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Personal Taxation - R03 > Chapter 10 - Indirect Investments > Flashcards

Chapter 10 - Indirect Investments Flashcards

1
Q

State the main benefits of investing money in a registered pension scheme.

A

Tax relief on contributions, no income tax within fund and no CGT on crystallisation, 25% tax free lump sum on crystallisation (Pension Commencement Lump Sum - PCLS)

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2
Q

What are the 3 options at retirement of accessing your pension fund?

A
  1. Crystallise the whole fund, take 25% tax free and the remainder is designated to drawdown taxed as income
  2. Leave un crystallised and withdraw ad hoc amounts which will be 25% tax free and 75% taxed as income
  3. Take 25% of the fund tax free and then buy an annuity with the remainder, the annuity is taxed as income
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3
Q

What is the maximum amount an individual can contribution to a pension and receive tax relief?

A

Contributions limited to the higher of £3,600 or relevant UK earnings, these are then restricted by the annual allowance which for 17/18 is £40,000.

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4
Q

How much is the pension annual allowance for 2017/18?

A

£40,000

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5
Q

How would an individual trigger the money purchase annual allowance and how much is it?

A

The money purchase annual allowance is £4,000 and it is triggered when an individual flexibly accesses a pension

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6
Q

Income over what amount would begin to reduce an individuals pension annual allowance?

A

£150,000

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7
Q

What is the maximum and individual can have in pensions before triggering the lifetime allowance?

A

£1 million

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8
Q

What is the minimum retirement age?

A

55

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9
Q

What is the difference in taxation of a pension fund being passed to beneficiaries if an individual is under or over the age of 75?

A

If an individual dies under the age of 75 then the pension can be passed to the beneficiaries tax free.

If an individual dies over the age of 75 then the pension will be taxed at the beneficiaries rates when withdrawn

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10
Q

What is the benefit of investing in an ISA?

A

No income tax or CGT on encashment

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11
Q

What is the eligibility criteria for an ISA?

A

Must be resident in the UK,

Aged 16 and over for a cash ISA and aged 18 and over for a stocks and shares.

Can only be on an individual basis.

Junior ISAs are available to anyone who was born after 3rd Jan 2011 (people who didn’t get a child trust fund) and they can access it at age 18.

If not UK resident can keep existing ISA but can’t add more money to it.

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12
Q

What is the ISA allowance for 17/18?

A

£20,000

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13
Q

What is the Junior ISA allowance for 17/18?

A

£4,128

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14
Q

What is the Help to buy ISA allowance for 17/18?

A

Initial deposit of £1,000 and £200 per month after that

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15
Q

What is the Lifetime ISA allowance for 17/18?

A

£4,000

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16
Q

Name 4 different types of ISA?

A

Stocks and shares

Cash

Innovative finance

Help to buy

Lifetime

17
Q

How does a help to buy ISA work?

A

A cash ISA that also provides a government bonus towards the cost of buying a house.

25% bonus up to a max investment of £12,000 paid on completion of buying a house.

Property value up to £450,000 in London and £250,000 elsewhere.

Max contribution of £200 per month after an initial deposit of £1,000

18
Q

How does a lifetime ISA work?

A

Individuals aged between 18 and 40 can take one out max £4,000 contribution per year with a 25% bonus paid per year on contributions.

Can contribute till age 50 and then can withdraw from age 60 or at any point to buy their first house.

If withdrawn before the bonus is lost and a penalty applied.

19
Q

What is the big difference between child trust funds and junior ISAs

A

Child trust funds do not fall foul of the £100 rule

20
Q

What is a collective investment and how are they taxed?

A

Collective investments allow individual investors to participate in a large holding of investments and they can be wrapped in an ISA or pension. Equity based collectives are taxed same as shares. Non-equity based collectives are taxed as interest.

21
Q

Highlight the difference between reporting and non reporting offshore collectives.

A

Reporting offshore collectives – Provide HMRC with details of all income and gains. It is then taxed the same as an onshore collective for UK investors

Non-reporting offshore collective – Don’t provide details to HMRC. Benefit from gross roll up but taxed in full on encashment. Calculated on CGT principles but subject to income tax. Therefore it is at the higher rates 20% 40% 45% and no CGT exemption can be offset.

22
Q

What is the main difference between a qualifying life assurance policy and non qualifying life assurance policy?

A

Any gains made on a qualifying policy is not taxable.

Any gains made on a non qualifying policy are potentially subject to income tax.

23
Q

What are the 5 chargeable events that can give rise to a tax charge on a non qualifying policy?

A 
Death
Assignment
Maturity
Partial surrender (over 5%)
Surrender
24
Q

How is an onshore life assurance bond taxed?

A

20% within fund. Tax due on gain if it takes holder into higher or additional rate tax. Gain taxed at either 20% or 25% depending on HRT or ART.

25
Q

How is an offshore life assurance bond taxed?

A

No tax within fund – full gain taxable at marginal rates

26
Q

For a policy to be a qualifying policy what is the maximum annual premium?

A

£3,600

27
Q

For basic rate taxpayers, a system known as what is used to assess if the gain is subject to further tax?

A

Top slicing

28
Q

How do you calculate a top sliced gain on a life assurance bond?

A

Surrender value + any withdrawals within 5% - Original investment amount = gain.

Gain / number of whole years policy in force = top sliced gain.

29
Q

How much can you withdraw from a life assurance bond each year that is tax deferred till encashment and how would any excess be treated?

A

investors can take up to 5% per policy year of the original investment amount before creating a chargeable gain.

On full encashment these partial withdrawals are added back into to establish the gain.

Any excess over the 5% is chargeable at the end of the policy year so only the amount within 5% is added back in at the end.

30
Q

What is and what are the main features of a Friendly Society policy?

A

Tax efficient savings plans.

Monthly contribution of £25. Annual of £270.

Taxed similar to qualifying policies.

Personal Taxation - R03 (11 decks)

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