Chapter 9: Taxation, Investment wrappers and Trusts Flashcards
what is the meaning of domicile?
the country that a person treats as their personal home or lives in and has substantial connection with
what does an individual’s residential status decide?
where they pay taxes and what types of taxes are paid on income and gains
what determines if someone pays taxes in the UK or not?
spend 183 or more days in the UK, only home is in the UK
what is savings income?
income earned from interest on bank deposit or coupons from a bond
what income is tax free?
premium bond prize, interest on national savings certificates, income from individual savings accounts, gambling and lottery wins, compensation for loss of employment (up to £30,000),
what does non-dividend savings income come from?
interest from deposits, interest from bonds an gilts, purchased life annuities (income competent), taxable amounts on deep-discounted securities, distributions from unit trusts
what is the dividend allowance and tax rates for 22-23?
allowance up to £2k, sums above are taxed at 7.5% for basic rate taxpayers, 32.5% for higher rate taxpayers and 38.1% for additional rate taxpayers
what do NICs do?
national insurance contributions, build entitlement to certain UK social security. paid dependant on how much people can earn and whether they are employed or self-employed. employers responsible for calculating, deducting and paying NICs
what assets are liable to CGT?
shares, unit trusts, certain bonds, property (except the main home)
what are the notable exemptions to CGT?
sale of home, car or personal possessions up to £6,000, gains on gilts and certain other sterling bonds, gains on assets held in accounts benefitting from tax exemptions
what are the different rates of annual tax-free alloance?
allows individuals to make a certain amount of gains tax-free each year. 10-20% for individuals, 18-28% for property gains, 20% for trustees, 10% for gains qualifying for (BADR)
what is inheritance tax?
usually paid on the estate and the value of assets that are transferred during an individual’s lifetime or that are remaining at death
what are the exemptions from inheritance tax?
assets left to the spouse, assets lefts to charities, gifts made more than 7 years before death
what is stamp duty?
tax paid on UK share trades when a stock transfer form is used. SDRT (stamp duty reserve tax) is payable when an individual buys shares electronically and no stock transfer is used, SDLT (stamp duty land tax) used when an individual buys property or land
what is VAT?
Chargeable by firms whose turnover exceeds a certain amount when they supply taxable
what is corporation tax?
paid by limited companies and other bodies on their profits and gains, not paid by individuals and businesses as sole traders. charged for accounting periods usually one year
what is an ISA?
Investment wrapper account that holds other savings and investments and allows them to be invested in a tax-efficient manner.
what are the different types of ISA and their features?
cash ISA is a savings account with a £20,000 annual allowance with tax free interest and is available to over 16s. stocks and shares ISA is an investment account with annual allowance of £20,000 and has tax free gains and dividends for over 18s. innovative finance ISA is a p2p lending account with annual allowance of £20,000 with tax free interest for over 18s. lifetime ISA: cash/stocks/home deposit, £4,000 annual allowance, 25% gov’t top up, between 18-39. Junior ISA: cash or shares, under 18.
what are the benefits of pension?
tax relief, can take the pension from age 55 (increase to 57 from 2028)
what is a state pension?
provided out of NICs with no investment for future needs, problems with dependancy ratios
what is an occupational pension?
employer makes pension contributions, running costs are often lower than for personal schemes and they must ensure that it is well run. can include ‘final salary scheme’ where the pension received is related to the number of years in service
what is a private/personal pension?
defined contribution scheme that might be used by employees of companies that do not run their scheme. can also be used to those who are self-employed and do not have access to occupational schemes. can run a SIPP (self-invested personal pension) run by stockbroker of IFA. tax-exempt
what is a trust?
legal means by which one person gives property to another person to look after on behalf of another individual or set of individuals.
what are the different roles within a trust?
the person who creates the trust is the settlor, the trustee is the one who looks after it, the individuals for whom the trust is for are known as the beneficiaries
what are the uses of trusts?
providing funds for a specific purpose, reduce future inheritance tax liabilities, separating out rights to income and capital, can act as the underlying structure for many major investment vehicles e.g., pension funds, charities etc.
what is a bare/absolute trust?
where the trustee holds assets for one or more persons absolutely
what is an interest in possession trust?
where the beneficiary has a right to the income of the trust during their life
what is a discretionary trust?
where trustees have discretion over to whom the capital and income is paid within certain criteria
