Chapter 9 Flashcards
NS&I - savings certificates;
- availability, investment type and term, interest, index linked
Income bonds;
- interest and rate, notice and min and max investment
Certificates;
- no longer available
- lump sum investment and 5 year term
- tax free interest added
- can get index linked certificates with fixed rate return in exchange of lower guaranteed interest rate
NS&I Income bonds;
- Pay monthly interest at variable rate
- no notice or restrictions for withdrawal
- min investment of £500 and max £1m (£2m joint)
NS&I - guaranteed income and growth bonds;
- interest, income for each, availability and min and max investment
Premium bonds;
- prizes, average return, monthly prize and min and max range
Guaranteed income & growth bonds;
- fixed rate of interest
- income bond provides monthly income whilst growth is reinvested
- not available
- min inv £500 and max £10k per investor
Premium bonds;
- prizes rather than fixed rate
- can expect to receive average return around 1%
- monthly prizes range from £25 to £1m
- no penalties for encashment
- min holding £25 and max £50k
Gilts;
- interest, coupon and gross, deducted at source, CGT and accrued interest tax
Gilts;
- pay fixed rate of interest
- interest paid twice a year and paid gross
- can elect for 20% to be deducted at source
- exempt from CGT
- accrued interest liable to income tax when sold if holdings exceed £5k
Corporate bonds;
- what are they, early, interest pay and taxation
Local authority bonds;
- loans to who, term, interest and taxation and CGT
Corp bonds;
- effectively loans to a company that pay interest for fixed term and capital repaid at the end
- can sometimes repay early
- interest paid is gross and taxable as savings income
- if qualifying corporate bonds, gain is exempt from CGT
Local authority bonds;
- loans to local government at fixed term and usually short term
- interest paid gross and taxable as savings income
- exempt from CGT
Shares - stock dividend;
- what is it, amount, dividend value deemed as market value of shares when?, taxation and acquisition costs is what
Stock dividend;
- receive shares instead of dividend
- income received equal to that they would receive from cash dividend
- market value of shares would be deemed dividend value if market value differs substantially from cash dividend
- taxed like normal div
- acquisition cost is cash dividend amount or market value (if differs too much, as above)
Shares - overseas dividends;
- dividend rate, withholding tax (2)
- same rates as dividends for UK companies
- overseas divs usually paid after deduction of withholding tax
- withholding tax can be set against investors UK tax liability
Property - deductible expenses;
- rental income, repairs, tax relief, legal, agents, insurance, bills (2), car and services
- expenses incurred when earning rental income can be deducted for tax purposes
- repairs and maintenance included (not if insurer pays out)
- tax relief for finance costs (loan to pay for furniture, for example) at 20%
- legal fees
- professional charges for rent collection and property management
- insurance
- water rates, ground rents and council tax when paid by the landlord
- gas and electric when paid by landlord
- business mileage
- cost of services provided and paid for by landlord e.g. cleaning and gardening
Property - capital allowances - deducted?
Plant & machinery allowance - what is considered under this, available for cap expenditure on what, building and furniture
- deducted as an expense
Plant & machinery allowance;
- common business assets such as equipment, furniture are considered capital allowance under this
- these allowances available for capital expenditure on equipment installed in let property or used in maintaining it
- equipment that forms part of the building not eligible
- no allowance for furniture in residential property (replacement furniture relief instead)
Premiums on short-term leases;
- if below 50 years, income element formula
Example - 40 year lease and premium of £100k
- using premises for trade, subletting, relief spread, no relief when and reverse premium
- if lease is below 50 years, part of sum received is taxed as if it was rent and must be included in accounts.
- income element calculated = (lease-1)*premium/50
- (40-1)*100k/50 = 78k = 22k included accounts to be taxed as income. 78k taxable under CGT rules
- if lease holder uses premises for trade then rent is allowable reduction in trading income
- if sublets, then rent is allowable deduction for property income
- relief is spread over the term of the lease
- no relief available if not subletting or using for trade
- reverse premium - prem paid by landlord to induce tenant to take out lease.
Losses on property leasing;
- carry forward
Property trading income;
- if substantial service? And means greater scope for what (3) and what does it include (3)
- loss is auto carried forward and set against future profits
Property trading income;
- if landlord provides substantial services for letting, letting can be taxed as trade.
- means greater scope to offset losses, large pension contribution than min and CGT and IHT reliefs
- includes laundry, cleaning and at least one meal a day
Letting part of home;
- main resi and CGT, letting relief available when, exempt amount
- main residence that has any part of home let out does not get CGT exemption
- letting relief is available if part of house let out and owner living there. (Think outhouse)
- if available, gain is exempt up to lesser of £40k and exemption on the part occupied by owner
Letting rooms in main residence - rent a room relief;
- not charged when, taxation if above (2), multiple people, does not apply to what, UK and must be used by who
- income not charged if less than £7.5k
- if more, they can be taxed on normal basis or taxed on amount on gross income above 7.5k without expenses deduction.
- reduced to £3750 when multiple people receiving
- does not apply to self contained unit or unfurnished property
- must be in uk
- accommodation must be used as residence
