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Capital taxes Flashcards

1
Q

What is the small gift exemption?

A

£250 per recipient per tax year, cannot exempt part of a larger gift.

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2
Q

What is the marriage/civil partnership exemption?

A 
Parent-£5,000
Grandparent-£2,500
Party to the marriage-£2,500
Anyone else-£1,000
HTT
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3
Q

What is the annual exemption for CLT/PETs?

A

The first £3,000 gifted each tax year not covered by other exemptions. Any unused AE can be carried forward. It’s always applied chronologically even if the first gift is a PET.

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4
Q

What is a PET? Give examples and when is it chargable?

A

Pontentially exempt transfer.
All lifetime transfers that don’t fall under a CLT.
IHT is chargeable on a PET only if it is made 7 years prior to death.

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5
Q

What three transfers are exempt from IHT?

A
  • to spouse/civil partner.
  • to charity
  • to qualifying political parties (two MPs or one MP and at least 150,000 votes)
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6
Q

What should you do with exempt transfers in the IHT working?

A

State that they are exempt and don’t just omit from answer.

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7
Q

What is a CLT? Give examples?

A

Chargebale lifetime transfer.

  • Creation of or a transfer to a discretionary trust.
  • The creation of a non-qualifying interest in possession trust (IIP)
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8
Q

When and how is the lifetime tax calculated?

A

After the NRB is deducted. If trustees pay it’s 20%, if donor pays it’s 25%.

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9
Q

What are the three stages in the IHT pro forma?

A

Stage 1 - Calculating the chargeable amount
Stage 2 - Calculating lifetime tax (CLTs only)
Stage 3 - Calculating death tax (gifts 7 years pre death and death estate only)

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10
Q

How do you calculate the diminution in value?

A

Value of estate before gift-value of estate after gift

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11
Q

How are quoted shares valued for IHT?

A

Lower of-

  • the quarter up rule
  • the average of highest and lowest marked bargains on the day of transfer
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12
Q

What is the quarter up rule?

A

lower quoted price + 1/4 x (higher quoted price - lower quoted price)

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13
Q

How are the proceeds from quoted shares valued for capital gains tax?

A

lower quoted price + 1/2 x (higher quoted price - lower quoted price)

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14
Q

Value of property transferred=

A

Value of whole property x ((transferor’s value)/(transferor’s value+value of related property))

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15
Q

How do you calculate the value of the shareholding transferred?

A

Value of whole shareholding x (Transferor’s no. of shares/total shares held by couple)

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16
Q

The residence nil rate band is limited to the lower of-

A
  • the net value of the property left to direct descendants (MV-mortgage)
  • the available band (£175,000)
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17
Q

How is the RNRB tapered?

A

The residence nil rate band is reduced by £1 for every £2 that the value of the estate exceeds £2 million.

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18
Q

Explain quick succession relief.

A

QSR reduces the inheritance tax payable on the death estate if-

  • property had been acquired by the deceased in five years before death
  • there as a charge to inheritance on the initial transfer (lifetime or death tax)
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19
Q

QSR=

A

tax paid on first transfer x (net transfer/gross transfer) x relevant % (find in HTT)

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20
Q

QSR for specific legacy=

A

net transfer x (tax paid on first estate/gross first estate) x relevant %

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21
Q

Can you exempt part of a gift using the £250 small gift exemption?

A

No.

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22
Q

Are endowment mortgages (interest only mortgages) deducted from the value of the property?

A

NO, as the endowment element of the mortgage should cover the debt.

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23
Q

How are unit trusts valued?

A

Always at the lower price.

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24
Q

What do you do with VAT in a capital allowances question?

A

Strip it out.

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25
Q

What is investors relief?

A

Available to individuals who sell unlisted ordinary shares in a trading company with the following conditions:
-Subscribed for after 17th March 2016.
-Held for a minimum of 3 years.
-Not an employee or officer of the company.
Lifetime limit £10m.

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26
Q

What is private residence relief?

A

Exempt if occupied for whole period of ownership.

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27
Q

What is a deemed period of occupation? (4)

A

1) Last 9 months of ownership.
2) 3 years any reason.
3) Working abroad
4) 4 years working in UK
(2-4 must be preceded and followed by actual occupation)

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28
Q

How is PRR calculated if the property isn’t occupied for the whole period of ownership?

A

Exemption = Gain x (Periods of actual and deemed occupation/Total period of ownership)

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29
Q

What 3 things come under “chargeable disposal”?

A
  • Sale
  • Gift
  • Sale under value
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30
Q

Is a wasting chattel exempt?

A

Yes

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31
Q

What is the gain on a chattel that cost under £6k but has proceeds over £6k?

A

The lower of-

  • Normal gain
  • 5/3 x (gross proceeds-£6k)
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32
Q

What is the allowable loss on a chattel that cost over £6k but has proceeds under £6k?

A

-Normal loss but assume gross proceeds are £6k.

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33
Q

How do you calculate the allowable cost on a part disposal?

