Chapter 2a Flashcards
Figures for AA, MPAA, TAA and SLA
AA - £40,000
MPAA - £4,000 - DC only
TAA - Level depends on income
SLA - £1,073,100
What valuation factors are used to convert income into a capital sum for AA, TAA and SLA?
16:1 - AA & TAA
20:1 - SLA post A-Day
25:1 - SLA when income is in payment pre A-DAY
How is the TAA calculated?
Anyone with adjusted income of more than £240,000 and threshold income of more than £200,000 start to lose their £40,000 at a rate of £1 every £2 over the £240,000 figure
What can an individual get tax relief on in terms of personal contributions into an RPS?
Greater of 100% of gross salary and £3,600 gross annually
What classes an individual as a relevant UK individual?
Aged less than 75 and satisfy one of a possible four further rules
1 - Have relevant UK earnings chargeable to income tax for that tax year
2 - Resident in the UK at some point in that tax year
3 - UK resident in one of five year preceding tax year and UK resident in year they became a member of pension scheme
4 - Have UK taxable earnings from overseas Crown employment (or spouse)
What income is classed as relevant UK earnings?
Income from employment, bonuses, self-employed etc.
Patent Income
Overseas Crown Employment
What income isn’t classed as relevant UK earnings?
Bank and Building Society Interest
Dividend Income
Rental Income from B2L properties
Pension Income
Type of Contributions
Member
Employer
Third Party (Grandparents)
In-Specie
Difference between In-Specie Contribution and In-Specie Transfers
Contributions - counts as total pension input, must have sufficient gross earnings and tested against AA, TAA and MPAA
Both must satisfy UK individual definition
Contributions are shares into RPS, transfers are already in RPS (think Nucleus to Transact)
What are the conditions for tax-free cash recycling?
PCLS is more than £7,500 in 12 months
More than 30% of PCLS is contributed
Pension contributions increased by more than 30%
Contributions made by individual or employer
It was pre-planned
What tax is paid on contributions if tax relief has been over claimed?
Excess will be chargeable at the members marginal rate
Excess is determined as anything over salary, bonus, overtime, commission, interest and dividend payments
Types of pension contributions
Net Pay Method
Salary sacrifice - tax relief up front
Relief at Source
Paid basic rate tax relief
Relief by Making a Claim
RAC - Premiums paid gross and reclaimed through self assessment
When may employer tax relief be spread over different tax years?
Although employer contributions are unlimited, the tax relief may be spread over accounting periods
More than 210% of previous employer contribution
Excess of more than 110% of previous employer contribution
Monetary Value is more than £500,000
£500,000 - £999,999 - 2 Years
£1,000,000 - £1,999,999 - 3 Years
£2,000,000+ - 4 years
What is the Pension Input Period?
DC - Payment of first contribution
DB - Rights start to accrue
What is total pension input for DC?
Tax relievable member contributions + Other member contributions + employer contributions
How to calculate total pension input for a DB?
1 - Calculate Opening Balance
2 - Add Inflation Proofing
3 - Calculate Closing Balance
4 - Deduct 2 from 3
5 - Add PCLS and 16 x Pension
How do you calculate gross taxable income?
Employer Income + Pension Income + Investment Income + Rental & Trust Income
How do you calculate threshold income?
Gross Taxable Income - Employee / Other Pension Contributions - Lump Sum Death Benefits + Salary Sacrifice from July 2015
How do you calculate adjusted income?
Gross Taxable Income + Employer Pension Contributions - Lump Sum Death Benefits
What is carry forward annual allowance?
Contributions to an RPS can be made from the previous 3 tax years
Allowance is used up in the current tax year followed by unused allowance from the tax year from 3 years ago, then 2 years ago then the previous year
What are the trigger events for the MPAA?
Funds from FAD
UFPLS
Capped Drawdown to FAD and takes income
Exceeds 150% of GAD
Short-term Annuity and flexible annuity
Stand alone lump sum using Primary Protection of more than £375,000
Received a DC scheme pension paid to less than 11 other members
Examples of non trigger events for the MPAA?
PCLS
Triviality
DB scheme pension payments
Receive a DC pension paid to 12 or more members
Scheme pension from annuity provider in exchange of DC funds
Non reducing Lifetime Annuity
Capped Drawdown income lower than 150% of GAD
What is the Alternative Annual Allowance?
Once the MPAA is triggered, the annual allowance for DB input is reduced to £36,000
Carry forward can be used for AAA for DB once MPAA is triggered
What investment types do not have any taxation when held within an RPS?
Cash (still liable to CGT)
Fixed-interest securities
Shares
Commercial Property
Collective Investment Schemes (OEICS)
Investment Bonds
The main thing is that they are usually taxed but not when held within and RPS
What is classed as taxable property?
Member could derive some people benefit
Holiday Home
Vintage Wines
Antiques
Super cars
Some B2L properties
What unauthorised payment taxations apply when an RPS invests pension funds in taxable property?
Unauthorised Payments Charge - 40% of value of taxable property
Unauthorised Payments Surcharge - Additional 15% is taxable property is 25%+ of RPS total funds
Scheme Sanction Charge - RPS could face a charge of 15% - 40% of value of unauthorised payment
De-registration Charge - 40% of scheme assets if HMRC withdrawals RPS status
What is a QROPS?
Qualifying Recognised Overseas Pensions Scheme
Overseas pension scheme given QROPS status by HMRC
Established outside UK in country or territory with UK double taxation
What is a ROPS?
Recognised overseas pension scheme that has received UK tax relief
What is the purpose of a QROPS/ROPS?
Someone retiring abroad and looking to start taking retirement income
How is a QROPS/ROPS transfer treated?
Authorised payment but a BCE
From 2017, a 25% overseas charge was introduced if the member is not a resident in the same country as the QROPS/ROPS
What is a non residence period and how RNUKS payments taxes when member returns to UK?
Non- Residence Period
5 years up to 5th April 2017
10 years on / after 5th April 2017
Taxation
Taxes at marginal rate on return if more than £100,000 of income is taken
