Chapter 6 key notes

Question 1

What are the tax rates on earned income

Answer 1

• The basic rate of tax on earned income is 20%. The higher rate of tax is 40%. There is also an additonal rate of tax of 45% payable on taxable income when earnings are more than £150,000

Question 2

What is the starting rate band for savings income

Answer 2

• There is 0% starting rate band for £5000 for savings income, but this is not available if taxable non-savings income exceeds the £5000 limit
• If the starting rate is not available, then savings income is taxed at the investors marginal tax rates after applying the personal savings allowance.

Question 3

How is tax calculated

Answer 3

• The personal allowance is deducted from income.
• Pension contributions and gift-aid payments reduce the tax liability for higher and additonal tax payers

Question 4

How is most savings income paid

Answer 4

• Paid in Gross

Question 5

What are the personal savings allowance for all tax bands

Answer 5

• A personal savings allowance of £1000 is available for basic-rate payers, with a £500 allowance for higher-rate taxpayers and no benefit for addiotnal rate tax payers

Question 6

How much is dividend allowance

Answer 6

• £2000 for all taxpayers

Question 7

What non dividend savings income are paid NET/GROSS

Answer 7

NET:
* Interest paid by compnaies (corporate bonds)
* Authorised unit trusts e.g OEICs

Gross
* GILTS
* Dividends
* Banks and building society

Question 8

What class of NI do employes under SPA age fall under

State Pension Age (SPA)

Answer 8

1. Have to pay Class 1 NIC if their income is above the primary threshold

Question 9

When is CGT payable

Answer 9

• CGT is payable by UK investors at the rate of 10% for basic rate tax payers and 20% for higher and additonal tax payers

Question 10

What gains are taxable

Answer 10

• Net chargeable gains

Question 11

When does IHT apply

Answer 11

• Only applies if the taxable of a person’s estate when they die is over £325,000 (plus a further £175,000 if a main reisdence is inherited by children and grandchildren
• IHT on death is levied at a rate of 40% on the excess above the amount of unused nil rate band

Question 12

What power do spouses and civil partners have when it comes to IHT

Answer 12

• They can transfer their unused nil rate bands at death to the estate of the surviving spouse or civil partner

Question 13

What a Potentially Exempt Transfer (PET)

Answer 13

• It is a lifetime gift that is free of IHT if the person who makes the gift lives for seven years after the gift is made

Question 14

How does IHT relate to a person if they are domiciled

Answer 14

• If a person is domiciled abroad, IHT only applies to their UK assets

Question 15

What residents are liable to the UK income tax

Answer 15

• A UK resident who is not UK domiciled may use the remittance basis of taxation

Question 16

What is Stamp Duty Land Tax

Answer 16

• Self assessed tax on land transactions involving any estate, interest, right or power in or over land in the UK
• In Scotland this is known as LBTT and in Wales known as LTT

Question 17

What is the tax relief on pension contributions

Answer 17

• is at the taxpayers marginal rate

Question 18

How much of a tax free PCLS can be taken from a pension fund upon retirement

Pension Commencement Lump Sum (PCLS)

Answer 18

• 25%

Question 19

When are investments exempt from tax

Answer 19

• When they are held within an indivdual savings account (ISA)
• UK Collective Investment Schemes are exmept from tax on gains made within the fund.
• For income funds, distriubution are taxed as savings income not dividend income.
• Disposals of shares in collective investment are subject to CGT

Question 20

What policies incur no further income tax

Answer 20

• Any proceeds from a qualifying life assurance policy are usually free if income and CGT for the original beneficiary.

One-off regular payments from a (single premium) UK life assurance bond for a basic-rate tax payer usually incur no further income tax