Business Planning Flashcards
What is DOTAS?
Disclosure of tax avoidance schemes, a promoter of a tax avoidance scheme discloses it to HMRC and the list of people using it with a Scheme Reference Number
If you are reporting money laundering, who do you report to?
National Crime Agency, not HMRC
From 6th April, for employees up to 21, the rate for class 1 NIC is…
0% up to upper secondary earnings threshold, 13.8% after that.
Class 1A contributions are payable by…on…
Employers on their employees benefits
Class 1B contributions are paid by… On…
Employers on grossed up value of earnings included in a PAYE settlement agreement. (Agreement that lets employers pay for benefits and expenses together, no other forms necessary, no P9 P11.
Class 2 contributions are for…
Self employed individual. £2.80 per week. Between 16 and 65 year old. Only if above £5,965 limit.
Summarise the income tax proforma
Columns of non-savings, savings and dividend income. Rows of total income, qualifying interest payments/ gifts to charity, reliefs, losses, net income, personal allowance, the tax calculations with percentages, less tax reducers e.g. Married couples, less DTR, gets income tax liability, less tax deducted at source, add income tax retained on patent royalties paid net of BRIT, gets tax payable.
Can you transfer personal allowance?
From FY14/15 1,060 only to spouse, treated as tax reducer of 20% by transferee. Only if transferee basic rate tax payer, no marriage allowance.
How much redundancy pay is tax free?
First 30,000
How much rent-a-room scheme rents are tax free?
First 4250 of gross annual rents.
How much can you invest yearly in a NISA?
15,240
What are the schemes that encourage investment in venture capital?
Enterprise investment scheme EIS, seed enterprise investment scheme SEIS, and venture capital trust VCT.
What is a qualifying company for EIS investment?
Does not control and is not controlled by another unless 90% qualifying, gross asset value before share less than 15m and 16m after share issue. Less than 250 full employees. Raised less than 5m under EIS and VCT in past 12 months. Must be going concern and use share money for trade.
What income tax relief is there for EIS (enterprise investment schemes?
30% of amount invested up to the point that reduces tax liability to nill. Relief counteracted if shares sold within 3 years. Capital gains arising are exempt unless disposed in 3 years. Capital loss always allowable here.
What must you remember in calculating the (allowable) loss on disposable of EIS shares?
Reduce cost of shares by amount of EIS income tax relief obtained for those shares.
Where any asset is disposed of and new EIS shares are bought within 12 months before and 36 months after then…
Chargeable gain on asset disposal can be deferred until EIS share disposal. Relief not bigger than amount of gain or subscription cost of shares. Partial claims possible.
Why might you only make a partial claim when selling shares and investing in new ones in EIS?
To take full advantage of the annual exempt amount of £11,100
When does a deferred gain crystallise (in the offsetting against EIS shares?
New shares disposed of (not intra spouse), within 3 years the spouse owner ceases to live in uk or shares or company cease to be qualifying.
What companies can SEIS shares apply to?
Similar to EIS, and not companies dealing in commodities or properties, certain financial services and certain renewable energy sources. But company must be new, less than 2 years, NAV /lt 200,000, /lt 25 employees, no EIS or VCT funds raised and not more than 150,000 through SEIS. Company can raise further funds if it has used 70% of previous funds.
How is SEIS different from EIS in terms of investor disposing of shares within 3 years and income tax relief being withdrawn?
Instead of relief being added back to current year, the year in which it was claimed is adjusted.
Are capital gains from SEIS shares exempt?
Yes, providing SEIS relief not withdrawn and shares not disposed of within 3 years.
What is the max reinvestment relief available in other assets when you bought SEIS shares?
Lower of Gain on disposal, and 50% of investment (£100,000 is max investment)
What would an individual be charged for capital gains?
11,100 allowance and then 18% in basic band and then 28%
What is a VCT?
Venture capital trust, on stock exchange, income from shares in unlisted companies. Those companies have less than 250 employees and raised no more than 5 mill from EIS and VCT in last year.
What is the maximum tax relief from investment in VCT?
On max investment for £200,000 p/a. More wont get relief. Tax relief of 30% of invested amount up to point that reduces liability to nil.
Which is given first, VCT or EIS tax relief?
VCT
How is income tax relief from VCT withdrawn?
If shares disposed of within 5 years. Relief brought back into charge in disposal year.
Are dividends from VCT exempt?
Yes if relate to shares in the £200,000 permitted maximum per year.
Is there relief for disposal of VCT shares? If so, what are the conditions?
Gains exempt, losses not allowable. Doesn’t necessarily have to be post 5 year period.
What are the taxable amounts on a gift of a company’s assets to an employee?
Benefit taxed at value of second hand value to employer. At cost to employer when taxed to director or employee not in excluded employment..
What happens with Save As You Earn shares?
Employees save some net income over 3-5 years. After can be used to buy company shares or taken with a tax free bonus. Enterprise management incentives (EMI) and company share option schemes (CSOS) are just awarded to key employees.
Who can use the share option schemes CSOS, EMI, SAYE?
For CSOS and EMI employees must own /lt 30% of company. EMI requires employment for significant period. SAYE is for all employees.
What is the maximum total value of shares offered at the grant stage in CSOS, EMI, SAYE?
CSOS = 30,000, EMI = 250,000 (total options in issue by company less than 3 mill), SAYE save £10 - £500 per month.
What are the conditions on CSOS, EMI, SAYE in terms of discounts and when exercise must occur?
CSOS - exercise 3-10 years from grant and no discount, EMI - exercise within 10 years of grant and discount possible, SAYE maximum 20% discount.
What restrictions are there on the issuing company for EMI?
Gross assets /lt £30 mill, trading company, /lt 250 employees at time of grant.
What are the CSOS restrictions on exercise price?
Must be greater than market value at time of grant.
How are discounts taxable on exercise price for EMI?
