Chapter 3 Flashcards
What is a sole trader and what taxation applies?
Individual who solely controls their own business therefore liable
Profits subject to income tax
Subject to capital gains tax
Class 2 NI as self employed and Class 4 for profits
What is a partnership and what taxation applies?
Sum of the partners so jointly and severally liable
Income tax, NICs and capital gains tax based upon their part of the business profits
Class 2 and 4 NICs
What are LLPs?
Limited Liability Partnerships - own legal entity so not liable on partners
However all other traditional partnership features apply
What are limited companies and what taxations apply?
Have their own separate entity and registered on companies houses
Company is only liable to extent of assets so shareholders not liable
Requires a director
Pay corporation tax on benefits including gains plus NIC of Class 1 - employee and employer
What is Business Relief?
100% relief from IHT if owned by deceased for at least 2 years
How does a company become a public limited company and what are the requirements?
25% places on stock exchange
2 directors and 2 shareholders
AGM required
Accounts filed within 6 months
Difference between Bankruptcy and Insolvency?
Bankruptcy is individuals
Insolvency is Companies
What is the Debt Procedure?
1 - Petition to Court
Owed at least £5,000 and not paid in 3 weeks
2 - Official Receiver
Takes control of debtors property and gathers details of assets and liabilities in report to determine whether trustee in bankruptcy is required
3 - Trustee in Bankruptcy
All assets owed including pensions pass to trustee except tools of trade, business vehicle, clothing etc.
Reviewed annuals
What order are creditors paid?
1 - Bankruptcy Costs
2 - Preferential Creditors
3 - Unsecured Creditors
What credit consequences does bankruptcy cause?
Unable to act as director and cannot obtain more than £500 of credit
What options are their with Corporate Insolvency?
Company Voluntary Arrangements - same as IVA
Administration - administrator brought in to run company as going concern
Wound Up
What are the stages of a company being wound up?
1 - Appoint a Liquidator
May need professional insolvency practitioner if lots of assets
2 - Identify Creditors
Contact all creditors within 12 weeks who send proof of debt
3 - Approve Claims
Sell available assets
Assess claims and provide to creditors who have 21 days to execute
4 - Pay Claims in Priority Order
Secured Creditors
Liquidators and associated costs
Preferential Creditors
Unsecured Creditors
Interest on all loans
What are the main conditions for a contract to be legally binding?
1 - Offer
2 - Acceptance
3 - Intention
What is consideration and examples?
Exchange of items to make contract valid
Payment of policy premiums or payment of benefits
Who does not have capacity to contract?
Minors - can repudiate until age 18
Those without mental capacity
Drunk or not in control at time of entering contract
What is the law of agency and provide examples?
Agent carries out certain acts on behalf of another party
IFA is agent of client
Multi-Tied or Tied are agents of firm
What are the types of property ownership?
1 - Freehold
Own the building and land in perpetuity
2 - Leasehold
Own the building
Pay rent to Freeholder
Leaseholder gets property and land at end of lease however long terms
3 - Commonhold
Own property freehold in perpetuity
Association owns the lands (city centre flats)
How can a leaseholder purchase the freehold?
50% of leaseholders must agree to purchase the land
Must live in property for 2 years with at least 21 years left on lease
Types of joint ownership?
Joint Tenancy - equal share
Tenants in common - separate share and passes into deceases estates
What is a power of attorney and give examples?
Legal document where donor grants power to attorney
GPA - transact as donor
EPA - replaced by LPA
LPA - Widened scope to cover personal health and welfare as well as property and financial affairs
What cancels a GPA and what does an EPA & LPA do?
Donor’s bankruptcy, death, mental incapacity or end of term
They allow power of attorney to continue when mental incapacity occurs
What revokes an LPA?
Donor’s death, dissolution of marriage or revokes them self
All of the above but also bankruptcy for property and finance LPA
What is the process when an individual dies testate?
1 - Prove the Will
2 - Complete HMRC accounts - pay tax
3 - Receive probate
4 - Distribute the estate
What actions revoke a will?
1 - Writing a new will
2 - Destroying a will
3 - Marriage
What is the order of inheritance when dying intestate?
Spouse inherits everything if no children
Spouse inherits first £270,000 and 50% of the rest with children inheriting other 50% - might be in trust
If no spouse then children, grandchildren, parents etc.
Or to crown if no relatives
What is a trust?
Means of arranging property for the benefit of other persons without giving them full control
What are the 3 parties of a trust?
Settlor - original owner of asset - can be trustee
Trustees - legal owners of asset in trust
Must be 18, sound minded and not bankrupt
Beneficiaries - long-term intended recipients
What are the type of trusts?
Refer to pages 145-146
What can trusts be used for?
1 - Keeping outside estate for IHT purposes
2 - Ensure swift payment to beneficiaries
3 - Keep separate from trading accounts - in case of insolvency
4 - Protect pension from misuse
What is a bare trust and when does it become an absolute trust?
Fixed and unchangeable beneficiary who will get property at age 18
Becomes absolute when beneficiary reaches 18
