Ch 10 - Indirect Investments

Question 1

What are the three main stages to understand a tax wrapper?

Answer 1

1. How initial investment is taxed
2. How the funds are taxed within the wrapper
3. How the proceeds are taxed on the investor

Question 2

What are the advantages of investing in a registered pension scheme?

Answer 2

• Tax relief on input/contributions
• No tax on capital gains/investment income (tax free growth)
• 25% tax free cash
• Tax free death benefits before age 75

Question 3

What is the max pension contribution that qualifies for tax relief?

Answer 3

£40k or 100% of earnings if less

Question 4

What can those with no earnings contribute to their pension?

Answer 4

£3600

Question 5

Once a pension fund has been accessed, what is the future annual allowance (MPAA)?

Answer 5

£4000

Question 6

How is the £40k pension allowance reduced when someone’s adjusted income is over £240,000?

Answer 6

Reduced by £1 for every £2 down to a minimum of £4,000

Question 7

What is the lifetime allowance?

Answer 7

£1,073,100

Question 8

What is the tax free lump sum that can be taken from a pension fund?

Answer 8

25% pension commencement lump sum (PCLS)

Question 9

What is the earliest retirement age?

Answer 9

55

Question 10

How are death benefits treated if a death occurred after 75?

Answer 10

Taxed as beneficiaries income

Question 11

What three ways can members of defined contribution (DC) schemes can receive income?

Answer 11

1. Funds can be crystallised and can withdraw 25% PCLS, then withdraw the remainder as flexi-access drawdown
2. Funds can be left uncrystallised and withdrawals taken ad hoc, w/ 25% of each withdrawal being tax free and the rest subject to income tax (UFPLS)
3. An annuity can be purchased after taking the 25% PCLS

Question 12

How many years pension allowance can be carried forward?

Answer 12

Prev 3 years

Question 13

What income do DC schemes provide?

Answer 13

Scheme pension

Question 14

Pension schemes cannot borrow more than what %?

Answer 14

Gearing limited to 50% of fund

Question 15

What is the taxation of a pension fund?

Answer 15

Tax free on gains and investment income

Question 16

Who is eligible for an ISA?

Answer 16

UK resident, crown employee working overseas or their spouse

Question 17

If cash is invented into a cash ISA is from a parent, how much can be earned before it is taxed as the parents?

Answer 17

£100 p/y

Question 18

Those aged 16/17 can contribute how much to an ISA?

Answer 18

£20,000 ISA + £9,000 JISA

Question 19

What is an additional permitted subscription?

Answer 19

ISA benefits passed to a surviving spouse on death

Question 20

A deceased ISA account becomes a continuing account until when?

Answer 20

Earlier of account being closed or 3 years and one day from death

Question 21

A surviving spouse can invest how much?

Answer 21

Can invest own allowance + higher of:

• The value of the deceased’s ISA savings at the time of death; or
• The value of the deceased’s ISA savings at the time the continuing account ends

Question 22

Does income and chargeable gains have to be declared on a tax return for an ISA?

Answer 22

No - tax free

Question 23

What are the features of a CTF?

Answer 23

• Child born between 31/08/02 - 01/11/11 entitled
• Initial voucher £50-250
• £9000 limit until age 18
• Free on income tax & CGT
• Exempt from £100 parent rule

Question 24

What is the difference between the start date for the contribution limit of a JISA/CTF?

Answer 24

CTF = child's birthday
JISA = tax year

Question 25

What are the three types of CTF?

Answer 25

• Savings account
• Accounts that invest in shares
• Stakeholder CTF accounts

Question 26

Are OEICS/Unit Trust open ended or closed ended?

Answer 26

Open

Question 27

Are investment trusts open ended or closed ended?

Answer 27

Closed

Question 28

Who are offshore collectives