Pensions Flashcards
Tax relief for an individual is the higher of
Relevant earnings
£3,600 - Cap if income is above threshold
What counts as relevant earnings?
Employment income
Trade income
Income form a furnished holiday let
If total gross tax reliavable contributions exceed
The annual allowance of 40k, there is a charge at the marginal rate of tax (NSI rate).
The maximum that the AA can be reduced to is
£4,000
What entitles someone to auto enrolment?
Being employed and between 22 and state pension age
Earning over 10k per year
What are the compulsory amounts due by the emploer and employee?
Employer 3%
Employee 5%
The annual allowance reduction is calculated by
Adjusted income - 240k / 2
What is the adjusted income amount?
Self employed - Trade profits
Employed - Net income + personal pension contributions to workplace pensions + employer pension contributions
If the Annual Allowance isn’t fully used in one year, it can be
Rolled forwards for 3 tax years but only is the individual was also a member of a pension for those years
How do you allocate AA
Current year and then previous years on a FIFO basis
the reduction only applies where threshold income is
Over 200k
Threshold Income
Net income - Gross personal pension contributions
What is a net pay arrangement?
Where the employer deducts pension before PAYE deductions.
This gives the employee the correct tax relief
What is the lifetime allowance?
The maximum amount allowed to be invested into a pension which is
£1,073,100
If a lifetime allowance has been exceeded, how much is charged on withdrawl?
If withdrawing a lump sum, the tax charged is 55%
Pension income, the charge is 25%
What is the enterprise investment scheme?
A scheme to support individuals that invest in small unlisted companies
What are the conditions of the EIS scheme?
The shares must be newly listed ordinary shares, irredeemable and fully paid up
Investor cannot be connected to the company - for example an employee or own more than 30% of current shares
Cannot currently already hold shares in the company (unless they’re also EIS)
what are the ways in which tax releif can be granted for EIS shares?
Income tax
CGT
EIS reinvestment relief
Tax releif - EIS - Income Tax
Available as a tax reducer on subscriptions of up to £1,000,000 in any tax year.
The releif is the lower of:
30% of the amount subscribed
the subscribers tax liability
The claim must be made by the 5th anniversary of the tax year filing date of the investment. so 31st Jan 2030 for 23/24
If all of the tax releif cannot be used in the year of purchase, it can be rolled back a year
If the shares are kept for 3 years or more the benefit of the IT releif is kept, if not, some is withdrawn
What happens if EIS shares are sold within 3 years?
If sold at a gain or not at arms length then all releif is withdrawn
If sold at a loss then the releif withdrawn is the proceeds x 30%
Tax relief - EIS - CGT
If shares are kept for minimum 3 years the CG is exempt, if less, the gain will be taxed normally.
If the shares are sold at a capital loss this loss will always be allowable less the EIS releif if it hasn’t been withdrawn
Tax relief - EIS - EIS Reinvestment relief
Deferral relief is available when the proceeds are reinvested between 1 year before and 3 years after the disposal
Seed Enterprise Investment Scheme (SEIS)
Similar to EIS but goves more generous tax reliefs to investments in smaller start up companies
Being a director does not exclude relief but employee does
Seed Enterprise Investment Scheme (SEIS) - Income tax
Releif is available on subscriptions of up to £100,000.
The relief is the lower of:
50% of the amount subscribed
Individuals tax liability of that year
Otherwise same as EIS
Seed Enterprise Investment Scheme (SEIS) - CGT
Same rules as EIS
Seed Enterprise Investment Scheme (SEIS) - Reinvestment relief
An exemption releif is available when disposed of and another is purchased in the same tax year
Venture Capital trusts
Where an individual uses a VCT/Listed company to invest in many smaller unquoted companies.
Venture Capital trusts - Income Tax
Relief available on subscriptions of up to £200,000
Relief is the lower of:
30% of the amount subscribed
Individuals tax liability
IT relief is clawed back is sold within 5 years
Venture Capital trusts - CGT
All gains are exempt and no losses are allowed. No minimum holding period
Venture Capital trusts - Dividends
Dividends received from a VCT are tax free
