Main Taxation Rules Flashcards
Rent a room relief:
income tax (1) and CGT (1)
IT:
- Allowance of £7,500 shared proportionally between owners with no deductions
or
- rent received - deductions
CGT:
- None
Letting a whole property and holiday lets:
income tax (1) and CGT (4)
IT:
- Taxed after £1k allowance
Or
- Pooled together income - expenses
CGT:
- Rollover relief, holdover relief & business asset disposal relief applicable
- Liable to usual CGT with 8% surcharge
- losses are automatically carried forward for future tax yr
- If was previously main residence then get relief on lower of £40k per person, expedition amount or amount of rent received
Commercial Woodlands:
income tax (1) and CGT (1) and IHT
IT:
- Exempt
CGT:
- Exempt
IHT:
- Deferred til timber disposed of
Savings income:
IT (rates, paid gross or net, offshore)
- Tax rate:
0% - Upto £5k & £1k allowance
20% - BRT - £1k allowance
40% - HRT - £500 allowance
45% - ART - £0 allowance - interest paid gross
- Offshore savings are not taxed by UK
NS&I:
IT free products with anogram
PICK
Premium bonds
ISA
Certificates
Kids bonds
Dividend income:
Income tax (2) & CGT (1)
IT:
- 8.75%, 33.75%, 39.35%
- £500 allowance
CGT:
- Taxable at usual rates on disposal and can deduct costs
Unit trusts & OEIC’s for equity and non-equity funds:
Income tax (1), CGT (1) & IHT (1)
IT:
non-equity fund:
- Taxed as savings income with PSA
equity fund:
- Taxed as dividends with dividend allowance
CGT
- Usual CGT rules apply and can offset losses
IHT
Subject to IHT unless written in trust
Overseas reporting funds (equity & interest distributions):
Income tax (3), CGT (1) & IHT (1)
IT:
- Taxable as it arises not on disposal
- Taxable on interest distributions as usual savings income bracket
&
equity distributions as usual dividend income brackets
- Dividend allowance (£2k) and Savings allowance (£5k) are applicable
CGT
- Usual CGT rules apply
IHT
- Only not subject to IHT if written in trust
Overseas non-reporting funds:
Income tax (2), CGT (1) & IHT (1)
IT:
- Taxable as it on disposal only not as it arises
- Taxable on CGT principles without exemptions then this figure is subject to usual income tax brackets
CGT
- No CGT applicable
IHT
- Only not subject to IHT if written in trust
Real estate investment trust (Ring fenced & non-ring fenced):
Income tax (1), CGT (1), IHT (1)
IT:
Ring fenced (exempt from corp. tax):
- Taxed at income tax bands but deducting 20% as use property income distribution (PID) and no allowances or exemptions allowed because of this.
Non-Ring fenced (subject to corp. tax):
- Dividend income paid is taxed with usual bands and £2k allowance is allowed
CGT
- Usual CGT rules apply
IHT
- Only not subject to IHT if written in trust
Traded endowment policies
Income tax (1), CGT (1), IHT (1)
IT:
- None due if qualifying rules met
CGT
- cumulative 5% of original investment allowable per year
IHT
- Only not subject to IHT if written in trust
Friendly Society policy:
Income tax (1), CGT (1), IHT (1)
IT:
- None
CGT
- None
IHT
- Only not subject to IHT if written in trust
Onshore bond:
Income tax (3), CGT (1), IHT (1)
IT:
- Due on chargeable gain instead of CGT
- cumulative 5% of original investment allowable per year tax free (round part yrs up)
- Usual IT bracket -20% but cannot reclaim
- Can use PSA and top slicing - top slicing gains are averaged out on total yrs and part yrs rounded up
CGT
- Exempt for the original owner
IHT
- Only not subject to IHT if written in trust
Offshore bond:
Income tax (3), CGT (1), IHT (1)
IT:
- Due on chargeable gain instead of CGT
- cumulative 5% of original investment allowable per year tax free (round part yrs up)
- Usual IT brackets apply
- Can use PSA and top slicing - top slicing gains are averaged out on total yrs and part yrs rounded down. Calculated then multiplied by no. of yes again as pod upon redemption only
CGT
- None
IHT
- Only not subject to IHT if written in trust
Registered pension schemes (general rules):
Income tax (3), CGT (1), IHT (1)
IT:
- £3,600 tax free allowance
- 25% tax free lump sum upto age 75 even after death
- fund grows free of tax
CGT
- None
IHT
- Outside of estate
Rules for registered pension schemes:
- PLA
- Purchased annuity certain
- Pension annuity
- Deferred annuity
- Annuity for beneficiaries
- Immediate need annuity
IT:
- PLA - Capital element is tax free. Interest element is taxed as savings income
- Purchased annuity certain - Capital element is tax free (if annuity paid to person who provided purchase price). Interest element is taxed as savings.
