Chapter 12 - Personal Tax And Investement Advice Flashcards
Nathan, who is a higher-rate taxpayer, sold his company in August 2023 for £1.6m. He purchased the business 20 years ago for £650,000 and was the controlling director holding all the shares. Assuming he made no other chargeable gains or losses in 2023/24, how much capital gains tax will be payable as a result of the sale?
a £94400
b. £190000
c. £188800
d. £95000
a £94400
The rate of CGT on the disposal of qualifying assets is 10%. However, these gains must be taken into account when calculating the rate of CT that will apply to non-qualifying
disposals.
£3000 annual exemption amount x 2
£1.6m - £650,000 - (£3000x2) = £944,000
£944,000 x 0.1 = £94,400
Natasha has shares in a company which she sells on 1 September 2023. If she does not want to create a gain or loss for capital gains tax purposes, she must repurchase the shares by:
a. 14 September 2023
b. 14 October 2023
c. 30 September 2023
d 30 October 2023
c. 30 September 2023
Selling securities does not create a gain or loss if the same taxpayer buys them back within 30 days, but they could be repurchased by a spouse, a family trust or an ISA. However, buying or selling in this way usually involves transaction costs.
Lesley bought a painting in May 2010 for £2,500 and sold it for £7200 in June 2023. What is the gain, if anything, for capital (gains tax purposes?
a. £2000
b. £4,700
c. NiL
d. £1200
a. £2000
This is a tricky one!
We have to use the 5/3 rule here
The normal amount that would be liable would be the £7200 - £2500 making it £4700
But because the cost of the chattel is above £6000 we can take the lower of either that amount above or the 5/3 rule. Which is
(Amount paid - £6000) x (5/3)
£7200 - £6000 = £1200
£1200 x 5 = £6000
£6000/3 = £2000
£2000<£4700
£2000 is correct
Pamela is emigrating to New Zealand and plans to leave on 5 April 2024. She has a share portfolio that would generate a large capital gains tax liability if encashed. Assuming that Pamela remains non-UK resident and she wants to minimise her tax liability, she would be best advised to postpone disposal of the shares until at least 6 April:
а. 2025
b. 2027
c. 2029
d. 2034
c. 2029
Individuals who are British citizens are entitled to income tax personal allowances for their UK income. The annual CT exempt amount is also available each year and this will be relevant unless the taxpayer is non-UK resident for more than five years following departure. If the period of non-residence is more than five years, then the general principle is that there is no liability to UK CT even in respect of assets situated in the UK.
Rita died in June 2023 leaving an estate valued at £800,000 to her son. She was never married and made a gift of £100,000 to her son in May 2019. Assuming the value of her main residence on death was £220,000, what is the inheritance tax liability on Rita’s death?
a. £167600
b. £157600
c. £158800
d. £160000
b. £157600
£500k NRB minus £100k gift means there’s an allowance of £400k
So £800k - £400k = £400k
£400k minus annual gift allowance, because of the £100k transfer, of £3000x2 makes
£400k - (£3000x2) = £394k
£394k x IHT 40% = £157600
When considering business asset disposal relief for capital gains tax purposes, the.
a. individual must be an employee of the company and hold at least 10% of the voting shares.
b. asset must have been owned for at least one year before the disposal.
c. individual must be a director of the company and hold at least 20% of the voting shares.
d. reduced rate of capital gains tax applies to lifetime gains of £1m or less.
d. reduced rate of capital gains tax applies to lifetime gains of £1m or less.
• A company shareholder must be an employee or a director of the company and meet a 5% shareholding condition.
• The asset must have been owned for at least two years before the disposal.
• The rate of CGT on the disposal of qualifying assets is 10%.
• There is a lifetime limit of £1m on gains that qualify for business asset disposal relief.
Sally has a child trust fund for her son George and wants some advice about making contributions into it whilst he is still under 18. Sally:
a. can continue to fund it or it can now be transferred into a Junior ISA.
b. must stop contributing to it and start a Junior ISA.
c. cannot fund it any more and he is not eligible for a Junior ISA.
d. can continue to fund it and he is not eligible for a Junior ISA
a. can continue to fund it or it can now be transferred into a Junior ISA.
The Junior ISA is available to children who missed out on the child trust fund (CTF). Parents, family and friends can contribute up to £9,000 in the 2023/24 tax year. Money will be locked away for the child who can withdraw the proceeds when they are 18 years old. The money can be invested solely in cash, solely in shares or fixed-interest investments or in any combination of these subject to the overall limit.
You can continue to fund a CTF or transfer it up to you really
Juan, a higher-rate taxpayer, has sold shares making a capital gain of £36,000 for 2023/24. Assuming he has made no losses or other gains in this tax year what is his liability and what is the latest date that it must be paid to HMRC?
a. £4,740 no later than 31 January 2025.
b. £6.000 no later than 31 July 2024.
c. £6.000 no later than 31 January 2025.
d. £4.740 no later than 31 July 2024
c. £6.000 no later than 31 January 2025
£36,000 - (£3000x2 for PA) = £30,000
£30,000 x 20% = £6000
Ranjeeta holds numerous investments. Which products will always produce a tax-free income for her?
a. Her pension savings and her deposit account.
b. Her unit trusts, investments trusts and OEICs.
c. Her endowment policy and her friendly society policy.
d. Her ISA and her premium bonds.
d. Her ISA and her premium bonds.