Discount given is taxable as employment income. (Exercise price - market value at grant) or (exercise price - market value at exercise) if lower.
What are the restrictions on exercise price for SAYE?
Option price /gt 80% Market value at grant. Even if issued at discount, no tax consequences at exercise.
What is the tax treatment at disposal for CSOS, EMI, SAYE?
For CSOS and SAYE, taxed on gain of proceeds less exercise price. For EMI, taxable amount is Proceeds less Exercise price less amount taxable on exercise.
What is the chargeable gain on disposal of shares in share option schemes?
If it is tax advantaged, chargeable gain is proceeds less cost, then you’d deduct yearly allowance 11,100 and charge 28%. If non tax advantaged do proceeds less cost less amount charged in income tax (gain on exercise… This might bring it to 0). But you probs would have paid more in income tax and NIC.
What is an SIP?
Share incentive plan, free shares or offer for purchase out of earnings, shares held trust, must be available to all employees.
What are the four ways share incentive plans can be done by employers?
Gift of up to £3,600 pp/pa. max of £1,800 or 10% annual salary as partnership shares - from pre tax remuneration, matching shares 2:1 on partnership shares, dividend shares - dividends employees receive are reinvested.
If the “relevant period” in a share incentive scheme is the time when the shares are allocated to an employee with a trust to the time when the shares are given, how is income tax and NIC charged?
Based on market value of shares at withdrawal. If 3-5 years then based on MV at grant if this is lower, no taxable benefit of /gt 5 years. If dividend shares then the dividend was originally taxable instead and can be removed from plan after 3 years with no IT or NIC.
What are the details for employee share holder shares that may be given on relinquishing some rights (e.g. Redundancy pay) (I have 5 facts)
Individual and associates can’t have /gt 25% of company, shares have value of at least 2000, first 2000 tax free and NIC free, first disposal free of CGT Up to first £50,000 issued, formal agreement.
What is the pension relief limit (I.e. Maximum amount that will attract relief is higher of 100% annual earnings and…)
£3,600
How do employers get relief when contributing to pension funds?
Tax relief at source through payroll. It also reduces their trading profits.
On personal pension schemes, how much income tax relief is given at source?
20%, higher and additional rate taxpayers can increase bands by the gross contribution.
How much can employees and employers contribute into pension schemes each year?
40,000 (30,000 for 2013/14 and before). Excess charged at income tax rates. Allowance can be carried forward on FIFO basis.
Why might it be advantageous for employees to give pension contributions over the 40,000 limit rather than pay? (NIC)
Not treated as earnings for NIC purposes.
What ages do you usually vest pensions till?
- Must be fully vested by 75 for advantages.
What is the maximum lump sum you can take from pensions?
25% (max £312,500). Rest taxed at 55%. Or taxed at 25% if excess used to buy pension income or drawdowns.
What is the lifetime pension allowance for 2015/2016?
£1,250,000
What are some advantages of an SSAS? (Small, self administered pension scheme)
Scheme can borrow up to 50% of fund value, can lend 50% to own company and can invest up to 5% in its own shares.
Can a SSAS invest in property?
Not in residential property (Unless REIT) or tangible moveable property.
What are some advantages/ disadvantages of an SIPP? (Self invested pension plan)
Plan can also borrow up to 50% of own funds, but not able to lend money. Can purchase shares in companies, but not residential properties (unless REIT) or tangible moveable property.
What are SASS and SIPP pension schemes usually used for? And the advantages of this?
Investing in commercial property that the sponsoring business or scheme owner uses. Business pays tax deductible rent on property, pension scheme doesn’t pay income tax or CGT then on receipts, on disposal pension plan not liable for CGT.
How is benefit of gift of employers assets to employee taxed?
If employee in excluded employment then at second hand value. If director or employee not in excluded employment then at cost to employer.
What is the van fuel benefit taxed at (the value)?
£594
Are beneficial loans greater than £10,000 and interest less than HMRC official rate taxable benefits on employees?
Only on directors and employees not in excluded employment.
Are company vans taxable benefits on employees?
Yes on directors and employees not in excluded employment. £3,150 fixed rate and £594 (fuel).
Is living accommodation a taxable benefit?
Only if non-job related if director or employee not in excluded employment.
Are repairs and heating a taxable benefit on living accommodation provided?
Yes if director and employee (non-excluded), 10% limit if job related.
Is medical insurance a taxable benefit?
Yes if director or non-excluded employee.
Is a mobile phone a taxable benefit?
No
Are options (other than share options) taxable benefits on employees?
Yes
Are pension payments taxable benefits on employees?
No
Are profit shares taxable benefits on employees?
Yes
Are relocation expenses taxable benefits?
Not if reasonable, £8,000 limit for removal costs, stamp duty land tax, solicitors fees.
Is recommended medical treatment a taxable employee benefit?
No
If the company is shareholder/director owned will benefits be charged differently?
Charged on directors as if higher rate employees. But there is an advantage as employees do not pay NIC contributions on benefits. Company pays Class 1A NIC on the provision of any taxable benefits. (So may be preferable for company to pay more benefits than cash).
What termination payment to employees is exempt from tax?
On death, injury disability and lump sums to registered pension schemes. Reward for services or payment for loss of office are taxable.
When does the basic and higher rate band end?
31,785 and 150,000
What is Class 1 Primary NIC? Who pays, on what?
Employees. On cash earnings and vouchers,
Who pays Class 1 Secondary Contributions and on what?
Employers on cash earnings and vouchers before deductions.
Who pays Class 1 A NIC and on what? Rates?
Employers on Taxable benefits (13.8%)
Who pays Class 1B NIC and on what? Rates?
Employers on grossed up earnings included in a PAYE settlement agreement, 13.8%.
Who pays Class 2 NIC and on what? Rates?
Self-employed, on taxable trading profit unless below small earnings limit. £5,965. £2.80 p/wk
Who pays Class 4 NIC and on what?