- Pension annuity - Taxed in full as earned income
- Deferred annuity - Capital element is tax free. Interest element is taxed as savings. (From when payment taken)
- Annuity for beneficiaries - Taxed in full as savings income
- Immediate need annuity - No tax liability if paid directly to care provider
CGT
- None
IHT
- Only not subject to IHT if written in trust
EIS & SITR, SEIS, VCT:
Income tax (5 each), CGT (5 each), IHT (1 each)
IT:
EIS & SITR
- 30%
- £1m/£2m
- 3yr min. holding period for relief
- Carry back contributions allowed
- Further income and div. fully taxable
SEIS
- 50%
- £100k
- 3yr min. holding period for relief
- Carry back contributions allowed
- Further income and div. fully taxable
VCT
- 30%
- £200k
- 5yr min. holding period for relief
- Carry back contributions NOT allowed
- Further income and div. are not taxed
CGT
EIS & SITR
- Exempt on disposal
- 3yr min. holding period
- Ability to offset losses - Yes
- Re-Investment relief - Yes
- CGT - Deferred until sale
SEIS
- Exempt on disposal
- 3yr min. holding period
- Ability to offset losses - Yes
- Re-Investment relief - Yes
- CGT - 50% exempt, 50% subject to CGT
VCT
- Exempt on disposal
- No min. holding period
- Ability to offset losses - No
- Re-Investment relief - No
- CGT - Exempt immediately
IHT
EIS & SITR
- Only not subject to IHT if written in trust
SEIS
- Only not subject to IHT if written in trust
VCT
- None
Fuel income tax rates and max. Personal contribution
- Max personal contribution of £5k which is deducted from sale price before calculating
- Based on list price of the car:
2% - pure electric cars
15% - cars with emissions from 51-55grams per kilometre
1% increase there after for each 5grams per km upto max. of 160grams per km which is then a set 37%
4% surcharge for diesel cars
Beneficial loans income tax an min. loan value required to be taxable?
- Min. £10k value on beneficial rate
- Tax amount = (actual rate charged - beneficial rate) x loan amount
In-house benefits in kind cost
- cost to business - actual cost = benefit in kind cost
If a parent gifts child asset has what effect?
If exceeds £100 then taxable to the parent unless in JISA, child trust fund or NS&I
Amount of gain that is exempt to CGT if sometimes not living in resi.
Amount of gain x (period occupied / total ownership period)
CGT annual exemption amount in 24/25
£3,000
Second homes CGT surcharge
8% surcharge
Business asset disposal relief definition and rules (4)
Reduced CGT by 10% upto £1m
- Must have been owned for 2yrs from disposal
- Asset must have been used for business purposes
- Must have ‘qualifying interest’ in business which is 5%
Business asset rollover relief definition and rules
Can claim relief if sell an asset and buy a replacement asset deferring payment of CGT until new asset is sold
- Must purchase new asset 1yr before or 3yrs after disposal of old asset
- must be resi. for 7yrs after this or relief gone
- must hold 5% share
Reinvestment into EIS or SEIS
Can be claimed when a disposal of an asset is reinvested into EIS or SEIS. Defers payment of CGT until disposal of shares.
- Can be done 1yr before or 3yrs after disposal of asset
- Just defers for EIS
- 50% relief on SEIS but not deferred
Business relief on IHT (2 types of relief)
No IHT on assets owned for 2yrs. Applicable to lifetime and death transfers.
- 100% relief - interests in unincorporated businesses, AIM, EIS
- 50% relief - interests in listed companies, VCT, land, machinery
Woodland IHT relief
Based on timber not land. Defers 100% of IHT until disposal of timber.
Paying tax on a remittance basis meaning and how do you qualify for this?
Paying income tax on any money brought into UK.
