Chapter 6 - Tax Flashcards
What are the income tax rates?
Basic = 0-37.5k = 20%
Higher rate = 37.5k - 150k = 40%
Additional rate = 150 up = 45%
What is the starting savings rate?
What is the rate for basic rate payers and higher tax payers?
starting savings rate 0-5k = 0%
Basic = £1000 tax free allowance
Higher = £500 tax free allowance
Additional rate - £0 tax free allowance
What is the dividend allowance for all tax payers?
£2000
Who pays class 1 NICs?
Employees under state pension working in the UK
What is CGT for investors?
Capital Gains Tax is 10% (18% for residential property) for investors at the basic rate, and 20% (28% for residential property) for higher and additional rate payers (a portion is not subject to CGT (the annual exempt amount)
Only net chargeable gains are taxable (i.e. chargeable gains less capital losses)
What is IHT? What is the ‘nil rate band’?
Inheritance tax only applies if the taxable value of a person’s estate when they die is over £325,000 (nil rate band) (additional £150,000 if a main residence is inherited by children or grandchildren)
What is the rate of IHT?
40% on anything above the current nil rate
What happens when one person in a marriage or civil partnership dies?
They can transfer their nil rate band to the estate of the surviving spouse or civil partner
What is a PET?
A Potentially Exempt Transfer 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
If they keep using it, it is a “gift with reservation”
What is the significance of residents?
Residence and domicile are different concepts and may influence tax status - a person may be a UK resident but not UK domiciled, or vice versa
What is SDLT?
Stamp Duty Land Tax is a self-assessed tax on land transactions involving any estate, interest, right or power in or over land in the UK. In Scot and Wales, LBTT and LTT, respectively, apply instead of SDLT
How to pension contributions get tax relief?
Tax relief is at the taxpayer;s marginal tax rate
What is a PCLS?
A pension commencement lump sum of up to 25% can be taken from a pension fund upon retirement
How are ISAs taxed?
Investments held within an Individual savings accounts are exempt from tax
What is the particular tax arrangement for collective investment schemes?
- They are exempt from tax on gains made within the fund.
- Disposals of units/shares in collective investment are subject to CGT
How are proceeds from life assurance policies taxed?
They are usually free of income and CGT for the original beneficiary.
One-off or regular payments from a (single premium) UK life assurance bond for a basic rate payer usually incur no further income tax
What’s the tax when investors take payments from life assurance bonds?
Investors can take 5% of the original premium each year until 100% (20 years) without an immediate liability to income tax. Any gains on maturity/ encashment are taxed as income on maturity
What about REITs?
How are they taxed?
Real Estate Investment Trusts are exempt from tax at the REIT level but are taxed at the investor’s marginal rate when they are paid as dividends
What is a VCT - what are the tax conditions?
A Venture Capital Trust obtain a tax reduction of 30% from the amount invested, provided they hold the investment for at least 5 years. VCT investments are exempt from CGT
What is an EIS, what are the tax conditions?
An enterprise investment scheme, if held for three years, can reduce income tax liability by 30% of amount invested. No CGT is payable on the disposal of an EIS investment, provided the investor has held their shares for 3 years.
What is a SEIS? What are the tax conditions?
The Seed Enterprise investment scheme provides 50% income tax relief for investment of up to £100,000 per tax year, and there is also a CGT exemption for 50% of any reinvested gains. There is also no CGT on the disposal of a SEIS investment
What is the focus of IHT planning?
Most focuses on gifts, although gifts to trusts are chargeable
What are the reservation rules on gifts?
You cannot gift something and then continue to use it - e.g. gift a house to someone but continue to live in it without paying a market rate of rent
How can income tax often be mitigated?
Spreading investments between family members
using investments where investment returns are not treated as income tax
How can CGT be reduced?
CGT can be reduced by managing the timing of disposals to make the most of annual exempt amounts and capital losses
How are derivatives and bonds treated?
- Dividend distribution is treated as direct holdings of equity.
- For bond funds, distributions are taxed as savings income not dividend income.
What is the CGT allowance?
£12000
What are the tax rates on dividends for different tax brackets?
Basic: 7.5%
Higher: 32.5%
Additional: 38.1%
When a company buys a property over a certain value they pay an anti-avoidance tax.
What is the value of the property at which they pay the tax? What is the tax rate?
Properties over 500,000
rate is 15%
What is SDRT? What is its rate?
Stamp Duty Reserve Tax - 0.5%
Up to what age can an individual get tax relief on contributions to a registered pension scheme?
75 years
How many days does a retail client have to cancel a life policy?
30 days
What is the Stamp Duty Reserve Tax (SDRT) when you buy shares?
0.5%
What is the maximum value of gifts exempt from IHT?
£3000
What is the maximum amount of exempt IHT wedding gift?
£5000
How can a company can ‘set off’ a trading losses?
Against income and gains in i) the same year ii) the previous years AND iii) trading profits from the same trade in future years
What are the stamp duty property rates?
Residential:
£0 - £125,000 = 0%
£125,001 - £250,000 = 2%
£250,001 - £925,000 = 5%
£925,001 to £1,500,000 = 10%
Over £1.5 million = 12%
Non-Residential:
£0 - £150,000 = 0%
£150,001 to £250,000 = 2%
Over £250,000 = 5%