Self employed if working age at beginning of tax year. Paid on taxable trading profits.
What is special about income from a NISA? Limits?
Exempt from income tax, and disposals from NISA exempt from CGT. Limit is £15,420 cash-like products/ stocks. One NISA per person per year.
How are taxable termination payments taxed?
As the top slice of your income and taxed at highest marginal rate. Termination benefits taxed as “surprise” termination payments.
If termination payment is within 30,000 exemption, will you need to pay NIC?
No
If an employee has substantial (how much is substantial) foreign service, what will happen to termination ex gratia payments?
Will be exempt. Either 3/4 of whole period of service foreign OR period of service /gt 10 years out of last 20. Remaining ex gratia payment after 30,000 deduction can be pro rated for foreign service.
What is a share option?
An offer to an employee of a right to buy shares at a future date and predetermined price.
What is a tax advantaged share scheme?
Unlike non-tax advantaged ones, have conditions and more tax benefits.
What are some examples of tax advantaged share schemes?
CSOP (Company share option plans), EMI (Enterprise management incentives), SAYE (Save as you earn), SIP (Share incentive plans - no options but tax efficient way of providing shares).
How are non-tax advantaged share schemes taxed on employees?
No tax on the grant, taxed when exercised (bought) as employment income being market value less (cost of shares plus cost paid for options), taxed on sale as proceeds less market value at exercise.
What are some advantages of tax advantaged schemes?
No NIC contributions, All increase in value charged to CGT (lower than income tax), cashflow, no tax payable on exercise, Entrepreneurs relief (ownership from exercise date) - need 5% ownership but after FY 2013 no need and one year rule satisfied to one year since grant.
What is the advantage to the employer for tax advantaged schemes?
Can deduct the difference between market value at exercise and exercise paid by employee - this is an allowable deduction from trading profits in the period when the options are exercised. (For approved and unapproved schemes).
What is the basic proforma for adjustment to make the tax-adjusted trading profit?
Net profit per accounts, plus disallowable expenditure, plus taxable trading income not credited, less income included that is not taxable, less expenditure not charged but allowable, less capital allowances equals Tax adjusted trading profit.
What is the basic capital allowances proforma?
Columns for FYA/AIA, main pool special rate pool, private use assets. Then do a b/f line. An acquisitions section (FYA), A section with Acquisitions and amount of AIA and disposals. Then on the rest do a section with the 18% and 8% WDA.
An original and a new owner are “Connected” if…
Spouses and their relatives, Relatives and their spouses. One is a partnership and the other has a right to share.One is a company and the other has control. Both are partnerships and someone has a right to share in both. Both are companies and someone has control in both. Business partners and spouses/ relatives(Relatives = Siblings, lineal ancestors and descendants).
If you sell or transfer to a connected party, what are the tax implications?
In cessation of trade for a sole trader use closing year rules. Assets deemed sold at market value. Balancing adjustments arise in TWDV calc or can elect to transfer at TWDV if transfer is to a connected person (Succession election).
What are the tax implications of a Succession election? (Transfer made at TWDV to connected person).
No balancing adjustment, make election within 2 years of succession date, Often used on incorporation and transfer of business to close relative.
What is the deal with s.83 loss carry forward?
Offset against future trading profits, offset as much as possible, relief automatic, must agree amount of loss within 4 years of end of tax year of loss, carry forward is indefinite. Must be used on profits of the same trade.
What is the deal with s.64 loss relief against general net income?
Current tax year and/or previous tax year, optional claim (make election within 12 months from 31st Jan after tax year end
In s.64 relief, can you restrict the amount of loss relief you use?
No, it’s all or nothing, must reduce the net income as far as possible, can’t restrict to use PA.
Is there a restriction on the amount by which any loss reliefs can reduce OTHER income? (No restriction for trading income).
Yes. The greater of £50,000 and 25% of total income of the year in which the loss is being offset. (adjusted total income is total income plus payroll giving donations less grossed up personal pension contribution).
Why might there be extra losses in the opening year of trade in terms of tax? What is the name of the relief?
A loss maybe taxable under 2 tax years from the basis period rules. In this situation the loss will be a trade loss for the earlier tax year only. S72 relief.
How does s.72 loss relief work?
It’s for business in the first 4 years of trade, you can carry loss back to previous 3 years (applies to all 3 years) on a FIFO basis against general income. Claim applies to all 3 years. Choose within 12 months of 31st Jan after tax year of loss. Careful! It also cannot restrict personal allowance. Start with earliest losses, assign them to earliest profits…
How does s.89 loss relief work?
It is relief for loss in final 12 months of trading, can be used with s.64, carry back loss against previous 3 years (LIFO), claim within 4 years of last tax year.
How do you calculate s.89 loss relief available?
Look at the tax years within the last 12 months of trading. Split it up by tax year (so two years). Then when using, divide this loss over the prior 3 years.
Is s.83 relief available if a sole trader incorporates his own business?
No. (also, only against profits of same trade). But you could use s.86 incorporating relief.
What is the deal with s.86 relief?
Incorporation relief. Offset trading losses b/f from sole trader against income derived from company (salary/dividends) (FIFO). Sole trader must receive 80% of the consideration on incorporation as shares. Loss b/f is set against earned income from company (e.g. salary). then against dividend income from company.
What should you consider when trying to choose which loss relief to apply?
Timing (CY/PY saves tax now, c/f have to wait, future profits uncertain), Amount of tax (Save tax at highest rate, don’t waste PA).
What happens to s.64 and s.72 relief if trader spends less than 10 hours per week in running the business?
Restricted to £25,000 maximum. Remaining losses carried forward under s.83.
What restrictions on loss relief are there to partners in LLP?
s.64 and s.72 loss relief can only be done up to a maximum of their capital contributions to the partnership. Remaining losses can be carried forward under s.83.
Traders with turnover less than ______ can choose to be taxed on the cash basis.