- if resi. For <7 of 9 yrs then there is a charge of £30k
- if resi. For <12 of 14 yrs then there is a charge of £60k
- if resi. For 15+ of 20 yrs then do not qualify
Non-UK residential applicants SDLT & CGT surcharge
2% SDLT surcharge for purchases £40k+
8% CGT surcharge
Second home or BTL for resi. purposes SDLT surcharge
Commerical property surcharge
Second home/BTL - 3% surcharge for purchases £40k+
Commercial - 2% between £150k to £250k additional bracket
Non-Natural person SDLT anti-avoidance rate and over what property value
Set rate of 15% when over £500k
Rent SDLT
Resi. - 1% for over £125k
Commercial - 1% for over £150k
Is SDLT one rate or paid tiered like income tax?
Paid tiered
Stamp duty and stamp duty reserve tax
Tax rate of 0.5% on PURCHASE only:
- stamp duty - Paper - rounded to nearest £5
- stamp duty reserve tax - Paperless - rounded to nearest penny
Transactions under £1k exempt from stamp duty (paper) only
Not payable on growing markets such as AIM, GILT’s, UK dom. ETF, ISDX
When can you register and deregister for VAT? And how long do you have to notify HMRC limit was exceeded?
Register - £85k limit if taxable supplies
Deregister - £83k limit if taxable supplies
Have 30 days from end of month limit was exceeded to notify HMRC
Categories of direct investment:
- Non-savings income
- Savings income
- Dividend income
- Chargeable gains
**Non-savings income **
- salary, rent, pension, benefit in kind
** Savings income **
- bank interest, GILT, bonds, interest from collective investments, PIBS (PBCGB)
** Dividend income **
- direct shares, equity based collective investments
** Chargeable gains **
- gains from life insurance policies and bonds
Allowable deductions for rental properties and additional commercial property allowance:
- income tax and CGT
Repairs and maintenance
IT
- expense on repairs
CGT
- alterations and improvements
interest
- interest on loan payments - Relief given at basic rate via tax reduction
others expenses
- legal fees
- letting agent fees
- insurance premiums
- water, ground rent, council tax, energy
commercial only allowance
- plant and machinery allowance - cover office equipment too
Is NS&I interest paid net or gross?
Gross
Fixed interest securities - GILT’s (Other than PICK), local authority bond, corporate bond, PIBS:
Income tax and CGT
IT
- Taxable at savings tax bands:
0%, 20%, 40%, 45%
- Allowed PSA
- income and interest paid gross
CGT
- Exempt
Bare trust & trust for vunerable beneficiaries:
income tax (2) & CGT (1) & IHT
IT
- Income tax is beneficiaries responsibility (unless parent gift over £100)
- Usual income tax rules
CGT
- Usual CGT rules & allowed £3,000 CGT exemption (8% surcharge if resi. property)
IHT
- Treated as a PET
Interest in possession trust:
Income tax & CGT & IHT
IT
- trustees responsible for declaring and paying income tax unless paid directly to beneficiary
- 20% - everything except dividends
- 8.75% for dividends
- expenses can be offset in below order:
1. UK div.
2. foreign div.
3. Savings income
4. All other income - Once tax paid receive R185 form then beneficiary can reclaim tax or pay additional required at usual rates dependent upon income/div. tax bracket
- when I come is taxable to beneficiary can then use PSA & div. allowance
CGT
- Liable to 20% CGT (8% surcharge for resi. property)
- Exemption amount of £1,500. Which reduces with the no. of non-bare trusts from settlor
IHT
- Treated as a chargeable lifetime transfer, which is paid on transfer
- Pay IHT on death rate, if settlor does within 7yrs but has taper relief
- Anniversary charges at a rate of 6% IHT on amount over NRB
Discretionary trust:
income tax & CGT
IT
- trustees responsible for declaring and paying income tax unless paid directly to beneficiary
- Upto £1k:
20% - everything except dividends
8.75% for dividends - Above £1k:
45% - everything except dividends
39.35% for dividends - expenses can be offset in below order:
1. UK div.
2. foreign div.
3. Savings income
4. All other income - Once tax paid receive 45% tax credit then beneficiary can reclaim tax against 45% tax
- No allowances throughout allowable
CGT
- Liable to 20% CGT (8% surcharge for resi. property)
- Exemption amount of £1,500. Which reduces with the no. of non-bare trusts from settlor
IHT
- Treated as a chargeable lifetime transfer, which is paid on transfer
- Pay IHT on death rate, if settlor does within 7yrs but has taper relief
reduces with the no. of non-bare trusts from settlor
IHT
- Treated as a chargeable lifetime transfer, which is paid on transfer
- Pay IHT on death rate, if settlor does within 7yrs but has taper relief
- Anniversary charges at rate of 6% on amount over NRB
Categories of savings income (anagram)
PIBS Bank collect guilty bonds
PIBS
Bank interest
Collective investments
GILT
Bonds
Chargeable gain - what is this liable on and when?