A

Cost x (MV of part sold/MV of total)

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34
Q

When selling shares what are the matching rules (Individuals)?

A
  1. Same day
  2. Next 30 days (FIFO basis)
  3. s104 pool (Shares aquired prior to date of disposal)
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35
Q

How are transfers between married couples/civil partners charged?

A

NGNL.

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36
Q

What is rollover relief?

A

Available to individuals and companies. For land and buildings used in trade, goodwill and fixed plant and machinery. Reinvest 12 months before or up to 3 years after original disposal.

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37
Q

What is gift relief?

A

Available to individuals. Calculate a new base cost for donee and defer the gain. Not on investment companies.

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38
Q

How does a partial reinvestment work with rollover relief?

A

Amount that cannot be deferred=lower of (i) gain (ii) proceeds not reinvested.

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39
Q

How does a depreciating replacement asset work with rollover relief? (clue: 3 dates)

A

Gain crystallises on the earliest of the following 3 dates-

  • Disposal of replacement asset.
  • 10th anniversary of acquisition of replacement asset.
  • Date replacement asset ceases to be used in the trade.
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40
Q

What is business asset disposal relief?

A

For individuals who sell one of the following-
-All/part unincorporated trading business.
-Assets of a business following cessation.
-Shares in their personal trading co (>5%) if they are also an employee.
Must’ve owned for >2 years. QUALIFYING GAIN TAXED AT 10%. Lifetime limit £1m.

41
Q

What 6 rows do you put in the stage 1 section of the inheritance pro forma?

A
  • Transfer
  • BPR/APR
  • Small gifts exemption
  • Marriage Exemption
  • Annual Exemption (£3k)

-Chargeable Amount

42
Q

What 5 rows do you put in the stage 2 section of the inheritance pro forma?

A
  • Chargeable Amount
  • Remaining NRB
  • Taxable amount
  • Lifetime Tax @ 20%/25%
  • Gross Chargeable Transfer
43
Q

What 10 rows do you put in the stage 3 section of the inheritance pro forma?

A
  • Gross Chargeable Transfer
  • Fall in value relief
  • Residence nil rate band
  • Nil rate band available

-Taxable amount

  • Tax @ 40%
  • Tapered amount
  • QSR
  • Lifetime tax paid

-Death tax

44
Q

How does the NRB work for lifetime tax?

A
  • Use the NRB in tax year of transfer.

- Reduce by gross chargeable transfer of CLT’s within 7 years prior to date of transfer.

45
Q

How does the NRB work for the death tax calculation?

A
  • Use NRB in tax year of death.
  • Reduce by gross chargeable transfer of CLT’s and PET’s within 7 years prior to date of transfer BUT NOT PET’s more than 7 years before death.
  • Any nil rate band remaining on a person’s death transfers on a proportionate basis to his/her surviving spouse.
46
Q

How does the RNRB work?

A
  • Up to £175k available dependent on the value of the home.
  • Applies before the NRB.
  • Must leave a home that has been lived in to a direct descendant in the death estate.
  • Is restricted if the individual leaves a house out of death estate valued at over £2m.
  • Any unused % can be transferred to a spouse or civil partner.
47
Q

Explain QSR.

A

-Available on the death estate if deceased received a gift within 5 years prior to death on which IHT was due.

48
Q

QSR=

A

tax paid on first transfer x (net transfer/gross transfer) x relevant %

49
Q

Explain “Fall in value relief”.

A
  • Available where the value of gift in 7 years pre death has fallen.
  • Can reduce the value of chargeable gift at death by the fall in value.
50
Q

What happens if 10% or more of the net chargeable estate is left to charity?

A

IHT is automatically charged at 36%.

51
Q

How much relief is given to sole trader business’s, partnership share and shares in an unquoted trading company? BPR

A

100%

52
Q

How much relief is given to shares in an quoted trading company and land/buildings/P&M owned seperately by an individual (used by partnership/company he controls)? BPR

A

50%

53
Q

What are the 3 restrictions on BPR?

A
  • No BPR on investments.
  • 2 year minimum ownership by donor.
  • Donee must still own at donor’s death. (if lifetime transfer)
54
Q

What rate is APR relief?

A

100%

55
Q

What are the 3 restrictions on APR?

A
  • Applies to agricultural value of the land.
  • 2 year minimum ownership by donor.
  • Donee must still own at donor’s death.
56
Q

What do you pay IHT if you’re UK domiciled or deemed domiciled?

A

Pay IHT on worldwide property.

57
Q

What do you pay IHT if you’re non domiciled?

A

Pay IHT on UK property only.

58
Q

How do you calculate indexed gain?

A

Unindexed gain-(cost x (RPI@D-RPI@A))/RPI@A

59
Q

When selling shares what are the matching rules (Companies)?

A
  1. Same day
  2. Previous 9 days (FIFO basis)
  3. s104 pool (Shares aquired prior to date of disposal)
60
Q

If you lived in your home at the same time as your tenants, you may qualify for Letting Relief on gains you make when you sell the property. What 3 things is this the lowest of?