£82,000 where this applies, interest in excess of £500 is not deductible, expenditure on capital assets qualifying for P and M allowances (not cars) is deducted on a cash basis.
What gets 100% FYA?
New low emission cars ( /lt 75g/km CO2), zero emission goods vehicles, energy/ water saving technologies, research and development cap-ex.
What is AIA amount?
Available on all expenditure except cars. From 01/01/2016 200,000. Before it was £500,000.
Capital gains tax is charged on…
A chargeable disposal (excludes gift to charity/ death/ to spouse) of a chargeable asset on a chargeable person (resident in UK partner, trustee, individual - not companies, they get corp tax on gains)..
What assets are exempt from Capital gains tax?
Cash, cars, gilt edged securities, prizes, bettings, ISAs, Wasting chattels, non-wasting chattels bought and sold for under £6,000.
What is the annual exemption for capital gains tax?
£11,100. But for trustees it is half of this (unless for bare trust or disabled persons trust then full amount).
If several trusts are created by the same settler. How would the CGT exempt amount be used?
Split equally between them. Minimum exemption of a tenth of annual exemption amount.
How do you work out the chargeable gain in a basic proforma for an individual?
Proceeds less costs of disposal (to get net consideration), less allowable expenditure, less costs of acquisition/ disposal, less incidental costs of acquisition (legal, surveyor) less enhancement expenditure (architect, extension). Equals chargeable gains.
What are the exceptions to using the proceeds received for an asset as the disposal consideration in CGT calculations?
When the sale wasn’t at arm’s length use the market value, and from April 2015 quoted shares are valued at average of lower and higher price.
What are some examples of allowable incidental costs of disposal in CGT calculations?
Auctioneer’s fees, estate agent fees, legal costs.
Within “allowable expenditure” (that you can deduct in CGT calculations) are the cost of asset, how is this valued?
Purchase price if bought, market value if gifted, probate value if inherited.
What happens to your CGT calculation when only part of the asset is being disposed of?
Proportion out the original cost of the asset.
Can you minimise your use of your capital losses and carry it forward to preserve your CGT annual exemption?
No, you must offset losses against gains as much as possible. Excess is carried forward.
If an excess loss is carried forward in CGT calculations, what happens to the annual exempt amount?
Well if it is carried forward then the loss is restricted to not go less than the annual exempt amount.
What is s261 B - Capital gains tax about?
It is an extension to s.64 (do that first), offset trading losses against capital gains in current tax year and/ or prior tax year. Optional claim made within 12 months from 31st Jan after tax year.
How much trading loss can you offset against capital gains with s261 B?
The lower of: The remaining trading loss after s.64 claim and max amount (which is total capital gains for year less total capital losses for year less total capital losses brought forward IN FULL).
Do spouses get joint annual exemption for CGT?
No that would be unfair silly billy. They get an exemption each. But no capital gain or loss when transferred between couples.
How are transfers between spouses treated for gains or losses in CGT calculations.
Nil gain and nil loss. Transferor disposes at acquisition cost. Actual proceeds ignored. Deemed proceeds of transferor are treated as deemed acquisition cost of transferee. (Only apply when spouses cohabiting).
What are the deemed proceeds when a disposal is made to a connected person (non-spouse) for CGT purposes?
Market value at date of disposal.
Where a capital loss is made on a disposal to a connected (non-spouse) person, how can the loss be relieved?
Only against disposals to the same person.
If deferred consideration (no contingency) is paid in a CGT disposal, how is it taxed?
Single gains calculation with total proceeds. (Actually the same thing happens when there is a contingency, but if the amount cannot be determined then something else happens).
What do you do in CGT if the deferred consideration is unknown?
On first sale the gain is the total value (including approved value of deferred amount) less cost (e.g. of shares). On deferred consideration date gain is the further proceeds less the previously approved value of it.
What are the capital gains tax rates?
If falling into individuals unused basic rate band (including if it was extended): 18%, excess of this is 28%. Entrepreneurs relief may reduce rate to 10%. For all trusts (except bare and disabled) rate is 28%.
What is rollover relief for CGT?
Available for sole traders/ partners/ companies. Deduct gain arising on disposal of new old asset from acquisition cost of new one. If all gain is deferred like this no tax payable. (deferred gain the arises on disposal of new asset as base cost reduced). Relief must be claimed.
What assets count as qualifying for CGT rollover relief?
Goodwill (not for companies), land and buildings, fixed plant and machinery. Both old and replacement must have been for trade.
What is the qualifying time period for Rollover relief for CGT?
Must replace asset within period 1 year before and 3 years after sale of old asset.
What CGT rollover relief would be available if you partially reinvested? Full relief?
No, all proceeds must be reinvested for full relief. Partial reinvestment means part of gain is chargeable (lower of: proceeds not reinvested and the full gain).
Just to be CLEAR. How do you work out the chargeable gain on sale of old asset in rollover relief?
- If: (Gain on sale of old asset) /lt (Proceeds from sale NOT reinvested), no rollover allowed, full gain chargeable this year. Otherwise chargeable gain is non-reinvested amount.
Just to be CLEAR again. How do you work out the base cost of the new asset in rollover relief for CGT?
- If no rollover used (because reinvested profits too low) then it is the cost bought at. If there was rollover relief, it’s the cost new asset was bought at less the remaining uncharged gain from the rollover relief.
How does rollover relief in CGT work if an asset has been used for business and non-business purposes?
Only the gain relating to the business proportion eligible for relief. Also, relevant replacement cost is only the business proportion.
What is a depreciating asset?
One with life of 60 years or less.
If a gain is rolled over into a depreciating asset, rather than being deducted from acquired asset, it is deferred until earlier of:…
Disposal of depreciating asset, ten years from acquisition of depreciating asset, date depreciating asset ceases to be used for trade.
If fixed plant and machinery qualifies for rollover relief, how should you treat it?