- Tax liable on a life policy e.g. a bond
- Chargeable on: (DAMPS)
Death
Assignment - change official owner but not gifted (gifting is not a chargeable event)
Maturity - end of policy
Part surrender
Surrender
Listed bonds and medium term notes
IT
- Usual income tax rate (With PSA)
CGT
- usual CGT rules
ISA
- Can be held within an ISA
When is PSA of £5k allowance applicable?
If you are a non tax payer, so non savings income below £12,570
What is a chargeable gain?
IHT at 20%
Are offshore savings liable to income tax if UK dom.?
Yes
Init trust or OEIC rule for if equity or non equity fund
Non equity - atleast 60% of assets are interest bearing then non equity
Equity - less than 60% of assets are interest bearing then deemed dividends
PET rules for IHT
- value frozen for at time of gift
- IHT responsibility of the recipient
- gift does not have to be registered with HMRC
- becomes a chargeable transfer if die within 7yrs
- calculated as 40% x % of tax due = rate of IHT
Exempt transfers:
- annual exemption
- small gifts
- gifts considering marriage
- gifts for education and marriage
- gift for charity and political parties
- gift for national benefit
- gift out of normal expenditure
- transfers to spouse
- annual exemption - transfers upto £3k per tax yr and can carry forward 1yr (so £6k max)
- small gifts - max. £250 per recipient
- gifts considering marriage - £5k max from parent, £2.5k from grandparent or prospective spouse, £1k from anyone else max.
- gifts for education and maintenance - unlimited upto age 18
- gift for national benefit, charity and political parties - unlimited
- gift out of normal expenditure - gifts made regularly that do not effect standard of living are exempt
- transfers to spouse - exempt providing legally married/ civil partner
VAT rates of tax
20% - main rate
5% - reduced rate - fuel, energy
0% - zero rated - food, water, medicine
Exempt - insurance, education
How often are VAT returns submit to HMRC?
Every 3 months
CGT free products
PICK
Rent a room relief
Gilts
Qualifying Bonds (if original owner) - (Not convertable corporate bond only)
PIBS
Bonds
EIS/SITR - deferred until disposal if held for 3yrs
SEIS - 50% CGT free if held for 3yrs
VCT - Instant full exemption
Woodlands
Endowment (If original owner)
Friendly society plan
When can IHT gift allowance of £3k (£6k max.) be used?
On GIFTS only!
Chargeable lifetime transfer
Brings an immediate IHT charge which reduced NRB
If donor survives 7+yes no further IHT charge made but if for within 7yrs then charges at IHT taper relief
Can be paid by donor or donee
Tax rates for IHT
0% for NRB
20% for chargeable lifetime transfers
36% death transfers if charity donation conditions are met
40% all other death transfers
Residence nil rate band
Must be on death but, additional £175k on top of NRB for:
- property had been their residence
- left to one or more direct descendants on death
- will always be limited to the lower of value of home or residential nil rate band of £175k
What is lifetime tax? And when is it due?
50% of the death rate which is currently half of 40% which is 20%
Due 6 months after end of month of transfer
Quick succession relief aim and time-frame
Aims to stop something suffering IHT twice within short period e.g. if someone gifts something to Ben upon death suffering IHT then and after receiving Ben dies
HMRC consider quick succession as 5yrs from date of original death
2 types of business relief from IHT
100% relief:
- for unincorporated business
- shareholding’s in AIM and quoted companies
50% relief:
- controlling shareholdings in full listed companies
- land, building, plants, machinery isomer in company or partnership
4 main types of trusts:
Bare trust
Interest in possession trust
Discretionary trust
Disabled trust
Bare trust - Has immediate right to assets income & capital and beneficiary cannot be changed
Interest in possession trust - immediate right to assets income but not capital
Discretionary trust - trustee has full discretion on how to use the trust as have number of beneficiaries
Disabled trust - trust for a vulnerable person
Who is liable to pay a PET?
The recipient
When is CGT typically due?
31st Jan