A
  • The same amount you got in Private Residence Relief
  • £40,000
  • The same amount as the chargeable gain you made while letting out part of your home
61
Q

What does a basic rate and higher rate tax payer pay on residential property capital gains?

A

18/28

62
Q

What does a basic rate and higher rate tax payer pay on normal capital gains?

A

10/20

63
Q

A factory that was used in your business was sold to your son for 185k when it was worth 205k. It cost 100k in 1992. What is the chargeable gain?

A

£Proceeds (MV) 205,000
Less cost (100,000)
105,000
Gift relief (balancing figure) (20,000)
Gain chargeable (£185,000 – £100,000) 85,000

64
Q

When disposing of shares that were “subscribed to at par” what would be the allowable cost?

A

Usually £1 per share.

65
Q

How do you calculate gift relief?

A

Total CBA/Total CA

66
Q

Is a storage unit (held as an investment) a CA or CBA?

A

CA only.

67
Q

Is an office building used in trade a CA or CBA?

A

Both.

68
Q

Is a car that’s used in trade a CA or CBA?

A

Neither.

69
Q

Is plant used in trade CA or CBA?

A

Both.

70
Q

Is cash belonging to a business CA or CBA?

A

Neither.

71
Q

Is a business’s debtors balance a CA or CBA?

A

Neither.

72
Q

When not all of the asset is transferred as a lifetime transfer, how do you calculate the value of the transfer?

A

The loss in value as a result of the transfer.

73
Q

Should you include or exclude the proceeds of a life assurance policy (OWN LIFE) in the death estate?

A

Include.

74
Q

Should you include or exclude the proceeds of a life insurance policy (HELD IN TRUST) in the death estate?

A

Exclude.

75
Q

Should you include the spouses shares when calculating price per share?

A

Yes.

76
Q

Are gaming debts allowable in the IHT working?

A

No.

77
Q

Name 4 factors when calculating period of deemed occupation.

A
  1. Last 9 months of ownership.
  2. 3 years for any reason.
  3. Working abroad.
  4. 4 years working in the UK.
78
Q

How do you treat a gain on a clock?

A

Exempt. Classed as a wasting chattel.

79
Q

What is the “gross chargeable transfer” (last line on stage 2 and first line on stage 3 of IHT) made up of?

A

If donor is paying tax (assumed) add the 25% IHT to chargeable amount at the bottom of stage 1. If not then it is just the chargeable amount at the bottom of stage 1.

80
Q

What are the 4 columns in a PRR working?

A
  1. Dates.
  2. Actual Occupation.
  3. Deemed Occupation.
  4. Taxable
81
Q

When calculating SDLT should you include or exclude VAT for a newly constructed freehold commercial property?

A

Include.

82
Q

When calculating SDLT should you include or exclude VAT for a newly constructed residential property?

A

Exclude (residential property is zero rated).

83
Q

What are admin costs restricted to for property in the death estate?

A

5%

84
Q

Can you get an indexation allowance on the % of the property that you let out to unconnected parties?

A

No.

85
Q

Can you include the SDLT when calculating the gain on the sale of a property?

A

Yes.

86
Q

If the allowances are bigger than the 40% IHT charge is it possible to get a refund?

A

No, tax is 0.

87
Q

Is the RNRB tapered when you go over £2m on your house or the entire estate?

A

Entire estate.

88
Q

What date is someone deemed domicile?

A

6th April (15 years out of the last 20 HTT)

89
Q

When can you get BPR on the residential part of a farm?

A

If you are running it, e.g not if there’s a tenant on the farm.

90
Q

For CGT how do you value shares?

A

Average of the quoted prices (2 numbers)

91
Q

When you split UK gains and Overseas gains up in the CGT proforma, which do you tax first?

A

UK.

92
Q

House was bought for £300,000, extension was £40,000 but has burnt down. What is the allowable cost, and why?

A

£300,000 as the extension isn’t in existence at time of sale.

93
Q

What should you remeber in a capital gains question where there are lots of different assets?

A

Different rates

94
Q

Can you deduct a capital loss brought forward that has arisen from a sale to a connected person?

A

No.

95
Q

How many marks is the NRB working worth?

A

3, SO DO IT.

96
Q

What does the NRB proforma look like?

A 
Date     Date   Date of Death
Stage 2
Lifetime NRB
Less chargeable in p7y
Remaining NRB

Stage 3
NRB at death
Less chargeable in p7y
Remaining NRB

97
Q

Do you taper CLT’s or PET’s at death?

A

Both.

98
Q

Are CLT’s and PET’s chargeable at 36% if there was a large charitable donation on death?

A

No, only charge 36% on the death estate.

99
Q

What happens when a gain is rolled over into a depreciating asset (life of under 60 years)?

A

Doesn’t reduce base cost of new asset,deferred until the earliest of the 3 dates.

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