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R03 - Personal taxation > BTS App > Flashcards

BTS App Flashcards

1
Q

Detail the debentures CGT position

A

They are CGT exempt so no gain or loss is allowable

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2
Q

Jack made a loss of £4,000 on the sale of a Unit Trust being invested in gilts and corporate bonds. What is the CGT position of this? What are the relevant timeframes?

A
  • Gilts and corporate bonds are usually exempt, however as it is in a UT, it is subject to CGT
  • He must register the loss within 4 tax years

Think how our clients are invested in UTs

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3
Q

What is the income tax position of gilts?

A

Taxed regularly as savings income

Don’t overcomplicate, CGT is the only part of gilts that’s different

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4
Q

If you want to donate to your daughter for her wedding, and haven’t used any exemptions, how much can you donate?

A

£3,000 for this year
£3,000 for last year
£5,000 for wedding

Per parent

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5
Q

If you are born into married parents, which domicile status do you usually take?

A

Father’s

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6
Q

If you are born into unmarried parents, which domicile status do you usually take?

A

Mother’s

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7
Q

What is payroll gifting?

A
  • Donating to charity out of gross pay
  • Tax relief is therefore at source immediately

Effectively a pay-cut for tax purposes. Exactly like pension contributions (net pay arrangement)

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8
Q

When does necessary accommodation for work become a benefit in kind again?

A

If you own over 5% of the company’s shares.

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9
Q

Employer pays Secondary Class 1 NICs on an employees earnings. When are these paid in relation to corporation tax & employee’s income tax?

A

Paid before corporation tax as it is deductible

Similar to Pension contributions

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10
Q

After how many years of residency would Memut automatically be classed as UK Domiciled?

A

Being resident in UK for 15 out of 20 years

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11
Q

Patrick (born in UK to UK parents) moves to USA six years ago. Since moving, he has:
- not returned to the UK
- married a US citizen
- worked under a green card

Which circumstance would lead Patrick to renounce his UK domicile?

A

Successfully electing a domicile of choice

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12
Q

Paul sends son to private school he teaches in. Normal fee = £20,000. Paul pays £3,000. Gross cost to school = £5,000. What is the benefit in kind?

A

£2,000

How much extra is the employer paying Paul?

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13
Q

How do directors pay their NICs?

A

On an annual basis through self-assessment

Unlike employees which pay through the PAYE system

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14
Q

Freda, Spanish resident, rents out her flat in London whilst she is in Spain. How will the rental income be taxed, if at all?

A

Subject to regular UK tax

Earning income in the UK will always mean that income is subject to the UK tax system

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15
Q

Robert is self-employed and in partnership with Jen. Trading year of partnership runs Feb-Feb. Which dates do the Payments On Account occur for the 22/23 TY?

A

31st of Jan 2023 and 31st of July 2023.

POA always Jan in the TY in question and July following

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16
Q

What are the consequences of a late tax return?

A

£100 initially, then after 3 months £10 per day for 90 days.

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17
Q

What is the SDLT rate on Craig’s additional (second) property purchased for £300,000?

A

Additional residential properties have a 3% surcharge:
3%: £0 < £250k
8%: £250k < £300k

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18
Q

When must corporation tax be paid?

A

Within 9 months and 1 day from the end of your accounting year

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19
Q

What is the Personal Allowance for Chris who earns £115,000 from employment but also personally contributes £10,000 to his personal pension?

A

£11,320.

Christopher’s adjusted income is: £115,000 - (£10,000/0.8) = £102,500. Thus his PA is reduced by £2,500/2 = £1,250. £12,570 - £1,250 = £11,320.

His BRTB still totals £37,700

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20
Q

Where might you get a scrip dividend from:
- REIT
- ETF
- FTSE 100
- Structured product

A

You get scrip dividends from companies which you own shares in. Thus FTSE100 is the only suitable option that fits this description.

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21
Q

What is the income tax relief for Bill (higher rate taxpayer) who has invested £8,000 net into his personal pension?

A

£4,000

Gross it up to £10,000 then the income tax relief would be a total of the 20% taken at source and then another 20% via. band expansion)

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22
Q

Which types of costs can you deduct for CGT purposes from a chattel that you restored?

A

Costs related to sale and purchase.

Restoration and maintenance costs do not count.

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23
Q

What type of allowance would Alan be using to offset £500 of dividend income from a discretionary trust which is being distributed to his niece?

A

The trust annual exemption (£1,000 per settlor)

It will be classed as trust income, not savings/dividends income, so there is no allowance for either trustee or beneficiary.

