Ch9 Direct Investments Flashcards
What is the PSA?
BR - £1000
HR - £500
AR - £0
What is the SRB?
First £5000 of taxable income x 0%
Is bank/building society interest paid gross?
Yes
What are the features of a NS&I Investment Account?
- 16+ (adult can open one on behalf of child)
- Interest taxed as saving income
- Min deposit £20
- Max limit £1m/£2m joint
- Money can be withdrawn whenever
What are the features of a NS&I Direct Saver?
- 16+
- Money can be withdrawn whenever
- Interest paid gross but taxable as savings income
- Min deposit £1
- Max limit £2m/£4m joint
What are the features of NS&I Savings Certificates?
- Not avail for new customers
- Max holding £15k per issue
- Fixed-interest issues = bought with lump sum and interest accumulated free of income tax & cgt
- Index-linked issues = return linked to rate of inflation, 3/5 year terms, free of income tax & Cgt
What are the features of NS&I Income Bonds?
- Min £500/Max £1m (£2m joint)
- Monthly interest at variable rates
- Taxable as savings income
- Money can be withdrawn any time
What are the features of NS&I Guaranteed Income and Growth Bonds?
- Fixed rate of interest paid monthly or reinvested
- Not avail to new customers
- Avail in 1 or 3 year bonds
- Min £500/Max £10,000 (£20,000 joint)
What are the features of NS&I Direct ISAs?
- 16+
- No withdrawal penalties
- Interest taxable as savings income/paid gross
- Min £1
- CAT standard ISA (normal rules apply)
- Variable interest
What are the features of NS&I premium bonds?
- Tax-free prizes rather than fixed return
- Capital protected
- Min £25/Max £50k
Are gains on gilts/qualifying corporate bonds subject to CGT?
Not generally
Fixed interest income is taxed as what?
Savings income (PSA can be used)
Are losses allowable on fixed interest securities?
no
What are the features of a gilt?
- Loan to government
- Pay fixed rate of interest, gross, bi-annually
- Interest taxable (can elect for 20% to be deducted at source)
- Can hold until maturity or sell via stock exchange
What are the features of a corporate bond?
- Loans to companies
- Pay fixed rate of interest, gross, bi-annually
- Traded on stock exchange if qualifying then CGT exempt
What is a discounted security?
Securities where issue price is less than amount payable on redemption by 15% (exempt from CGT)
What are the features of a local authority bond?
- Loans to local government authorities
- Pay a fixed amount of interest for a short, fixed term
- Interest paid gross but taxable
- Qualifying corporate bonds so CGT exempt
What is the CGT treatment of cash bonus/free shares when a Building Society Demutualises?
Cash: disposal for CGT
Free shares: not subject to income tax or CGT (subject to CGT on sale)
Gains when selling shares are subject to what?
CGT
Are dividends paid gross on shares/
Yes
What kind of shares carry voting rights?
ordinary
Shares pay income in the form of what?
Dividends
What are the tax rates for dividends?
£2000 allowance
BR 7.5%
HR 32.5%
AR 38.1%
How can somebody spread exposure (shares)?
Invest in collectives
Costs of buying and selling shares include what?
Stock-broker commission and Stamp Duty/Stamp Duty Reserve tax
What is a stock dividend?
Shareholders receive new shares instead of a cash dividend
What is the tax treatment of a stock dividend?
Treated as having received income equivalent to the cash dividend and taxed in the usual way
Most overseas dividends are paid after the deduction of what?
Withholding tax
What is an investment trust?
- Ltd companies that invest shareholders’ money in other stocks and shares
- Close ended
- Income is received in the form of dividends
- Interest distributions received as savings income
Are gains subject to CGT on an investment trust?
yes
What are REITs?
Type of investment trust that invests in property
Income received from letting property is liable to what?
Income tax
What is the tax treatment of UK and overseas property income?
- All UK income is pooled and taxed as investment income
- Overseas taxed separately
When is the cash basis used (property - tax)?
Income before expenses does not exceed £150,000
What is the property allowance?
£1000
Does rental income count as UK earnings for pension contributions?
No - unless furnished holiday letting
Is the cost of alterations and improvements on a property a deductible expense?
No
Is the cost of repairs and maintenance on a property a deductible expense?
Yes
Is interest paid on a loan for purposes of property letting a deductible expense?
Yes - finance costs in relation to residential property restricted to BR deduction
When does the BR tax deduction limit on a loan for property letting, not applicable?
Loan relates to furnished holiday lettings or non-residential property
What expenses are deductible in property letting?
- Repairs and maintenance
- Legal fees
- Professional charges
- Buildings insurance, water rates, council tax (if paid by landlord)
- Services provided by landlord
What does plant and machinery include (property letting)?
Equipment, furniture/machines (in commercial property) or tools
What is the Annual Investment Allowance for Plant and Machinary?
Before Dec 2021 - 100% up to £1m
After Dec 2021 - 100% up to £200k
Expenditure on plant & machinery in excess of the AIA qualifies for what rate of writing down allowance?
18%
What is replacement furniture relief?
Landlords of residential property can deduct costs for the replacement of furnishings in residential properties
What is replacement furniture relief limited to?
Cost of replacement + cost of disposal - selling proceeds
What is the Basis Of Assessment for property?
- Letting income is taxable in the year in which it arises
- Accounts have to be prepared for the actual tax year
- Tax is payable under HMRC
What is the tax treatment of a premium on a lease (less than 50 years)?
Taxable as rent
How do you find the taxable amount on a premium of a lease < 50 years?
Premium reduced by:
(No of complete years - 1) x 2% x premium
What is a reverse premium?
a premium paid by the landlord to entice the tenant into taking up the lease
Who is taxable on a premium (property)?
Tennant
Can losses on property letting be carried forward?
Yes - and are done so automatically
What letting relief is available if you let out part of home?
Gain on let part of property is exempt up to lesser of:
- £40k (£80k joint)
- Exemption of part occupied by owner
Rent-a-room claim is available up to what amount?
£7,500
What does rent-a-room relief not apply to?
Self-contained units or unfurnished accommodation
What are the advantages of furnished holiday lettings?
1) Can make pension contributions
2) CGT rollover, holdover relief and business asset disposal relief may be avail
What are the conditions a property must meet to qualify as furnished holiday letting?
- In the UK or EEA
- Furnished and let commercially
- Available to let for at least 210 days in the year
- Should be let for 105 days in the year
- Cannot be let continuously for more than 155 days
What tax-advantages do woodlands have?
Profits exempt from income tax
CGT exempt
IHT - can be postponed as long as held for 5 yrs
