Module 5 Investment Taxation

Question 1

How do you calculate premium on short lease less than 50yrs

Answer 1

Part of lump sum treated as property income

Formula:
Lease premium minus ((term of lease minus 1)x premium/50)

This sum treated as property income in the year
Balance remaining treated as part CGT disposal

Question 2

Explain rent a room relief

Answer 2

Available to property owners of UK properties who rent out a furnished room
Rent of up to £7500 not chargeable to tax, unless the landlord chooses within 12 months of the 31st of January following the end of the tax year for normal property income rules to apply

Where there is more than one person receiving the rent the £7500 relief split between them

Where a rent is more than £7500 the landlord can choose to be taxed on normal basis of income less expenses or gross receipts less £7500 without deduction of expenses

Question 3

Qualification rules for holiday lettings

Answer 3

must be in UK/EEI
Furnished
Let on a commercial basis
Available 210 days here
Let for 105 days during the year
May be let for over 31 continuous days but not over 155
Does not need to be in a holiday resort or for holidaymakers

Question 4

Tax advantages for a holiday let

Answer 4

Treated as trading income their losses can only be offset against other furnished holiday lettings income
Income accounts as Rovana earnings so pension contributions can be based on it
CGT 18/28%, rollover, holdover and entrepreneurs relief available

Question 5

Taxation of a reporting fund

Answer 5

Gains realised on disposal will be subject to CGT
Investors will be able to offset losses from other disposals and their unused CGT annual exempt amount against any gain

Income arising from these funds will be subject to income tax as I had a dividend income or savings interest depending on the underlying assets held. The personal allowance, starting rate band for savings, personal savings allowance and dividend allowance can all be used where available/applicable

Question 6

Taxation of non-reporting

Answer 6

Any gains realised on disposal will be subject to income tax at the rates of 20%, 40% or 45% depending on the investors marginal rate.
Investors will not be able to offset losses or the CGT annual exempt amount against his gains
Nor is the starting rate band for savings personal savings allowance or different allowance available

Question 7

What is the capital gains tax position on fine wines

Answer 7

They wasting asset with a life not likely to exceed 50 years find mine would normally be exempt from

Question 8

Describe the tax advantages of a personal investment into woodland

Answer 8

Provided woodland supports the commercial development of the timber market within the UK most investments allow the investor to forego paying inheritance tax after two years

Land mixed with woodland on it may not be deemed to be managed as commercial woodland and so may not be entitled to tax exemptions

Additionally there is no UK income or corporation tax on the harvest and sale of timber and there is no CGT to pay on the increase in the value of the trees

However any increase in the value of the land itself when sold is subject to CGT

Question 9

What tax advantages of shares quoted on the alternative investment market

Answer 9

Income tax is payable on dividends

STRT and stamp duty is not charged on transactions in eligible securities on London stock exchange AIM and high-growth segment. Purchase made by private investors in an eligible security are there for STRT/stamp duty event

Shares this is on the I am are regarded as business assets. From an IHT perspective Business Relief is available at 100% as long as the business is a qualifying trade and the shares have been on for two years

Capital gains a chargeable to say duty at 10% or 20% depending on the investors marginal rate

Question 10

Describe the tax treatment of annuities

Answer 10

This depends on whether it is a
– purchase life annuity
– pension annuity
– an annuity for a beneficiary under a will or trust

Question 11

What is the tax treatment of a purchase life annuity

Answer 11

Annuity payments are considered part capital and part income
The capital content is treated as a return of the original capital invested and is tax-free
The interest element is treated as savings income and tax but at either the basic or higher rates of tax
The starting rate for savings income and personal savings allowance can both be used to reduce the tax payable

Question 12

Tax on a pension annuity

Answer 12

The whole amount payable is treated as earned income and subject to deduction of tax and the PAYE

Question 13

On an 80 payable to a beneficiary under a will or trust

Answer 13

Treated as savings income

However if the annuity arises as a result of a structured settlement in a personal injury case it is exempt from tax provided certain conditions are met

Question 14

Drive the tax reliefs and tax incentives on investment into an EIS scheme

Answer 14

Income tax relief of 30% up to £1 million (£2 million for knowledge intensive)
Tax rate withdrawn if EIS shares disposed of within three years

Capital gains from elsewhere can be deferred if reinvested into an EIS
-within a period beginning one year before and ending three years after the disposal giving rise to the game. On disposal of the EIS shares the deferred gain will become chargeable to capital gains tax on this reinvested in I knew yeah yes or if the disposal is taking place following the investors death

Gains arising from contributions to an EIS that qualified for income tax relief will be exempt from CGT as long as I held for three years

Capital losses made in on EIS can be offset against other income or gains in the year of disposal (subject to the minimum three year holding period)

Income from dividends arising is subject to income tax in the normal way

Subject to the two-year ownership period, as it’s all receive 100% inheritance tax business relief

Question 15

What is a Real Estate Investment Trust

Answer 15

A single company or group that owns and manages commercial or residential property on behalf of say holders (but not the letting of the owner occupied buildings)

The company must be UK resident closed ended and quoted on a recognise the stock exchange

If they 75% of the company is total gross profit come from property letting and interest on boring is it least 125% covered by rental profits then the company is exempt from corporation tax on the property letting portion of the business

Gains on sale of property is developed a taxable at 30% unless they are held for at least three years from completion

Question 16

What benefits are there to investors from a Real Estate Investment Trust

Answer 16

At least 90% of rental profits must be paid out to investors within 12 months of the end of the accounting period and such distributions consist of two elements:
– a payment from the corporation tax exempt element – this is classed as property income and pate net of 20% tax from which nontaxpayers can reclaim (if held in ISA wrapper paid gross). Higher and additional rate taxpayers oh additional 20 and 25% of gross payment respectively

I dividend from the nonexempt element – this is classed as investment income, paid gross. Dividend allowance applies. They’re off the text normally

Any capital gains are taxed in the normal way

Question 17

If a question in the question paper states taxable income what is it referring to

Answer 17

Income after personal allowance – you silly arse!

Question 18

Explain rents relief

Answer 18

Available to owners of uk properties he rents out a furnished room
Rent up to £7500 not chargeable to tax and there is chosen by the landlord within 12 months of 31st of January following the end of the tax year
Where more than one person receiving the rent this is split between them
We are rent is more than £7500 the landlord can choose to be taxed on normal basis of income less expenses or gross receipts less 7500 without the deduction of expenses