As a depreciating asset, always.
Can a deferred gain held against a depreciating asset be rolled into a non-depreciating asset?
Yes if the non-depreciating asset is acquired before the gain becomes chargeable.
Who is entrepreneurs relief available for and what does it do?
For individuals. Allow gains on disposals to be taxed at 10%.
To get entrepreneurs relief on shares in personal trading company disposals, what are the conditions?
Individual must hold at least 5% shares and also be employee. Can’t be a close company?? - Maybe this is the rule that can’t be claimed on goodwill if company related to claimant (true). Assets owned for at least 12 months.
Can assets owned by an individual get entrepreneurs relief?
If they are used by his personal trading company (associated disposal) - must have been owned for 12 months and, if shares, employment for 12 months (in EMI this is from Grant date).
Can Entrepreneurs relief be claimed on goodwill on incorporation?
From 04/12/14 cannot be claimed on goodwill on incorporation to a company related to the claimant (if it is a close company).
How does the operation of entrepreneurs relief work?
Net off gains and losses on sale of business, deduct losses and annual exemption (allocated to non ER items first), tax gain at 10%. For first qualifying net asset gains up to £10 mill lifetime. Relief gains use remaining basic rate band before other gains.
What is the time limit for claiming entrepreneurs relief?
12 months from 31 Jan after tax year of disposal.
When will an owned property used by a business not qualify for entrepreneurs relief?
If it is let to the company/ partnership at full market rent. (Partial relief if reduced rent).
What is gift of business asset relief?
Allows gain to be deferred until sold by donee (because they had no funds on receipt anyway), available for business assets gifted by individuals.
How does gifted asset relief work for a donor?
The gain is calculated using the market value as proceeds. Gain isn’t chargeable but deducted from acquisition cost for the donee.
How does gifted asset relief work for a donee?
Acquisition cost deemed to be market value. Gain accruing to donor is deducted from the acquisition cost.
Does a claim need to be made for gifted asset relief?
Yes, a joint claim made within four years following end of tax year of gift.
What assets qualify for gifted asset relief?
Those used in trade of donor or his personal company, unquoted shares/ securities, shares/ securities of donors personal trading company, an asset where there is an immediate IHT (CLT) charge.
Does gifted asset relief apply to gifts only?
No, also to sales at undervalue where there is an element of gift.
If there is a sale at an undervalue, how can the gifted asset relief be used?
Proceeds which exceed original cost of the asset chargeable to CGT at the date of the gift. The gift relief available is reduced by the amount chargeable. (use market value as disposal proceeds).
If it is sale at undervalue, how do you work out the gift relief? (a balancing figure)
Work out the Chargeable gain using MV as proceeds. Work out The amount chargeable now (actual proceeds received less base cost). Gift relief is the balancing figure that takes the former to the latter.
What is the deal when gifted assets are shares in the donor’s personal company? (for gifted asset relief)
Gain eligible for gift relief is: Total gain x (market value of chargeable business assets of company (CBA) / Market value of chargeable assets (CA) ).
When both gift relief and entrepreneurs relief are available what should be done?
Gift relief should be claimed first.
If you have gift relief and entrepreneurs relief available, and you have claimed your gift relief and the remaining amount is covered by annual exemption, what should you do?
Entrepreneurs relief should not be claimed as no tax will be saved but the gain will count towards the lifetime limit.
If there is a “paper for paper” share exchange in company takeover, is there a chargeable gain?
Yes, as the shares “sold” but no cash proceeds so gain can be deferred. Takeover and reconstruction relief.
How does takeover and reconstruction relief work?
New shares stand in shoes of old shares (taking original cost and acquisition date - use this cost when working out chargeable gain) so old gain realised when new shares sold.
What happens if mixed consideration is received on takeover and reconstruction relief?
Original cost of old shares needs to be apportioned between the different forms of consideration. New shares take on same apportion cost and date. No gain until new shares sold.
What happens if on mixed consideration of takeover relief the cash is less than 5% or less than £3,000.
no gain is charged and cash received is deducted from the base cost of the shares. (Otherwise gain on apportioned part of original cost).
What happens if you receive qualifying corporate bonds in takeover relief?
Gain based on apportioned part of original cost, gain deferred until QCB disposed of, for individuals disposal of loan stock itself is exempt from CGT.
What happens if you receive non-qualifying corporate bonds for potential takeover relief?
Treated like normal shares.
Can you disapply shares in takeover relief?
Yes - may be beneficial if the individual’s old shares would have qualified for ER but any future disposal of the new shares will not.
In takeover relief if qualifying corporate bonds are received under a takeover the normal rule is to calculate the gain…
in respect of the disposal of the shares and defer the gain until the QCB’s are disposed of.
If disposal of original shares qualifies for entrepreneurs relief and takeover relief then the ER will be available on the takeover if the following condition is met:
An election must be made not to defer the gain on the shares, the gain is then chargeable at the time of the takeover and ER can be claimed.
Who would be a chargeable person for inheritance tax?
Either a UK domiciled person on worldwide assets or a Non UK domiciled person on UK assets only.
What gifts are inheritance tax exempt in lifetime and in death?
Transfers to spouses, charities or qualifying political parties.
What gifts are inheritance tax exempt in lifetime?
Transfers to spouses, charities, qualifying political parties, gifts in consideration of marriage, small gifts under £250, normal expenditure from income, annual exemptions of £3000 per year.
How much inheritance tax is paid as a percentage of chargeable amount?
25% if the donor pays, 20% if the trustee pays.
When might you get a reduced rate of 36% inheritance tax?
When at least 10% of the net chargeable estate on death are left to charity.
What is the “net chargeable estate” for inheritance tax purposes?
Total value of estate after deducting all reliefs and exemptions but before deducting the charitable gift.
What happens to a married persons unused nil band rate on death?
Can be transferred proportionally to spouse.
When is someone deemed UK domiciled?