The main tax-free investment is the individual savings account (ISA). There are also various tax-free NS&I products, but most of these are currently not available.
Bert died several years ago, leaving £165,000 in total to his two children and the balance of his estate to his wife Hilda. Bert had not made any lifetime gifts and the inheritance tax nil rate band at the time of his death was £275,000. Hilda died in August 2023. Assuming that Bert and Hilda never owned their own property, what nil rate band can be applied to Hilda’s estate when calculating her IHT liability?
a £520.000
b. £455,000
c. £490,000
d. £435,000
b. £455,000.
£165,000/£275,000 = 0.6 so 40% of allowance remains
(£325,000x0.4) + £325,000 = £455,000.
Bill, a single man, having fully used his annual gift exemptions, made a potentially exempt transfer of £100,000 four and a half years before his death. He made no other gifts. His residual estate on his death in the tax year 2023/2024 was valued at £500,000 and includes his £250,000 home which his son inherits. The Inheritance Tax liability resulting from his death is
A. £40,000
B. £50,000
C. £70,000
D. £110,000
A. £40,000
lHT on an estate
The IHT on an estate of £500,000 (including a residence inherited by children) is currently (£500,000 - £175,000 - £325,000) × 40% = £0 if there were no chargeable transfers in the previous seven years.
However, if there had been £100,000 of chargeable transfers in the seven years before the death, only £225,000 of the nil rate band would be left, and so the IHT on the estate
woud be： （£500,000-£175,000-£225,000) x 40% =£40,000.
If the previous seven years’ chargeable transfers totalled £325,000, the tax on the estate would be (£500,000 - £175,000) × 40% = £130,000, because the nil rate band would have been fully used. The RNRB is not available against lifetime transfers..
Alexis is a higher-rate taxpayer. Ignoring the use of the capital gains tax exemption, if she claims business asset disposal relief on a £150,000 gain made in August 2023, by how much will her tax liability be reduced compared with no such relief being available?
A. £12,000
B. £15,000
C. £27,000
D. £42,000
B. £15,000
Business asset disposal relief can be claimed up to a lifetime limit of £1m when an individual disposes of a business or a part of a business.
Gains that qualify for relief are taxed at 10% instead of either:
- 18%: residential property gains within the basic rate band
- 20%: non-residential property gains above the basic rate band; or
- 28%: residential property gains above the basic rate band.
Jessica, a higher-rate taxpayer, bought an equity unit trust two years ago for £60,000, which is currently valued at £120,000. In the tax year 2023/2024, she has already sold some gilts, making a loss of £5,000 and she is wanting to encash some of the trust’s units, but only sufficient to maximise use of this year’s Capital Gains Tax exemption. What total value of units should she be advised to sell?
A. £5,000
B. £6,000
C. £12,000
D. E22,000
C. £12,000
£6k tax CGT exemption, so you want to realise this amount
GILTs are exempt so this loss isn’t allowable
So for every £120k, £60k is gains, this means that 50% of all sold unit amount is a gain.
We want to realise a gain of £6k so to do this using this ratio we would have to sell £12k units
Albert died in March 2002, when the Inheritance Tax nil rate band was £242,000. With the exception of a £48,400 bequest to his daughter, he gifted his entire estate to his spouse. Her estate is currently valued at £800,000 which contains no property. If she died today, how much nil rate band, in effect, would be available to the estate?
A. £518,600
B. £567,000
C. £585,000
D. £650,000
C. £585,000
He gave away a % in the previous band being, £48,400/£242,000, meaning that 20% of the band has been used
80% left of £325,000 making £260k available of Albert’s
£260k plus £325k makes the £585k availing
- Elaine has annual earnings of £200,000. She is now surrendering an offshore assurance bond with a gain of £72,000 and an onshore assurance bond with a gain of £36,000. She has received no dividend income. What is her personal total tax liability as a result of these surrenders?
A. £29,160
B. £36,400
C. £39,150
D. £41,400
D. £41,400
For onshore bonds after taking account of the personal savings allowance and the starting rate of 0%), gains are taxed at an extra 20% for higher-rate taxpayers and an extra 25% for additional-rate taxpayers under the chargeable event gains rules when the bond is cashed. With an offshore bond, an investor who is a basic-rate taxpayer will pay 20%, a higher-rate taxpayer will pay 40% and an additional-rate taxpayer will pay 45% tax on the gain when the bond is cashed
With an onshore bond, the extra 20% or 25% tax is charged on the net return of the fund, whereas with an offshore bond, the 20%, 40% or 45% tax is on the gross return.
20% of the tax is paid within the policy on the onshore bond, so 25% is due on the £36k making £9k
45% on the £72k which makes a gain of £32400
£32400 + £9000 = £41400
