Income tax

Question 1

How does rent-a-room relief work?

What is taxable income when you rent a room for £7,800 per year?

Answer 1

You can receive rent-a-room income of up to £7,500 tax free.
Limited to £7,500 even if you rent out multiple rooms (so £7.5k per person, not per room).
So £7,800 rent-a-room = taxable income of £300

Question 2

How may a loss from furnished holiday lettings in 2020 be used?

Answer 2

They may only be used against future holiday lettings’ profits in future years.

Question 3

What are the income tax advantages of a furnished holiday letting (compared to a rental property)?

Answer 3

1. Capital allowances on buying furniture and fitting can be used to reduce profits.
2. Income can be treated as pensionable earnings.

Question 4

How does gift aid reduce an individual’s income tax liability?

Answer 4

1. Of the total amount you want to give to the charity (gross amount), you only pay 80% and the government pays the extra 20%.
2. Your basic rate band increases by the gross amount

Question 5

A higher-rate taxpayer wants to give £10k to a charity via gift aid, how would this work?

Answer 5

2 deductions:
1. he only needs to pay 80% (£8k), government pays the extra 20% (£2k)
2. His basic rate band is increased by the gross amount (£10k extra at 20% instead of 40%)
Total saving = £2k + £2k

Question 6

Income tax (sole trade):
What are the 4 ways a sole trader could use current year trading losses?

Answer 6

1. Current year total income
2. Prior year total income (limited to a greater of £50k, or 25% of income in PY)
3. Future years’ trading income
4. Capital gains in the current year

Question 7

Neil Johnstone (sole trader) makes a trading loss in his accounting year to 31/12/2019. He wishes to offset this vs other income in the same tax year (2019/20), when must he make the claim?

Answer 7

31st of January following the year end, plus 2 years.

So: 31/01/2022

Question 8

How does terminal loss relief work?

Answer 8

Trading losses in the final 12 months of trade can be used against a TRADING profit in the previous 3 years on a L.I.F.O. basis.

Question 9

Where is a terminal loss shown on the income tax pro-forma?

Answer 9

before personal allowances are deducted.

Question 10

Where is a carry forward/carry back relief shown on the income tax pro-forma?

Answer 10

before personal allowances are deducted

Question 11

What are the tax reliefs from an EIS investment?

Answer 11

1. loss relief is available
2. income tax liability is reduced by the amount that has been invested that year
3. no tax on sale of shares (if held for 3 years)

Question 12

What are tax reliefs available from investing in a venture capital trust?

Answer 12

1. 30% income tax relief on subscriptions in the year of subscription (up to a maximum of £200k per year)
2. No tax on gain when the shares are sold

Question 13

How much can you put into a personal pension scheme (sole trader/partnership) before you get shafted by tax?

Answer 13

It is tax free to the greater of
- your UK income for the year
- or £3,600
(this is done by increasing your basic rate band by (salary * 100/80)
But: this goes to a maximum annual allowance of £40k (per supp. materials). Above that, you get shafted.
But 2: you can use your £40k from the previous 3 years if any of that was unused in those years.

Question 14

What is a chattle?

Answer 14

Personal property that is moveable.

So any personal property except land.

Question 15

How does chattel relief work?

Answer 15

Taxable gain is proceeds less cost (as normal)
But: this can be reduced to:
> (proceeds - £6,000) * 5/3

Question 16

Tell me some factoids about P11DS

Answer 16

• responsibility of the employer to submit this to HMRC on behalf of the employee, at the end of the tax year
• needs to be submitted if non-cash benefits > £8,500
• P11Ds need to be submitted by 6th July following the year end
• P11Ds need to be paid by the 19th July (2 weeks after submission)
• Penalty: £100 for every month it is late