Calculations to practise Flashcards
Paul is crystallising a £60,000 personal pension. He plans to take maximum PCLS, and then use the balance to purchase an annuity with an annual 6% rate. If he is a basic rate tax-payer what will his net monthly income be (excluding PCLS)?
1.£180
2.£220
3.£360
4.£420
£60,000 x 25% = £15,000 PCLS.
Paul will then have a net £45,000 fund he is purchasing an annuity with.
£45,000 x 6% = £2,700.
£2,700 ÷12 months = £225.
£225 x 80% (Basic rate taxpayer) = £180 net monthly income.
Paula, an additional rate taxpayer, has the full LSA with no transitional protection. Her Self-Invested Personal Pension (SIPP) was initially valued at £1,100,000. By this tax year her pension fund has grown by 5%. What is the total tax charge due if she crystallises all this fund value as cash?
1.£365,750
2.£371,250
3.£389,813
4.£399,026
Paula is taking all her fund value as cash. Her £1,100,000 SIPP fund value has grown by 5% to £1,155,000.
Her PCLS will be limited to the LSA which is £268,275.
The remaining fund will be taxed at her marginal rate, so 45%.
£1,155,000 – £268,275 = £886,725 x 45% = £399,026.
Jane has died in capped income drawdown, aged 76, leaving a £1,275,000 fund value. If the executors of her estate opt to receive this as a lump sum how much will their net payment be?
1.£1,275,000
2.£1,263,705
3.£956,250
4.£701,250
£701,250
Jane has died after age 75 leaving £1,275,000 crystallised in capped drawdown. As the lump sum is to be paid to her executors, this will suffer a tax charge of 45% on the entire amount.
This will leave £701,250 as the net lump sum payment.
Sallie has reached state pension age and qualifies for Guaranteed Credit. If she has £23,800 in the bank, how will this affect her entitlement?
1.Her entitlement will increase by £28
2.Her entitlement will reduce by £28
3.It will not affect her entitlement
4.The first £20,000 of capital is ignored
The first £10,000 of an individual’s savings are ignored in Guaranteed Credit means-testing calculations.
£13,800 ÷ £500, = £27.60.
This is rounded up to £28, and deemed to be ‘notional income’, so Sallie’s entitlement to Guaranteed Credit will reduce by £28.
Sam has registered for fixed 2014 protection. If he crystallises £1,650,000 in the current tax year as cash, what will the total tax charge be? Sam is an additional rate taxpayer and aged 62.
1.£67,500
2.£259,605
3.£573,750
4.£682,500
Sam has a fixed LSA of £375,000 that he can take as a tax-free lump sum.
The remaining £1,275,000, will be taxed at his marginal rate, so 45% = £1,275,000 x 45% = £573,750.
Rowan Ltd paid £500,000 as an employer contribution into the company’s RPS last year. If this year’s contribution is £1,000,000 tax relief will be given on…
1.£450,000
2.£500,000
3.£550,000
4.£1,000,000
The £1,000,000 employer contribution made by Rowan Ltd this year is not more than 210% of last year’s £500,000 contribution.
Therefore, there will be no spreading of employer tax relief. Rowan Ltd will receive corporation tax relief on the entire £1,000,000 contribution.
Jenny is aged 60, and has two small DB OPSs, both valued at £8,000 each. If she commutes both under triviality, what would she receive as a net payment? Jenny is a basic rate taxpayer.
1.£13,025
2.£13,175
3. £13,600
4.£13,900
DONT CONFUSE TRIVILATY CALCS WITH SHORT SERVICE REFUND CALCS
The £16,000 in DB schemes can be commuted under small pots triviality. The process is the same for both.
25% of the total amount crystallised would be PCLS = £4,000.
The remaining net amount of £12,000 will be taxed at basic rate 20%.
£12,000 x 80% = £9,600 + £4,000 = £13,600 net payment.
Peter has received a gross short-service refund of £26,000 in the current tax year from his DB occupational scheme. He is a higher rate taxpayer. His net payment will be:
1.£20,800
2.£19,000
3.£15,600
4.£14,300
DONT CONFUSE TRIVILATY CALCS WITH SHORT SERVICE REFUND CALCS
The first £20,000 of a short-service refund is taxed at 20% = £4,000.
The balance, in this case £6,000, will be taxed at 50% = £3,000.
£4,000 + £3,000 = £7,000 tax due.
Net payment: £26,000 – £7,000 tax = £19,000.
Alex is 58 and a member of a DB OPS that is being wound-up. Her benefits have been valued at £5,000. She is a higher rate taxpayer. Under triviality rules, how much tax will be paid by Alex?
- None
2.£1,500
3.£1,687.50
4.£2,062.50
The first 25% will be tax-free as this represents PCLS, so £1,250.
The remaining £3,750 will be taxed at 40% giving a tax bill of £1,500.
answer = 1500
Joe has gross earnings of £280,000 in the current tax year. He also has £30,000 in unused carry forward allowances. How much could he pay as a pension contribution without incurring a tax charge?
1.£80,000
2.£60,000
3.£40,000
4.£10,000
The assumption is that Joe also has threshold income of more than £200,000. He has breached his adjusted income £260,000 by £20,000 ÷ 2 = £10,000 tapering. His annual allowance will therefore be tapered to £50,000.
£50,000 TAA + his unused £30,000 carry forward = £80,000 that can be contributed without a tax charge.
Chapter 2: STUDY BUDDY QUESTIONS
How do you calculate threshold and adjusted income to calc someone’s tapered annual allowance
How do you calculate Carry Forward (See question 4, in camera role)
MPAA question (question 8 in camera role). Sneakily worded question
Calculations on spreading of an employers contributions
H
Question 2 in Volume 1 of 4.04
How to calculate a DB scheme benefits entitlement
Remember it is when they joined the scheme
Jeff has a £1million in flexi access drawdown. He is a higher rate tax payer. How much does Jeff need to withdraw this year to generate a net income of £20,000
£28,571.43
First calculate how each £100 taken would generate NET
£25 is PCLS
£75 taxed at Jeff’s marginal rate of 40% so £45 is left over
That makes £70 net per each £100 encashed
Now decimalise is 0.7
Divide the required £20000 by 0.7 = £28,571.43
Therefore £28,571.43 is required to generate £20000 net
Prior to each review (every 3 years if below 75 and annually if over 75) a fund value is required. How far in the past is the fund value that is being used in the review taken from?
A max of £60 days before the review takes place
Tell me differences between DB Trivial Commutation and Small POTS commutation for DC pensions
