing is?
Company borrows to invest: usually percentage of capital and reserves
Beta? Alpha?
Beta: How share fluctuates against market
Alpha: return relative to risk taken
Efficient frontier?
Optimum diversification in portfolio to maximise returns for level of risk.
Efficient Market Hypothesis?
CAPM?
All info reflected in prices, so impossible to outperform.
Reward investor should expect for taking additional risk.
Arbitrage Pricing Theory?
More complex way to assess risk and return.
Main aspects to behavioural finance?
Heuristics: general rules, rather than thorough analysis
Framing: how problem expressed
Market Inefficiency: Ignoring expertise/info
Types of investment management?
Advisory: individual actions
Discretionary: Acting within remit
Core and Satellite?
Mix of Passive and active.
Collective Iv vehicles?
Buying/Selling prices are?
Unit Trusts: Pooled Iv under trust
- Different offer/bid prices
OEICs: Pooled via law
- Same price
How are collective Ivs taxed?
Exempt from CGT.
Types of Unit Trust/OEICs?
Accumulation/Growth
Distribution/Income
Equity income
GILT/Bond Funds
Total return funds?
Absolute return funds?
- Use long positions
- Use derivatives (Similar to hedge funds)
Unit Trusts/OEICs taxed how?
Equity (<60% Interest bearing): As dividends
Non-Equity (>60% Interest Bearing): As interest.
Fund itself exempt from CGT, on taking proceeds, pay CGT.
UCITS?
Undertakings for Collective Iv in Transferable Securities = Offshore Trust Fund/OEIC
Offshore funds:
- Reporting: Less tax
- Non-Reporting: More tax
Iv Trusts? If more than one type of share?
- Public limited closed ended Iv companies
- More flexible than OEICs/Unit Trust
Split Capital Trust
Split capital trust share classes?
Prior Charges
Zero-Dividend Preference
Income
Ordinary Income
Capital
What is net asset value (NAV)?
Market value of all trust assets, less liabilities, divided by share number.
Exchange traded fund?
Allow intra day trading. Mostly passive.
Low charges vs Unit Trusts/OEICs/Iv trusts.
Endowment? Types? Taxed how?
Regular-premium Iv-orientated life assurance contract paying capital on pre-determined date.
- With Profits: Conservative, use ‘smoothing’, enable ‘reversionary bonuses’
- Low Cost: with-profits + decreasing term assurance
- Maximum Iv Plans: Ten-year unit-linked endowments.
As per life policies: Qual vs Non-Qual
Iv bond? Types?
A Non-Qualifying whole-of-life assurance policy, via lump sum, assurance usually no more than 101%.
Unit Linked
With Profits
Iv bond tax?
Fund manager pays 20% CT, which counts as BR paid.
Annuity types?
Purchase:
Compulsory Purchase: Bought with pension
Life, Temporary, Immediate, Deferred, Escalating, With/Without Proportion, Capital-Protected, Enhanced/Impaired Life, Iv Linked
Purchase annuities tax? Compulsory Purchase annuities?
Capital part tax-free. Interest part treated as savings, with 20% IT deducted at source +/- HR/AR.
Taxable as per earned income.
EIS?
VCT?
CGT?
EIS: Tax relief of 30%, up to £2m
VCT: Tax relief of 30%, up to £200,000
Exempt if held for 3yrs.
AFA 1: Top 13
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