Brand Qs 2 Flashcards
Beverley purchases a property in England for £445,000. This includes £4,500 for fixtures and fittings. Calculate, showing all your workings, the Stamp Duty Land Tax that she would pay assuming she is: (a) a first-time buyer (b) not a first-time buyer
Purchase price £445,000
Less fixtures etc. -£4,500
£440,500
(a) Tax = £775
(b) Tax = £9,525
Detailed explanation
From the purchase price of £445,000, Beverley can deduct the £4,500 for the cost of the fixtures and fittings.
(a) As a first-time buyer, Beverley benefits from SDLT relief on the first £425,000 of the purchase price, providing the full purchase price is less than £625,000.
The first £425,000 is therefore charged to SDLT at 0%, the remaining £15,500 at 5% (because it falls into the normal 5% band).
£425,000 x 0% = Nil
£440,500 - £425,000 = £15,500 @ 5% = £775
(b) If Beverley is not a first-time buyer, the usual rules apply. The remainder falls partially within the 0% band and partially in the 5% band. She will therefore need to pay:
£250,000 x 0% = Nil
£440,500 - £250,000 = £190,500 @ 5% = £9,525
Total £9,525
CII R03 Study Text Chapter 7, Section A
Graham and Audrey are purchasing their first home in Manchester for £276,950. Calculate, showing all your workings, how much Stamp Duty Land Tax they will need to pay.
Answer
Nil
Detailed explanation
As first-time buyers, Graham and Audrey are entitled to SDLT relief, meaning they pay SDLT at 0% on the first £425,000 of the purchase price on a property up to the value of
£625,000.
CII R03 Study Text Chapter 7, Section A2
Jo and Alex are purchasing their first home in York for £501,950. Calculate, showing all your workings, how much Stamp Duty Land Tax they will need to pay.
Answer
£3,847.50
Detailed explanation
As first-time buyers, the first £425,000 is chargeable at 0%. The remainder falls in the 5% band.
They will therefore need to pay:
£501,950 - £425,000 = £76,950 x 5% = £3,847.50
CII R03 Study Text Chapter 7, Section A2
Rebecca is purchasing a holiday home in Skegness for £279,000. It is her second property. How much stamp duty land tax will be due? Calculate, showing all your workings, how much Stamp Duty Land Tax she will need to pay.
Answer
£9,820
Detailed explanation
The purchase falls partially within the 3% band and partially in the 8% band. She will therefore need to pay:
£250,000 @ 3% = £7,500
£279,000 - £250,000 = £29,000 @ 8% = £2,320
£7,500 + £2,320 = £9,820
CII R03 Study Text Chapter 7, Section A6
Neil and Janet own a house in Brighton worth £195,000. Neil has moved out and Janet is purchasing his share of the property. Janet paid Neil £20,000 and the joint mortgage was for £190,000. At what rate(s) will Stamp Duty Land Tax be payable?
Answer
Nil
Detailed explanation
Janet will be liable for tax on any lump sums paid plus half of the joint mortgage.
£20,000 + (£190,000 / 2) = £20,000 + £95,000 = £115,000
£115,000 is within the nil rate band for Stamp Duty Land Tax. No tax will be payable. CII R03 Study Text Chapter 7, Section A1
Kay, an additional-rate taxpayer, holds 5,000 shares in ABC Ltd. If she receives a dividend payment of 50p per share, what will her Income Tax liability be? Assume she has no other dividend income.
Answer
£590.25
Detailed explanation
5,000 shares @ 50p = £2,500. The first £1,000 are charged to tax at 0% under the dividend allowance. The remaining £1,500 (£2,500 - £1,000) are then charged to tax at the additional rate of 39.35%. £1,500 @ 39.35% = £590.25
CII R03 Study Text Chapter 9, Section B1A
Penny, a higher-rate taxpayer, receives property income of £20,000. Her mortgage interest costs are £4,000. In the current examinable tax year, what is the tax treatment of these mortgage interest costs?
Answer
£800 basic rate tax deduction Detailed explanation
100% of mortgage interest costs are now given as a basic rate tax deduction:
£4,000 @ 20% = £800
CII R03 Study Text Chapter 9, Section C2B
A 30-year lease is granted for £75,000. (a) How much of this will be treated as property income? (b) If the lessee uses the premises for trade, how much ‘rent’ is an allowable deduction in calculating their trading income?
Sally and James are married with one child aged 17. What is the total amount they can pay into ISAs as a family in the current examinable tax year?
Answer
£69,000
Detailed explanation
Sally and James can each invest £20,000. They can also invest in a Junior ISA for their child - £9,000 in the current examinable tax year. Their child can also invest £20,000 into a cash ISA because they are over 16.