If they were a UK resident for 17 out of the last 20 years or for the 36 months after losing domicile status.
If a transfer is made by a UK to a non UK domiciled spouse, is any of the transfer exempt?
Yes, the first £325,000
If a non UK domiciled spouse wants to avoid the transfer limit what can they do?
Elect to be treated as UK domiciled but this is irrevocable but ceases to have effect if they have been non-UK resident for 4 successive tax years.
For inheritance tax, if overseas assets are included in the death estate, is there anything that can be deducted from the value of the property?
Yes. 5% can be deducted relating to additional expenses incurred.
What three things get 100% business property relief?
Unincorporated business (sole trader or partnership share), unquoted shares (inc. AIM) or securities, furnished holiday accomodation treated as business with substantial owner involvement. (For all, properties must be held for /gt 2 years).
What two things get 50% business property relief?
Quoted shares from controlling trading business holding, LandB and PandM owned by transferor for trading business where transferor is partner or controler.
There is no business property relief (BPR) on excepted assets. What are excepted assets?
Not used wholly/ mainly for business purposes for two years prior to transfer nor are required for future use of business (e.g. large cash balances, investments in land/ shares). If you are giving shares and the company has excepted assets pro-rata them out of th evalue.
If business property relief is used and the transferor dies within 7 years, is it still valid? (actually same rule for APR)
As long as the transferee still holds the asset and it is a relevant business property.
If an asset has been transferred with business property relief, and it is sold and replaced, is that still valid? I.e. if transferor dies? (same rules for APR)
If reinvested within 3 years - still counts as original property.
What happens if the BPR was given in lifetime in a CLT but isn’t available on death? (Same rules for APR)
Add back the BPR to calculate additional death tax due (but use lifetime tax value (i.e. including BPR) for nil rate band purposes.
If a transfer was a PET, but may have qualified for BPR, how is the death tax calculated if died within 7 years? (Same rules for APR).
Calculated on unreduced value. (also used for accumulation purposes)
If shares were unquoted and transferred to a trust (qualifying for BPR, so no nil rate band), and later became quoted… what happens when the transferor dies?
Well when he had them they had BPR so no nil rate band used, this can be used on death estate. But when they became quoted the trust now has to use a nil rate band to work out taxable amount.
What is given first, APR or BPR?
APR
For what items do you get 100% APR?
Vacant property possession (or right to it in next 24 months). Or property let out after Sep 1995. (Occupied by transferor and used for agriculture 2 years before transfer OR owned by transferor for 7 years before transfer and used by someone else for agriculture)
For what items do you get 50% APR?
Property let out before Sep 1995 which has more than 24 months to run. (Occupied by transferor and used for agriculture 2 years before transfer OR owned by transferor for 7 years before transfer and used by someone else for agriculture)
What is an attributable liability when it comes to APR and BPR calculations?
Transfers after July ‘13, the value of the BPR/APR needs to be reduced to the extent of any liability taken out to acquire, maintain or enhance the asset value. BPR then only applies to net value after this deduction.
When is the death estate tax paid and by who?
By PRs on delivery of IHT accounts.
When is lifetime tax on CLT paid and by who?
Transferor on the later of: 6 months after end of month of CLT and 30 April following tax year of CLT.
When is Death tax on PET/ CLT paid and by who?
By transferee, 6 months after end of death month.
When does interest on death estate tax payable start building?
From 6 months after death month to day before payment.
When can you pay IHT in 10 equal instalments?
Lifetime IHT on CLT where transferee pays IHT, Death IHT on CLT and PET where transferee owns property on the death, IHT death estate.
When paying IHT in 10 instalments, when is it interest free?
On controlling holdings of quoted companies that get BPR, holdings of unquoted BPR companies, business and partnerships that get BPR, land eligible for APR that isn’t reduced in value by APR or BPR.
When paying IHT in 10 instalments, when is it interest bearing?
Holdings of unquoted companies that do not get BPR, businesses that do not get BPR, land that doesn’t get APR.
What is a gift with reservation of benefit? (GWR)
When you give a gift but still get the benefit. I.e. gift of house but still live in it rent free. Transferring shares but still getting share income.
When might there be exclusions to the gifts with reservation of benefit? (GWR)
Full consideration paid, Virtual exclusion (use of property /lt 2 weeks p/a when transferee absent or /lt 1 month p/a when present), unforeseen changes in transferor circumstances, the benefit is the care/maintenance of transferor (elderly or infirm).
How do you treat a gift with reservation of benefits? (GWR) for IHT purposes?
Treat as normal CLT or PET transfer, if benefit remains at death treat it as part of death estate, if benefit ceases in transferors lifetime treat as PLT/CLT now, (This may give two charges, IHT is higher of two).
Does the 10%, 36% IHT charity rule apply for GWR assets?
No
Why could you get two different IHT tax payables in GWR in death?
One when the gift is treated as PET (find tax on death and on death estate so reduced nil band rate perhaps on death estate), One where gift treated as part of death estate
Who can make variations of wills?
Beneficiary, within 2 years of death in writing. Must contain the statement that variation is to have effect for IHT purposes. Notify HMRC within 6 months if more IHT payable.
Are deeds of variation effective for CGT purposes?
Not unless specifically stated, original beneficiary still treated as making a disposal for CGT purposes.
Is there capital gains tax on death?
No, donees receive assets at probate value for CGT purposes.
An asset may be subject to IHT and CGT, what gift relief might there be available?
Relief on qualifying business assets, or any assets which are CLTs for IHT purposes (takes priority over the business relief and still available if ultimately no IHT liability.)
How are assets valued for CGT and IHT purposes? (Different valuations)
At market value for CGT and at fall of donor’s estate in IHT)
Are there related property rules in CGT and IHT?
Yes in IHT, not in CGT
How are quoted shares valued for CGT and IHT? (Different valuations).
