Chapter 4: Taxation of investors and investments Flashcards
Gains on chattels of over what amount are chargeable to capital gains tax?
£6,000
A chattel is tangible, moveable property.
If a chattel is purchased and sold for no more than £6,000, it is exempt from tax.
Assuming all other allowances have been used, what is the maximum that can be earned by renting out a room in your primary residence before there is a tax liability on the income?
£7,500
What does the rent-a-room scheme allows homeowners to do?
The rent-a-room scheme allows homeowners to rent out a room in their primary residence and generate income up to £7,500 without incurring any tax liability. This is irrespective of what tax band the homeowner is in
Marie Sanchez has taxable earned income of £33,000 (after taking into account her personal allowance). She realised a capital gain of £5,000 after using her CGT allowance. How much CGT is due on this gain?
The basic rate band ends at £37,500. Marie’s gain moves beyond this band. For this reason she will be taxed on the gain partly at the basic rate (10%) and partly at the higher rate (20%). The first £4,500 of the gain is taxed at 10%: £4,500 x 0.10 = £450 The remaining £500 is taxed at 20%: £500 x 0.20 = £100 The tax due on the gain is: £450 + £100 = £550
Deeds of variation must be made within how many years of the death of the legator?
2 YEARS
For a deed of variation to be valid, it must:
- Relate to a valid will, to an intestate estate or to a trust
- Be signed by all the parties who would have benefited had the variation not been made (all of whom must be over 18 and must be of sound mind)
- Be executed within two years of the death of the ‘legator’ (the person who left the money)
- Not be made for any consideration (i.e. no one should have received money or value as encouragement for them to sign)
The deed must also contain a statement to the effect that it is intended that the inheritance tax effect of the variation will be the same as if the deceased had made that variation himself.
What are the three VAT rates?
The three VAT rates are 0%, 5% and 20%.
20% Standard rates Most goods and services
5% Reduced rates
Some goods and services, eg children’s car seats and home energy
0% Zero-rated goods and services,
eg most food and children’s clothes
Dana Bradshaw has a high level of earned income and pays the higher rate of income tax. She has invested in an OEIC that invests mostly in interest bearing securities that pay a regular dividend.
Will the dividend be recieved gross or net? And what will the tax liability be?
The dividend will be received gross, with a liability of 40% tax
If the majority of the investments held in a CIS are interest bearing securities, any distributions will be made as interest income.
Bond funds pay gross distributions, which are taxed as savings income.
What is Unfranked investment income?
any income that has no tax withheld
Investment income from deposits, gilts and foreign dividends, that has not already borne corporation tax, unlike domestic share dividends.
Income received that does not carry with it a tax credit. For institutional investors this includes income from gilts, cash deposits, company dividends.
In order to benefit from entrepreneurs’ relief on newly issued unlisted shares, the shares must be held for how long?
Three years
What does it mean when dividends are franked?
A dividend that comes from already taxed earnings is known as a “fully franked” dividend.
Franked dividends have what is known as a “franking credit” attached, representing the amount of tax the company paying the dividend has already paid
Can charities register to have bank interest paid gross in the same way as non-taxpaying individuals?
Yes
Is it true income and gains received by charities are exempt from tax as long as the income is used for charitable purposes?
Yes
Can charities (registered with HMRC) reclaim the tax deducted at source on dividends received from UK companies?
No
Vulnerable trust definition of Disabled person
A disabled person is defined as one who is incapable of administering their own property or managing their affairs
by reason of mental disorder, or who is in receipt
of attendance allowance
or disability living allowance
Vulnerable trust definition of relevant minor
A relevant minor is one who is under the age of 18 and has been predeceased by at least one parent.
Savings income includes interest distributions from authorised unit trusts (AUTs), openended investment companies (OEICs), exchange-traded funds (ETFs) and investment trusts. True or False?
TRUE
Does Interest from Individual Savings Accounts (ISAs) does not count towards the Personal Savings Allowance?
No as it is already tax free.
The self employed pay Class x and Class Y NICS which are
Class 2 NICs
Class 2 NICs - FLAT RATE above threshold
paid at flat rate of £3.05 per week
if earnings above small profit threshold of £6,515 per year.
Class 4 NICs A PERCENTAGE of ANNUAL TAXABLE PROFITS
Class 4 NICs paid in any tax year based a percentage of annual taxable profits.
9% is payable on annual profits between £9,568 and £50,270 and 2% on any profit over that amount.
Are Unit/shares in a unit trust or OEIC chargable assets to CGT?
Yes
Is a nominated primary resideance chargable to CGT?
No
ARe wasting chattels with a useful life of less than 50 years such as racehorses, motor cars and fine wine chargeable to CGT?
No
Are savings certificates and premium bonds chargeable to CGT?
No
Are enterprise investment scheme (EIS), seed enterprise investment scheme (SEIS) and venture capital trust (VCT) investments Chargeable to CGT?
No
Are betting, lottery or pools winnings chargeable to CGT?
No
Are assets used in a business, such as goodwill chargeable to CGT?
Yes
Reminder about non-UK domicines and UK domiciles and IHT
The domicile of an individual is important as this dictates whether IHT is due on their UK assets only (for non-UK domiciles), or on worldwide assets (for UK domiciles) upon their death.
Stamp Duty on shares for paper transcations (not settled though CREST) What % of value? Rounded up to what for amounts over 1000 GBP?
It is 0.5% of the consideration value, rounded up to the nearest £5 for amounts over £1,000; if the consideration value is less than £1,000, then no stamp duty is paid.
SDRT Electronic share purchase through CREST - how much is payable and its’s rounded up and down to what?
. It is 0.5%, payable on the value of purchases of UK equities; and is rounded up to the nearest penny.
What stamp duty is paid on paper shares of a value less than 1000 GBP?
None
What is the tax charged on most business transactions in the UK?
VAT
Business add VAT when they provide G and S to Business customers and non business customers (Public or consumers)? What is G and S?
Goods and services
If a business is VAT-registered, does it charge VAT on the goods and services they provide?
Yes
If a business is VAT-registered, is it true it cannot reclaim the VAT they pay when they buy goods and services for the business?
No they can reclaim the VAT when they buy for the business.
Remittance Basis Charge : been in Uk 7 out of 9 previous tax years? how much?
30,000 GBP
Remittance Basis Charge : been in Uk 12 out of 14 previous tax years? how much?
60,000 GBP
Reminder - if one spouse has a marginal tax rate higher than the other then they can choose to transfer income-yielding assets to the indiviudal with the lower rate.
If that other spouse earns no income thenthe income from the transferred asset maybe entirely tax free (to the extent of the allowance).
in an example of 4000 dividend income then 2000 allowance between the spouses each means the no income one pays no tax if you share hald the shares and transfer them to the other partner.
What is the VAT business threshold?
85,000 GBP
Business has to register for VAT if turnover for the previous 12 months has exceeded the VAT business threshold OR what else?
OR the business believes the turnover will soon exceed this limit.
THe limit is 85,000 GBP