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24
Q

What is the BTS mantra on taper relief for IHT?

A

‘no tax no taper’

Unlikely to get this first time but useful to learn because it’s highlighting the fact that taper relief will only apply if there is tax payable on the transfer

25
Q

Jason has £96,000 earned income and £12,000 savings income. What is the tax position on this?

A

His personal allowance will reduce by £4,000. So it would look like:
- 0% up to £8,570 earned income
- 20% for the next £37,700 earned income
- 40% following that up to £96,000

Then he would get £500 personal savings allowance so £11,500 would also be taxable at 40%

26
Q

Penny has part-time salary of £8,570 and savings income of £8,000. What is the tax liability?

A

0%:

£8,570 earned in personal allowance - 0%
£4,000 interest income also in personal allowance - 0%
£4,000 interest income in the savings starting rate - 0%

27
Q

What is rollover relief?

A

Relief to be claimed when a business disposes of one asset and immediately replaces it with another. It defers gains.

28
Q

What is the allowance of a CTF?

A

£9,000

29
Q

Who can contribute to Ava’s (16) CTF?

A

Anyone

30
Q

How does the £100 rule apply to a JISA?

A

It doesn’t apply

31
Q

At what age do you get full control of your JISA & CTF?

A

16

32
Q

How is the tax on self-employed earnings paid?

A

Via. two payments on account followed by a balancing payment.

33
Q

When must most CGT be paid?

A

The January following the end of the tax year which the gains were calculated

34
Q

What is the exception to the rule for when a personal CGT liability must be paid to HMRC, and what is the deadline in this instance?

A

When realising a gain on a property you must pay CGT within 30 days of completion.

35
Q

Do you pay SD/SDRT on purchases of Unit Trusts?

A

Yes

36
Q

Do you pay SD/SDRT on purchases of AIM shares?

A

No

37
Q

Do you pay SD/SDRT on purchases of REITs?

A

Yes

38
Q

Do you pay SD/SDRT on purchases of ETFs?

A

No

39
Q

What is the Stamp Duty Land Tax policy on First Time Buyers?

A
  • They do not pay SDLT on purchases up to £300,000
  • They pay 5% between £300,000 and £500,000
  • After £500,000 they are no longer entitled to any relief and pay at normal SDLT rates
40
Q

What is the relief in place for IHT on assets which were recently inherited (and tax paid on that)?

A

“Quick succession relief”
- If the second death occurs within 5 years of the first death then there is a reduction on the IHT liability

41
Q

How are Payments On Account calculated and paid in the 22/23 tax year?

A

You pay the Income Tax liability from the 21/22 tax year in two halves. First 50% on 31st Jan 2023 and second 50% on 31st July 2023. Balancing payments are paid following this if necessary.

42
Q

Shehzad is a self-employed electrician. His income tax liability was £44,000 in 2020/21 and £69,000 in 2021/22. He paid a balancing payment during the
2021/22 tax year of £12,000. What will his payments on account be for the tax year 2022/23?

A

£34,500 on the 31st July 2022 (also a £34,500 on the 31st Jan 2022) then balancing 31st Jan 2023

43
Q

For the Sufficient UK Ties test, how do you calculate how many ties an individual would need to be classed as resident if they were previously resident?

A

days: ties required
15-45: 4 ties
45-90: 3 ties
90-120: 2 ties
120-182: 1 tie

The numbers are a tiny bit different but I figured it would be easier to learn these and for the exam will be fine

44
Q

When must corporation tax be paid by?

A

9 months and 1 day after the end of your accounting year

45
Q

For the Sufficient UK Ties test, how do you calculate how many ties an individual would need to be classed as resident if they were not previously resident?

A

days: ties required
15-45: automatically not resident
45-90: 4 ties
90-120: 3 ties
120-182: 2 ties

The numbers are a tiny bit different but I figured it would be easier to learn these and for the exam will be fine

46
Q

What is the CGT position on inter-spousal transfers?

A

No gain is realised

47
Q

Carol recently purchased some eligible AIM shares using CREST, sold some FTSE 250 shares using
CREST, purchased some unlisted shares using a Stock Transfer Form and bought some new issue Gilts. What stamp levies would she have been subject to?

A

Stamp Duty only

No stamp levies on sales.
AIM and Gilts specifically are exempt.
Therefore only the unlisted shares, via a STF are liable and this is Stamp Duty.