The answer is therefore £20,000 x 3 = £60,000 + £
Tariq has an adjusted income of £280,000, including his employer pension contributions. How much is his annual allowance for pension purposes in the current examinable tax year?
Answer
£50,000
Detailed explanation
Tariq has adjusted income of £280,000, including employer pension contributions. His tapered annual allowance is therefore reduced by £1 for every £2 in excess of
£260,000:
£280,000 - £260,000 = £20,000 /2 = £10,000.
£60,000 - £10,000 = £50,000.
CII R03 Study Text Chapter 10, Section B1
Matthew runs his own business as a limited company and has a SIPP in force for his own benefit. The plan has a current value of £1,567,000. Matthew currently owns the factory that is used by the business and has recently had it valued at £1,850,000. He plans to arrange for the factory to be purchased by the SIPP and wants to know how much the SIPP would be permitted to borrow to facilitate the purchase. Calculate the maximum available loan assuming that no additional contributions are made into the SIPP in the current year and that there are no existing loans in place.
Answer
Maximum loan is £783,500 Detailed explanation
Scheme value £1,567,000
Maximum loan is 50% of scheme assets:
£1,567,000 x 50% = £783,500
Because there is no existing borrowing in place the scheme may borrow up to the full 50% of scheme assets
CII R03 Study Text Chapter 10, Section B8
Simon has been a member of a pension scheme since July 2020 and has not been subject to the tapered annual allowance in any year. He has made the following contributions to his SIPP: 2020/21 - £25,000, 2021/22 - £30,000, 2022/23 - £29,000. What is the total unused annual allowance Simon can carry forward to 2023/24?
Helene bought £6,025 of quoted shares electronically and £5,943 of quoted shares using a stock transfer form. What type of tax did she pay on each transaction and how much was she charged?
Answer
Stamp duty reserve tax on electronic shares of £30.13 Stamp duty on shares bought via stock transfer form of £30
Detailed explanation
Stamp duty reserve tax (SDRT) is payable on electronic purchases of shares. It’s 0.5% of the purchase price, rounded to the nearest penny.
£6,025 @ 0.5% = £30.125
Rounded to £30.13
Stamp duty is payable on documents such as stock transfer forms. It’s 0.5% of the purchase price, rounded up to the nearest £5.
£5,943 @ 0.5% = £29.715
Rounded up to £30
CII R03 Study Text Chapter 7, Section B
Katy recently set up a bare trust for her 10-year-old grandson, Toby. She placed £25,000 in the trust which is invested in a building society account yielding 3% pa. (a) Explain the Income Tax treatment of the interest. (b) How would this differ if Toby’s mother had created the trust?
Answer
(a) Taxed on Toby, using his own personal allowance, starting rate band for savings income, personal savings allowance and own tax rates. Subject to self-assessment.
(b) It would have been taxed on Toby’s mother.
Detailed explanation
The income from a bare trust for the benefit of a minor is taxed as the parent’s income if that capital came from the parent and the income is more than £100 per year. If the income is not more than £100 per year, then it is taxed on the child.
The rule does not apply where the capital giving rise to the income came from the grandparents or other individual.
CII R03 Study Text Chapter 1, Section J2A J2B
In the current examinable tax year an IIP trust received the following gross income: · Bank interest of £1,600. · Dividend income of £2,700. · Rental income of £1,500. Explain how each of the different types of income will be taxed and identify any additional tax payable by the trustees.
Answer
Bank interest – paid gross, 20% tax due, personal savings allowance not available to trustees, trustees owe £320
Dividend – paid gross, 8.75% tax due, dividend allowance not available to trustees, trustees owe £236.25
Rent – paid gross, 20% tax due, extra tax of £300 paid by trustees. Detailed explanation
Trustees of IIP trusts pay Income Tax at the basic rate so:
Bank interest – paid gross, 20% tax due, personal savings allowance not available to trustees, trustees owe £320 (£1,600 @ 20%)
Dividend – paid gross, 8.75% tax due, dividend allowance not available to trustees, trustees owe £236.25 (£2,700 @ 8.75%)
Rent – paid gross, 20% tax due of £300 (£1,500 @ 20%) paid by trustees. CII R03 Study Text Chapter 1, Section L4
A discretionary trust receives income in this tax year as follows: Property Income £40,000. The £40,000 is before property expenses of £5,000. In addition, the trust had expenses of £500. Calculate, showing all your workings, the Income Tax payable by the trustees.
Neil has transferred £800,000 to an existing discretionary trust. He has not made any other gifts. Calculate, showing all your workings, the Inheritance Tax due on this transfer if Neil pays the tax as well as if the trustees pay the tax.
