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Level 5 Business Tax Planning > Lecture 5 > Flashcards

Lecture 5 Flashcards

1
Q

Where are capital gains and losses included

A

capital gains and losses are included in the Corporation Tax computation of companies

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2
Q

What are chargeable gains

A

Chargeable gains for a company arise when it disposes of a chargeable asset for a profit

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3
Q

What must happen to compute a chargeable gain

A

To compute a chargeable gain:
a) Determine the disposal proceeds
b) Deduct allowable costs
c) Adjust for reliefs and allowances
d) Tax the chargeable gain

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4
Q

What are disposable proceeds

A

This is the amount received for the asset

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5
Q

What is acquisition cost

A

Acquisition cost: The price paid for the asset

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6
Q

When can companies claim indexation allowance

A

Companies can claim indexation allowance for inflation up to December 31, 2017

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7
Q

What does indexation allowance reduce

A

This reduces the gain by adjusting the acquisition and enhancement costs for inflation up to that date

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8
Q

What is indexation allowance

A

indexation allowance was a form of tax relief designed to adjust capital gains by accounting for inflation, particularly relevant to companies

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9
Q

When was indexation allowance frozen

A

as of December 31, 2017, the indexation allowance was frozen and no longer applicable to capital gains after this date

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10
Q

What did indexation allowance help reduce

A

It helped reduce the taxable gain by accounting for inflationary increases in asset values

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11
Q

What was indexation allowance calculated by applying

A

Indexation allowance was calculated by applying a specific Indexation Factor

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12
Q

Is indexation allowance available for disposals on or after 1st Jan 2018

A

For disposals on or after January 1, 2018, no indexation allowance is available

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13
Q

What do companies rely on after indexation allowance was disposed

A

Companies must now rely on capital losses or other reliefs such as rollover relief to reduce capital gains

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14
Q

When does share matching rules apply

A

share matching rules apply when a company disposes of shares, particularly in the context of capital gains tax (CGT) and corporation tax

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15
Q

What do share matching rules govern

A

The rules govern how companies and individuals determine which specific shares are disposed of

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16
Q

What are Share Matching Rules for Capital Gains

A

Share Matching Rules for Capital Gains:
- First-In, First-Out (FIFO) Principle
- Specific Identification
- Pools of Shares

17
Q

What policy does selling shares follow

A

Generally, when shares are sold, the oldest shares are assumed to be disposed of first

18
Q

What is specific identification

A

Companies and individuals may elect to apply specific identification to ensure that shares are matched according to a desired order

19
Q

What are share pools

A

a collection of shares acquired at different times and prices

20
Q

What does specific identification within the pool allow the company to do

A

Specific identification within the pool allows the company to select particular shares to be disposed of

21
Q

How can shares be pooled

A

Shares acquired at different times, or through different methods can be pooled and matched according to the company’s preference

22
Q

What happens if a company disposes its shares at a loss

A

If a company disposes of shares at a loss, the loss can be offset against future gains

23
Q

What can companies manage by carefully selecting shares to sell

A

By carefully selecting the shares to sell, the company may manage capital gains in a tax-efficient manner

24
Q

What may share matching rules allow within a group of companies

A

Within a group of companies, share matching rules may allow one company to offset the gains of another, provided certain conditions are met

25
Q

What must companies ensure so they keep in compliance with HMRC rules

A

Companies must maintain clear records of share purchases, sales, and matching to ensure compliance with HMRC rules

26
Q

What does accurate documentation ensure for share matching rules

A

Accurate documentation ensures that the share matching rules are followed properly

27
Q

What are profits from investments subject to

A

In the UK, profits from investments are subject to tax, depending on the type of investment and the entity making the profits

28
Q

What are some taxable investment incomes for income

A

Taxation of Investment Income for Individuals:
a) Dividend Income
b) Interest Income
c) Rental Income

29
Q

What is the dividends allowance for individuals

A

The dividend allowance allows individuals to receive a certain amount of dividends tax-free (£2,000 for 2024/25)

30
Q

How are dividends above the allowance taxed for individuals

A

Dividends above the allowance are taxed as follows:
- Basic rate: 8.75% (for 2024/25)
- Higher rate: 33.75% (for 2024/25)
- Additional rate: 39.35% (for 2024/25)

31
Q

What is the personal savings allowance for individuals

A

The personal savings allowance allows:
- Basic rate taxpayers to earn £1,000 tax-free
- Higher rate taxpayers to earn £500 tax-free

32
Q

What is the interested when exceeding personal allowance is taxed at for individuals

A

Interest exceeding these allowances is taxed at:
- Basic rate: 20%
- Higher rate: 40%
- Additional rate: 45%

33
Q

How is rental income taxed for individuals

A

Rental income is taxed as part of an individual’s total income, subject to personal allowance and tax bands

34
Q

How are dividends taxed for companies

A

Dividends received by companies are generally taxed under corporation tax at the standard rate (25% for 2024/25)

35
Q

What is the corporation tax rate

A

Corporation tax rates apply: 25% (2024/25) on taxable profits

36
Q

What do companies pay corporation tax on

A

Companies pay corporation tax on chargeable gains from the disposal of investments

37
Q

What are the income tax rates for trusts

A

Income tax rates for trusts:
- Income: 20% (on income up to £1,000), 40% (above £1,000)

38
Q

What are capital gains tax trusts

A

Capital gains tax for trusts:
- Basic rate: 10% (for gains up to £6,000)
- Higher rate: 20% (for gains over £6,000)

39
Q

What can help reduce tax liabilities on investment income

A

ISAs and other tax-efficient investment vehicles like pensions can help reduce tax liabilities on investment income

Level 5 Business Tax Planning (12 decks)

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