Investments Flashcards
ENTERPRISE INVESTMENT SCHEMES - Tax Relief, how - How long to be held - Carry back - Deferral , conditions - CGT , conditions - Loss IHT
Tax relief - 30% tax reducer
£ 1,000,000 max investment (£2m KIF)
Held 3 years or relief (-)
investment can be carried back 1 year
Deferral - no max amount, gain chargeable on disposal. No more than 1 year before or 3 years after disposal
CGT exempt if held 3 years and IT relief at outset
Loss on deferred can be (-) from other CGT or income (less income tax relief given)
IHT relief- after 2 years
EIS - Conditions company need satisfy to qualify
- 7 possible
- Company unlisted when shares issued (AIM is ok)
- Permanent in UK
- 250< employees (500 KIF)
- Gross assets no more £15m/ £16m after investment
- Qualifying trade
- Can’t raise >£5m (£10m KIF) in past 12 mths from EIS
- £12m cap (£20m KIF) total investment
- Invest in new issued full risk ordinary shares in qualifying company or through EIS fund in a number of qualifying companies - individual still owner of shares.
- Maximum investment is £1M /£2m minimum - £500
- Can’t be connected eg partner,director or employee or financial interest (over 30% share capital)
SEIS
- Maximum investment
- Tax relief
- How long to be held
- Carry back
- When can income tax relief claim be made
- Deferral , exempt amount
- CGT
- Conditions (5)
- Max employees
Max investment £100k Tax relief 50% Held 3 years or relief (-) Relief can be carried back 1 year IT relief claim can be made up to 5 years after 31 Jan following tax year of investment Deferral exempt 50% straight away CGT exempt after 3 years
Conditions - trading <2 years, Gross assets
Max employee 25
Furnished Holiday Lettings
Qualification Rules (6) on
Rules:
- UK or EEA
- Furnished
- let on commercial basis
- Available 210 days
- Let 105 days
- Continuous periods - >31 days, no more than 155 days
- Doesn’ty need to be holiday resort, tenants do not have to be holiday makers
Holiday Lettings
Tax Advantages (3)
- Treated as trading income (losses can only be offset against other holiday lets)
- Relevant earnings
- CGT 18/20%. Rollover, holdover & Entrepreneur relief relief available
Restriction on finance costs relating to residential let’s doesn’t apply to furnished holiday lets.
Benefits of trading income
- losses can be offset against other types of income
- Counts for pension purposes
- Rollover, Holdover and entrepreneurs relief for CGT
- Business relief may be available for IHT
5 Step Process for Top slicing calculation
Step 1. - Calculate taxable income
Step 2 - Calculate tax due on gain across each tax band + deduct 20% BR
Step 3 - Annual equivalent . Gain dividend by N
Step 4 - Calculate tax due on annual equivalent + deduct 20% BR open annual equivalent x by N
Step 5 - Deduct step 4 from step 2 = Top Slicing Relief
Rent a Room Relief
Who available to
- Rent up to £x not chargeable to tax
- Couple?
- What if rent more than limit
- Available toUK property owners who rent out a furnishes room(not self contained)to residential purposes
- Rent up to £7,500 (landlord can choose for normal property income rules to apply -useful if loss made. Need to do this within 12 months after 31st January following tax year
- Couple split £7,500
- If more than £7,500, landlord can choose to be taxed on normal basis of rental income less expenses or gross receipts less £7,500 without deduction for expenses.
Woodlands
- profits
- IHT situation
- Commercial managed woodland
- Profits exempt from income tax
- IHT postponed until tress cut or timber sold - must be owned 5 years
Commercial managed woodlands exempt from CGT
Pensions- Annual Allowance Taper
- Where. …….. …….. is in excess of £x
- ( Over how much would floor apply)
- Taper only applies if ………. ……… is over £x
- Annual allowance is tapered by
- Floor £x
- Applied where Adjusted Income in excess of £150k
- Floor of £10k applies to Adjusted total income of £210k +
- Taper only applies if Threshold income over £110k (does not include employer contributions)
- ISA Tax Advantages
- Eligibility
- Tax advantage- income or gains not taxable
- Do not use up PSA/DA/ Annual except amount.