48
Q

Stanley is a trustee of a discretionary trust; the only such trust set up by the original settlor. He is completing the trust’s self-assessment form, and is wondering how he must account for the trust’s dividend income in the 2022/23 tax year. The trust has received £4,000 of dividend income. With regards to the income, you would advise that…

A

The first £1,000 of dividend income will be liable for 8.75% income tax, with the remainder taxed at 39.35%

Discretionary trusts have a £1,000 basic rate band within which, dividend income is taxed at 8.75%. The remaining dividend income (in this case £3,000) is liable to additional rate tax, so 39.35%. This is paid via self-assessment, even if the income is not distributed to any beneficiaries

49
Q

Can you use the CGT annual exemption against investment properties?

A

Yes

50
Q

Does the £100 rule for interest made from gifts from parents apply in a JISA?

A

No.

It doesn’t matter because income and gains are free from taxation in a JISA anyway but it will not be classed as the parent’s even if it does exceed the £100.

51
Q

Lara, an additional rate taxpayer, would like to transfer £45,000 as a gift to her daughter Alexandra, who is a basic rate taxpayer.

If she were to assign part of her Qualifying Investment Bond currently valued at £90,000, made up of 240 segments, and showing a profit of £20,000, what would the immediate tax liability be?

A

There would not be an immediate tax liability because assignment not for money or money’s worth is not considered a chargeable event. That is, if it’s a gift then it isn’t a chargeable event.

I’m not sure about the IHT of assigning bonds

52
Q

Who generally is responsible for paying tax on distributions from life assurance policies in trust?

A

The settlor providing they are alive and UK resident

53
Q

What does the Cii textbook give as the broad definition of Qualifying Life Policies?

A

“QLPs are broadly life policies with regular level premiums payable at least annually for at least ten years. For QLPs issues after April 2013, these premiums are restricted to £3,600 per year”

This is attempting to distinguish between policies taken out with the aim of providing life cover and policies taken out for investment purposes.

54
Q

What does the Cii textbook give as the broad definition of Non-Qualifying Life Policies?

A

“Non-QLPs are broadly single premium policies that are usually taken out primarily as investments (e.g. life assurance investment bonds) rather than for life cover.”

When we think about the taxation of investment bonds,

55
Q

Alan and Ernie are paying Class 3 and Class 4 national insurance contributions respectively. Which state benefits do these contributions go towards?

A

Only Class 3 contributions provide credit towards state pension entitlement. Class 4 is effectively just a tax charge for Ernie.

56
Q

Monty and Margot are married, and are both UK residents. Monty is of UK domicile but Margot is of French domicile. When Monty died earlier this year his £1,000,000 estate was inherited by Margot. The estate included an unencumbered property valued at £300,000. How much of this estate is exposed to IHT?

A

£175,000

Spouse gets MRNRB £175k
Spouse gets £325k spousal exemption
Monty gets £325k NRB

57
Q

Cameron, a higher rate taxpayer, is a member of his employer’s occupational pension scheme that operates under a net pay arrangement. His gross pension contribution is £10,000. How will he receive tax relief on his contributions?

A

He will receive £4,000 income tax relief, with no need to make a separate claim from HMRC.

Net pay arrangements are the ones from your pay before tax is deducted, like your typical income contributions. They are essentially a pay-cut for tax purposes, as the contribution is paid from gross pay. This provides income tax relief at marginal rate immediately, so Cameron receives tax relief of 40% of the £10,000 gross contribution.

58
Q

Larry, an additional rate taxpayer, has asked his stockbroker to arrange for £300,000 of equity open-ended investment company shares, showing a £150,000 gain, to be transferred to his son as an outright gift on his 18th birthday. Assuming Larry has already used his CT exemption, the tax implications of this are…

A) the creation of a 20% capital gains tax liability for Larry on the £150,000.
B) the creation of a 10% capital gains tax liability for Larry’s son.
C) no Holdover Relief will be available.
D) the creation of a Chargeable Lifetime Transfer (CLT) creating an immediate inheritance tax liability if cumulative CLTs within the last 7 years exceed £325,000, and a gain for capital gains tax.

A

A disposal of OEICs, even by way of a gift, is a disposal for CGT purposes. You can only use your own CGT exemption and not others’. The gift, being made to an individual, would be a PET as opposed to a CLT.
The asset is not business-related and so Holdover
Relief is not available.

59
Q

Employed & self employed income. Which NIC do you not have to pay?

A

Class 2. Class 1 will cover you for state benefits so no need for 2.

R03 - Personal taxation (11 decks)

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