Indirect investments

Question 1

Describe the tax treatment within an UT/OEIC/investment trust.

Answer 1

Only corporation tax on rental/interest income
No dividend/CG tax

Question 2

Is SD/SDRT due on UTs/OEICs?

Answer 2

No

Question 3

Are interest-bearing UTs/OEICs liable to CGT on disposal?

Answer 3

Yes

Question 4

How are investment trusts taxed for an investor?

Answer 4

Same tax treatment as an equity

Question 5

What are the qualifying criteria for a REIT?

Answer 5

≥75% of gross assets associated with property letting
≥75% of profits generated from property letting
≥90% of taxable income distributed to shareholders

Question 6

How is Property Income Distribution from a REIT treated for income tax purposes?

Answer 6

Treated as non-savings income & paid net of BRT
Investors can then either reclaim the tax or pay further as appropriate

Question 7

How is property management income classed for income tax purposes?

Answer 7

Dividend income

Question 8

What are the chargeable events on an investment bond?

Answer 8

Death
Assignment for money/money’s worth
Maturity
Part-surrender - in excess of 5% tax deferred allowance
Surrender in full

Question 9

How are gains on an investment bond classed for income tax purposes?

Answer 9

Savings income

Question 10

How many years can be used for top slicing on gains & excesses?

Answer 10

Gains (generated by full surrender) can use number of completed policy years
Excesses (generated by partial surrender) can use the part year they’ve already started

Question 11

Why can top slicing potentially provide a CGT benefit?

Answer 11

As it’s more likely to keep investor below HRT band and therefore subject to lower CGT rates.

Question 12

In what scenarios does top slicing prove particularly useful?

Answer 12

When the gain pushes someone into the next tax band
If the gain pushes someone’s net adjusted income above £100k and they’d lose their PA
When the investor hasn’t utilised his PSA

Question 13

When does a part surrender across all segmented bonds tend to work well?

Answer 13

There is a large gain on the bond
The policy has been running a number of years

Question 14

When does a full surrender of segmented bonds tend to work well?

Answer 14

There is little gain on the bond
The policy is in its early years

Question 15

What is the maximum contribution per tax year for the following:
EIS
SEIS
VCT

Answer 15

EIS - £1m (+£1m for KiCs)
SEIS - £100k
VCT - £200k

Question 16

What is the minimum holding period to retain tax relief for the following:
EIS
SEIS
VCCT

Answer 16

EIS & SEIS - 3 years
VCT - 5 years

Question 17

Which types of income don’t count as ‘UK relevant earnings’?

Answer 17

Dividends
Interest
Rent

Question 18

In what situation is a Purchased Life Annuity tax-free?

Answer 18

If it is paid directly to a registered care home

Question 19

What is the maximum borrowing that can be taken out within a SIPP?

Answer 19

50% of net assets