- No reporting to HMRC
- ISAs provide greatest benefit to cash/fixed int holders & those who would otherwise pay CGT
Eligibility
- Individual contract
- UK Res or Non Res Crown employee overseas(spouse)
- If become non res, no further conts but can keep accrued tax free
- £20k max across ISAs ( £4K can be invested in Lifetime ISA)
- Only invest with one provider per ISA type
- Cash can now be withdrawn and replaced in tax year (provider dependant)
- ISA-can be passed on to spouse by additional ISA allowance (doesn’t count towards own limit)
- ISAs can be transferred between ISAS of same type. Money saved in previous years doesn’t affect current year limits
- Cash ISA
- JISA
- Help to Buy ISA
- Stocks & Shares ISA
- Lifetime ISA
- Cash ISA 16 + parental settlement rules apply. 16/17 can contribute full amount to both cash & JISA
- Help to buy = type of cash ISA. Every £200 saved, £50 bonus up to maximum of £3,000 on £12,000 savings. Paid by Government. Restricted to 1st time homes under £450kLondon £250 k elsewhere
- S&S ISA 18+. OEIC, UT, UCITS or Investment Trust
- LISA Under 40s. Save up to £4K each tax year with 25% bonus on contributions at end of tax year. Can be used to fund first home or retirement.
JISA - Annual limit £4,638. Can be contributed by parents, family & friends.Money inaccessible until 18 when can withdraw. Cash or S&S
- Offshore Collectives
- Reporting Funds
- Non Reporting Funds
- Reporting Funds = Full details of income tho HMRC. Investor reports share of income to HMRC via self assessment. (Fund would need to apply to HMRC for reporting status)
- Fund retains reporting status all time it follows rules
Income gross and taxable as savings or dividend income (even if income not distributed). PSA/DA can be used to offset savings and div income. CGT on encashment as usual
-subject to income tax on any income arising, whether distributed or not - Usual CGT rules on sale
Non Reporting - Taxed on encashment only .Gain calculated on CGT principle, but no annual exempt amount. Tax is charged at income tax rates however ie 20%, 40% 45%. PSA and DA do not apply
Qualifying rules 7
- Secure capital sum old maturity
- Min term 10 years
- Premiuns annual or more frequent
- term policies sum assured no less than 75% premiums payable for term
- Whole of Life sum assured no less than 75% premiums payable should death occur at 75
- Premiums in one year not more than twice premiums in any other year and no more than 1/8 of total premiums payable over term (first 10 years for W.O.L)
- Premiums no more than £3,600 pa
Chargeable Event (5)
How is fund in onshore policy deemed to have been taxed
- Death
- Assignment for money or moneys worth
- Maturity
- Partial surrender min excess of 5%
- Surrender
Onshore policy
- No tax on dividend income, 20% on interest, rental and offshore income
- Capital gains at 20%
- Tax paid by life office
Friendly Society Policy
- Underlying fund is tax exempt and tax free proceeds as long as :
- Annual premiums under £270, £25pm (£300 pa)
- Limit across all Friendly Society policies an investor holds
- Baby Bond can be taken out for under 18s
- If qualifying breached, taxed as per non qualifying policy with no credit for tax paid at source
Venture Capital Trust
- Income tax relief - how paid
- Maximum investment
- Holding period
- Dividends taxed
- CGT situation - Defer
HMRC conditions (8)
- Income tax relief 30% paid as tax reducer
- Maximum investment £200k per tax year
- Holding period 5 years - otherwise tax relief withdrawn
- No tax on dividend
- Exempt from CGT on disposal. Can’t defer gain
HMRC conditions
- Must not be close company
- listed on an EEA stock exchange
- Income must be mainly or wholly derived from shares
- At least 80% of shares must be in qualifying unlisted trading companies
- VCT must not hold more than 15% of ordinary shares in any one company
- At least 10% of investments in any one company must be in ordinary, non preferential shares
- Companies that the VCT invest in must have gross assets of no more than £15m before investment and £16m after. Must have fewer than 250 employees (500 KIF)
- Maximum annual investment of £5m by VCT (£10m KIF)
Gilts & Corporate Bond
Interest -
CGT
- Interest usually paid gross (Gilt can elect to have paid net)
- Individual investors free from CGT
Residential property
- How is UK property taxed
- Accounts for letting
- Accruals v’s Cash basis
- property allowance
- Expenses
= Capital expenses
- UK property taxed whether UK Res or not. Income from overseas property taxable if property business owned by UK res.