1/2 up value for CGT. Lower of 1/4 up value and average bargain price for IHT.
What reliefs are available for CGT and IHT? (Different reliefs)
For CGT: Gift relief, entrepreneurs relief. for IHT: BPR, APR, Taper relief.
What are the rates of tax for IHT and CGT?
CGT: 10% (ER), 18%, 28%. IHT: 40% for PET on death, 20% and 25% for CLT after nil band.
What are the annual exemptions for CGT and IHT?
for CGT annual of £11,100 and for CGT £3,000 each year and small gift/ marriage etc.
What good planning can you do for CGT?
Husband and wife - transfer with no gain no loss, Use both AEs, use basic rate bands, use losses. Give away assets standing at a loss (no need to claim gift relief so no reduction in base cost of donee).
What good planning can you do for IHT?
Husband and wife have exempt transfers, unused proportions of nil band can be transferred. Give away appreciating assets - gift fixes asset value for future IHT calculations.
What are the three types of domicile status?
Domicile by origin (usually follows father), Domicile of Dependence (up to age of 16), Domicile of choice (after severing previous links).
What are the automatic overseas test that automatically mean you are not “UK resident”?
If you spent less than 46 days here in current tax year. (If you had one of the last 3 years here this is reduced to 16 days). Or: Works an average 35 hr week overseas, no gaps /gt 30 days in overseas work, no more than 30 days in UK work spending less than 91 days in UK.
If not automatically classed as overseas, how can you judge if he is UK resident?
Any of: has sufficient ties here, 183 days here in tax year, 91 consecutive days (30 in tax yr) only home here, works fulltime here in the year (35hr wk, no period /gt 30 days no work, /gt 75% working days here, multiple days working /gt 3hrs here).
Fill in blanks: to have “sufficient ties” to make you a UK resident you could have a spou…
Spouse or child /lt 18yrs who is a UK resident.
Fill in blanks: to have “sufficient ties” to make you a UK resident you could have accomod…
accommodation available here for 91 days, spent at least 1 night in it in tax year (at least 16 if it is a close family accommodation).
Fill in blanks: to have “sufficient ties” to make you a UK resident you could have worked here for …
At least 3 hours per day for at least 40 days in the tax year.
Fill in blanks: to have “sufficient ties” to make you a UK resident you could have spent at least __ days …
90 days in UK in either of two proceeding tax years.
Fill in blanks: to have “sufficient ties” to make you a UK resident and you have been resident here for any of the past 3 years then this year…
You need to have been present here more than any other country.
If you were a UK resident in any of the preceding years, how many “ties” do you need to be a UK resident this year?
Non resident /lt 16 days /lt 4 /lt 45 days /lt 3 /lt 90 days /lt 2 /lt 120 days /lt 1 /lt 182 days /lt automatic Uk resident.
When can, on leaving the UK, someone not be UK resident for a full year?
If the individual satisfies the fulltime work overseas test for part of the year he left and year after tax year of departure then non UK resident from first /gt 3 hour overseas work day. (in. spouse perhaps) (Simplified). Also sometimes when in following tax year non-resident and from this tax year no longer has Uk home.
When can, on arriving the UK, someone not be UK resident for a full year?
If wasn’t UK resident before but came to take up full time work then from date of commencement. Also if individual acquires UK home in year which becomes his only home.
When is Employment income not taxable as it Is arising?
If UK resident but not UK domiciled and duties performed wholly outside UK then there’s a possible remittance.
When is non employment income not taxable when it arises?
UK resident but non UK domiciled, possible remittance. (Same for CGT - limited relief for overseas losses)
Foreign dividends will only receive the 10% notional tax credit if…
either the holding is less than 10% or the UK has a double taxation treaty with non-discrimination clause.
When an individual is taxed on an arising basis, how much of his foreign pension income is taxable in the UK?
90%
When can personal allowances be claimed by non-residents of UK?
Citizens of EA, resident of Isle of Man or Channel islands, Current or former crown servants and widows, left UK for health reasons, resident in territories where UK has double tax agreement clause.
When do you get automatic remittance basis?
Unremitted foreign income and gains /lt £2,000 OR no UK income or gains (only taxed investment income under £100) with no foreign income gains and resident in UK for under 7 of last 9 yrs or under 18yrs old.
What is the value of the remittance basis charge if you are making an optional remittance claim?
If resident for 7/9 last tax years: £30,000. 12/14: £60,000. 17/20: £90,000.
Is the personal allowance and CGT exemption still valid when using the remittance basis?
Yes if Automatic, no if optional claim made.
What is the double taxation relief?
If taxed here and abroad. Relief given as deduction for lower of UK tax on overseas income and overseas tax suffered.
Is UK CGT due on disposal of UK residential property by non-UK individuals? If so, how are proceeds deemed?
Yes, from 6 April 2015. (Only gain post this date is taxable - use MV at date as deemed proceeds, if you want to time apportion your gain then election is required).
There are rules to stop individuals avoiding tax when stopping UK residency and claiming receipts at different times. When do the rules apply?
On ceasing to be UK resident AND was uk resident for 4/7 last tax years AND non-resident for /lt 60 months.
When planning to use the tax advantage by claiming split year overseas treatment, what are the key points?
less than 90 days in UK and not greater than 30 UK work days.
When working overseas, what are tax free benefits?
Cost of overseas accommodation, return trips home, two return trips per tax year for spouse/ children if overseas /gt 60 days.
Does overseas service affect termination payments in taxation?
Yes, may be completely exempt or proportionally.
Can you contribute to your ISAs when non UK resident?
No
How can you treat your interest income if non UK resident?
Can apply to receive it gross.
Do non-UK Domiciled, UK residents get taxed on interest and dividends?
If there is tax it is deducted at source.
Do non UK residents get a personal allowance and DTR?
No - but you may want to claim personal allowance and tax whole income instead.
