Module 7: Investments and Pensions Flashcards
ISAs can be in (3)
Cash
Stocks
Shares
Interest, dividends and capital gains through ISAs are
Tax free
Annual limits for ISAs
£20,000
16-17 years old = £20,000 but only in cash ISAs
<16 years old = £4260, no withdrawals before 18th birthday
Help to buy ISA saving
£200 per month
Bonus on help to buy ISA
25% on purchase of first residential property (limited to max bonus of £3000)
Bonus on help to buy ISA only payable when
Property being purchased costs < £450,000 in London and < £250,000 elsewhere
Help to buy ISA only available until
November 2019
LISA can be opened by UK resident individuals aged
18-39
LISA - annual saving
Up to £4000 pa until aged 50
Savings in LISA count towards
Annual ISA limit of £20,000
Bonus paid
25% paid by government on total amount paid into LISA excluding interest/ growth
Withdrawal of LISA
From 60th birthday or after 1 year if being used to purchase first residential property < £450,000 anywhere
Enterprise investment scheme cannot
Reduce IT liability to a negative number
If shares sold within 3 years EIS
IT reducer is clawed back - increases tax due
Amount of EIS clawed back
Sale proceeds x initial rate of relief received
If the shares in EIS/ VCT are given away (other than to spouse/ partner or on death)
Full tax reducer is clawed back
Capital loss on disposal of shares EIS
Can be set off against gains OR set against net income in year of disposal or PY
When calculating loss on disposal of shares
(Proceeds less cost) Cost is reduced by amount of any EIS tax reducer claimed on investment
Venture capital trust
Quoted company approved by HMRC which invests in unquoted shares
Venture capital trusts (VCTs) IT clawback
If shares sold within 5 years
Clawback same as EIS:
Sale proceeds x initial rate of relief received
VCT income tax relief fully withdrawn if
VCT loses its approved status within 5 years after issuing eligible shares to the investor
Capital gains arising from disposal of VCT shares
Exempt from tax regardless of length of period of ownership
Dividends received by an individual in respect of ordinary shares in a VCT are exempt from income tax provided (3):
- company was a VCT when the individual acquired their shares
- dividend paid out of profits which accrued to the company in an accounting period after its approval as a VCT
- shares in respect of which the dividend is paid were acquired by the investor within permitted max of £200k
Maximum investment qualifying for tax reducer VCT
£200,000 pa
Maximum investment qualifying for tax reducer EIS
£1m pa
Relief on dividends and CGT relief VCT given on
First £200,000 ordinary shares acquired in each tax year (doesn’t have to be VCT)
30% income tax reducer on investment VCT given
First £200,000 NEW VCT ordinary shares subscribed for each tax year
Occupational (employers) pension schemes (2)
- final salary
- defined contribution
Final salary =
Eventual pension income is determined by final salary rather than the amounts paid in
Defined contribution
Eventual pension income is determined by how much has been paid in
Maximum gross contribution individual can make which will attract tax relief is
Higher of
£3,600 or
100% of UK earnings
UK earnings = (3)
- employment income
- trading income
- income from furnished holiday lettings
Occupational schemes relief
Employer deducts gross pension contributions from individual’s employment income before operating PAYE. Appropriate rate of relief (20%/40%/45%) given at source, reducing PAYE paid.
Personal pension schemes relief
Individual makes contribution net of basic rate tax. Remaining 20% paid by HMRC direct to pension provider.
Personal pension scheme if higher/ additional rate band
Extend the basic rate (and higher if applicable) by the gross pension contribution
Employer contributions (3)
- exempt benefits and not limited
- tax deductible as a trading expense
- count towards the annual allowance
Limit on amount that can be paid into approved pension scheme
No limit
Annual allowance pensions purpose
Limits the tax relief available on total gross contributions
Annual allowance pensions =
£40,000
Reduced by £1 for every £2 net income >£150,000 to minimum annual allowance of £10,000
Individual with net income >£210,000 has min allowance of £10,000
Unused annual allowance
Can be carried forward for three years under FIFO basis
Excess pension contributions
When individual’s contributions in a tax year exceed their annual allowance
Excess pension contributions treatment
Excess is charged to tax as if it is the taxpayers top slice of income (could be 20%/40%/45%). No NIC and not considered to be earnings.
Withdrawal from pension fund (% tax free)
25%
Regular pension income treated as
Non savings income
Remaining value of withdrawal taxable at
Marginal rate of income tax
Once money is withdrawn income tax on excess in pension fund above the lifetime allowance - lump sum
55% income tax
Once money is withdrawn income tax on excess in pension fund above the lifetime allowance - used to purchase pension/ paid as cash withdrawal
25% income tax
Personal pension / money purchase pension valued by
Totalling the market value of the assets
Valuing final salary pension
20 x annual pension benefit payable + tax free lump sum payable
Enterprise investment scheme qualifying shares
In Unquoted trading companies