Income from different properties pooled together, UK and overseas pooled separate. - accounts drawn up 5th April or 31st March
- Accruals used £150k +
- property allowance £1,000 -Income less, exempt from tax. Over £1k - choice
Expenses - Wholly and exclusively for property
CApital expenses = install security system not there before, add extension, replacing kitchen with higher specifications
Non residential let
What’s is Annual investment allowance
Annual investment Allowance - £1m. First £1m of expenditure is qualifies for 100% AIA, meaning can be deducted from full profits.
Expenditure above limit receives limited relief of writing down allowance of 18% of amount spent.
EG £1,2m, then :
£1,036,000 can be deducted £1m plus (18% of 200,000) = £36,000
Next year 18% of £164,000 (£200,000 - 36,000) can be deducted and so on
Letting Relief
What is it
What is relief
- Where part of property is rented out, part rented out is generally not exempt from CGT. Letting relief may be available on part rented out
- Relief is LOWER of £40,000 , amounts of PPR relief or gain made on the let part of property.
Lifetime ISA
Ages
Bonus
Penalties
CriteriA
Min age 18 - 40
Bonus 25% up to £1,000 each year
Counts towards ISA limit - cash or S&S
Still contribute up to 50
Withdraw = 1) buy 1st home 2) Over 60 3) terminal ill
If FTB property has to cost less than £450k - Bought-with mortgage, conveyanced by solicitor Buy property at least 12 months after opening
20%. Penalty (rises to 25% next April)
REITS
What are the two main types of dividend
__ property income distribution (PID) paid net of basic rare …gross up and list under non saving income
- Non PID paid gross and paid as dividend in normal way
EIS VCT SEIS
_ What companies invested in
- Excluded trades
- EIS v VCT
- Small unquoted companies inc AIM shares
- Excluded trades eg Land or commodities, financial activities, property development
Company can carry on some excluded activities, but not substantial - 20% - EIS raises finance bu offering range of tax reliefs, VCT spreads risk over a number of companies
- VCT investor subscribes to shares in VCT company which is listed on London stock exchange (similar to investment trusts) - run by fund manager
Qualifying rules for small companies for VCT/ EIS
- Maximum number of employees to 249 / 500 KIC
- Maximum gross assets before investment - £15 million
- Maximum gross assets after investment - £16 million
- Annual amount raised by company maximum £5m /10m KIC
- Total cap a company may raise is £15 million/ £20 million KIC
EIS CGT tax deferral
- When does deferred gain become chargeable (chargeable event)
- Disposal of EIS shares (except to spouse- no gain/no loss)
- Investor becomes non resident
- Company cease to be qualifying
- encashment of some shares would trigger a proportion being assessable
- No triggered on death
VCT
- MAx amount
- What are 3 tax reliefs available
- Holding period\
- Claim
- Dividends
- If some of shares sold within. 5 years
- What is. Minimum holding period for CGT exemption
- Reliefs available are : 1. Front end tax relief 2. Exemption from CGT on disposal 3. Exemption from income tax on dividends
- HMRC CAN WITHDRAW TAX RELIEF IF NOT HELD 5 YEARS ( not spousal)
- Max £200,000
- claim on tax return or stand alone claim (no form)
- Dividends exempt from income tax
- If part of holding sold in 5 years - lesser of Relief given on shares dispose of eg 10% sold, 10% original relief or amount sold x 30%.
Eg £100,000 investment , sells 10% shares for £2,000.
Either £3k (10% £30k) or £2,000 x 30% = 600 ….whichever lower - No ,minimum holding period for CGT exemption