FA 2012 introduced rules allowing remittance basis tax payers to bring funds into UK without tax charges, what are the conditions?
Remitted funds used to make loans or get shares in unquoted UK resident trading comp, invested within 45 days of being brought in, after investment sold, proceeds removed from UK or reinvested in 45 days, election made, if condition not satisfied investment sold and proceeds removed from UK or reinvested within 90 days.
Are there tax charges for a remittance base tax payer bringing assets into the UK?
No, provided the funds are received by 1st anniversary of 5 Jan after tax year of disposal and proceeds taken offshore in 45 days or receipt.
What is an interest in possession trust? (key points)
trustees pay life tenant (remainderman on death). Income on trustees taxed 20, 20, 10% in categories. Expenses (e.g. property) deductible apart from those for trust managing. After tax and expenses life tenant paid (with tax credit on tax paid). Trust management expenses deemed paid from dividend income first, then savings, then non-savings.
What is a discretionary trust? (Key points)
More flexible than IIP trusts. Trust management expenses are deductible (not like in IPPs), from dividend income, then savings and non-savings. (Gross up these expenses by appropriate gross up rate of category).
What are the interest income tax rates for discretionary trusts?
Non savings income: 45%, Interest income: 45%, Dividends: 37.5%. (But first £1000 of gross income is at 20, 20, 10 rate).
When trustees of a discretionary trust make a payment to a beneficiary, he is treated as having received it net of …
a 45% credit.
The discretionary trust has a tax pool to ensure the amount the beneficiary reclaims isn’t over the tax originally paid. How does it work?
Running total of tax paid less tax credits by beneficiaries: Basic rate band (any tax paid at 20%), Non-savings income (any tax paid at 45%), Interest income (45%), Dividends (27.5%).
In a discretionary trust, how do you work out the tax pool carried forward?
Take the b/f balance on pool, add tax for CY using the Tax pool categories, deduct the credit amount paid to beneficiary (45/55).,
What is the deal with bare trusts?
Transparent for tax purposes so income assessed on beneficiaries, not trustees.
What is an RPT?
Relevant property trust. A non-qualifying interest in possession trust set up after 22.03.2006 and all discretionary trusts.
What are the charges on a RPT (Relevant property trust)
On set up, immediate charge to inheritance tax as chargeable lifetime transfer arises. On pass to beneficiary there’s an exit charge. On each 10th anniversary of setting is there is a “principal” or “10 year charge”.
Why is there an exit charge on RPT and how is it implemented?
To stop avoiders removing assets before 10 year mark principal charge. Calculated just like principle charge but time apportioned be number of years asset held in trust out of 10 years.
When is a qualifying interest in possession trust set up?
Set up before 22/03/06 or on death. Not RPT.
What are the IHT consequences for setting up a Qualifying interest in possession trust?
Same as if the transfers involved an individual. So if settlor’s spouse was life tenant then no charge, If someone different, PET. Etc. Death estate charged the same.
What happens if the QIIP ends during the life tenant’s lifetime?
Life tenant treated as making transfer himself. IHT treatment then depends on the identity of remainderman of trust. It seems like QIIP’s work just like normal transfers to people.
How is a transfer of assets to bare trustees treated?
Trust is transparent for tax purposes, transfer seen as outright gift by beneficiary. (i.e. PET).
What is the rate of CGT for all trusts?
28%
How is gain calculated when trustees dispose of asset? Do they get exemptions?
Gain calculated same way as with individuals. Exemption is half of individual amount (£5,550) with exempt amount divided between trusts set up by same settler. (Never lower than 1/10th of exemption amount).
If an asset leaves an old IIP trust as a result of life tenant’s death, is there CGT?
the disposal is exempt for CGT purposes. However if gift relief was originally claimed when asset entered trust, lower of actual gain and deferred gain becomes chargeable. If there is an IHT charge re the settled property, gift relief can be claimed to further defer that gain.
What happens with CGT and bare trusts on acquisition and disposal of assets?
Treated as gift to individual at market value. If trustees dispose of assets this is a disposal by the beneficiary. If trustees pass asset to beneficiary, no CGT consequences.
How do you get to taxable total profits for a company?
(Adjusted trading profits less capital allowances) plus (All property income) plus (Interest receivable less interest payable) plus (rare non-exempt dividends received) plus (chargeable gains less capital losses) less (Gift aid donations).
Which dividends received by small companies are exempt from corporation tax?
If they are from a UK company or company where we have a double tax treaty. Must also not be part of a tax avoidance scheme.
Which dividends from non-small companies are exempt from corporation tax?
Received from property controlled by recipient OR relate to non-redeemable ordinary shares OR from portfolio holding of share class concerned (i.e. /lt 10%) OR relate to shares accounted for as liabilities OR relate to transaction not designed to reduce UK tax.
What is a small company for exempt dividend provisions?
Fewer than 50 employees. Turnover or BS total /lt £8.5 mill.
What are the augmented profits of a company?
Taxable trading profits plus franked investment income (exempt dividends x 100/90 received from non associated companies).
What is the main corporation tax rate from 1 April 2015?
20% (remember to consider prior rates if necessary) (21% for FY14)
What happens when the augmented profits fall in the boundaries of the upper and lower limit?
small rate /lt (lower limit) /lt marginal relief /lt (higher limit) main rate
What are the upper and lower limits for corporation tax calculations?
£1,500,000 and £300,000 (adjusted for number of associated companies and time apportioned for short periods)
When is a company associated for marginal tax purposes?
(/gt 50%) holding or under common control of third party. (Including joiners/leavers within period, excluding dormant and passive non-trading)
An individual’s associates are… (for corporation tax purposes)
Spouses, parents, grandparents, children, siblings, grandchildren. Their companies are associated to yours.
What is the marginal relief working?
(Upper limit - augmented profits) x (basic profits / augmented profits) x fraction…. (this is 1/400 for this year). Also multiply by apportioning year amount if necessary.
