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Personal Tax > Personal tax > Flashcards

Personal tax Flashcards

1
Q

allowable deductions must be

A

 incurred wholly exclusively and necessarily in the performance of employment, duties, 

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2
Q

occupational pension schemes

A

run by employer, deducted from employee pay under a net pay arrangement, gross contributions, relief at source

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3
Q

personal pension scheme

A

taxpayer pays net amount into a pension scheme after tax, relief obtained by extending basic rate band

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4
Q

GAYE- Give as you earn

A

deducted from earnings, before tax, tax relief at source

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5
Q

gift aid

A

relief is given via extension of BR band, net payments after PAYE tax deducted

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6
Q

qualifying travel
expenses

A

deductible if business travel or travel to temporary place of work (24 months max)

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7
Q

allowable mileage rates for a car/van

A

First 10k is 45p a mile
After that it’s 25p a mile

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8
Q

If employer pays more than HMRC mileage rate..

A

The difference is a taxable benefit

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9
Q

If employer pays less than HMRC mileage rate..

A

Difference is tax deductible

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10
Q

Mileage rates per passenger

A

5p a mile

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11
Q

Mileage rates for motorbike

A

24p a mile

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12
Q

Mileage rates for bike

A

20p a mile

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13
Q

subsistence, tax deductible?

A

Expenses incurred staying away from normal workplace are allowable

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14
Q

entertainment, tax deductible?

A

Entertaining clients allowable IF reimbursed by employer

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15
Q

professional fees and subscriptions

A

If employee pays for one relevant to work this is an allowable deduction
If employer pays the benefit and cost will be matched

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16
Q

If expenses are reimbursed by the employer

A

ALLOWABLE means automatic exemption
NOT ALLOWABLE means the reimbursement is taxable on the employee and added onto employment income

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17
Q

How can tax planning reduce income tax liability

A

take advantage of exempt benefit
lower co2 emissions, repay fuel
don’t contribute more than 5k to a car
take advantage of allowable deductions
increase BIKs as there’s no NICs

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18
Q

Tax rates - Employment income

A

Basic rate 20% (up to £37500)
Higher rate 40% (£37500-150000)
Additional rate 45% (£150000+)

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19
Q

property income comes from

A

rent of land
rent of property
can be residential or commercial

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20
Q

what basis of assessment is used for property income

A

If under £150k - Cash basis or opt for accrual
If over £150k - accruals basis

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21
Q

When can you get relief on furniture or furnishings for property

A

If it’s a like-for-like replacement

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22
Q

Property allowance

A

If expenses are under £1k can claim a property allowance of £1k and deduct from income INSTEAD of expenses

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23
Q

How to treat property losses

A

Immediate loss relief (offset current year) THEN carry forward

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24
Q

tax planning - property income

A

partner with lowest tax rate to have ownership
enough income to utilise personal allowance
utilise losses

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25
Q

Sources of interest (non savings income)

A

Bank & Building society
National savings & investment accounts
Investments in gilts (gov securities)
Loan stock in companies

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26
Q

Savings allowance and tax rates

A

0% savings allowance:
BR taxpayer - first £1k
HR taxpayer - first £500
AR taxpayer - nothing tax free

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27
Q

dividend allowances

A

First £2k dividends are tax free for everyone

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28
Q

dividend tax rates

A

BR £1-37500 @ 7.5%
HR £37501-150000 @ 32.5%
AR £150001+ @ 38.1%

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29
Q

Tax free investments

A

ISAs - Individual savings accounts
NS&I - National savings and investments certificate

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30
Q

Other exempt income..

A

Statutory redundancy pay
Income from NSI Certs
Winnings
Scholarships and educational grants
Child benefit
Personal injury interest
Sharesave interest
Local authority grant
Income tax repayment interest

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31
Q

Tax planning - Investments

A

Invest maximum into ISAs
Invest in tax free eg premium bonds
Lowest rate taxpayer in a marriage to receive
Offset and utilise pa

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32
Q

Types of taxable income

A

Non savings
Savings
Dividends

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33
Q

Personal allowance for this exam and order in which it is applied

A

£12500
Non savings then savings then dividends

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34
Q

What act does the personal allowance change under

A

finance act

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35
Q

what order does tax get calculated in

A

non savings
savings
dividends

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36
Q

when can the BR band be extended

A

gift aid
personal pension contributions

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37
Q

how does gift aid extend the BR band

A

BR BAND 37500 + GROSS AMOUNT

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38
Q

how does gift aid work

A

you make a net donation of 80%, HMRC top this up by 20%

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39
Q

personal pension contributions and the BR band

A

extends by the grossed up amount

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40
Q

maximum personal pension contributions to get tax relief

A

The greater of:
£3600 and 100% of earnings
Capped at 40% for full relief

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41
Q

who pays national insurance

A

Over 16 years old
Sole trader earning over £6475
Employee earning over £9500

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42
Q

difference classes of national insurance

A

class 1
class 2
class 3
class 4

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43
Q

who is class 1 NI payable by

A

employees and employers

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44
Q

who is class 2 payable by

A

sole traders and partnerships with profits over certain level

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45
Q

who is class 3 payable by

A

voluntary

46
Q

who is class 4 payable by

A

sole traders and partnerships over certain profits

47
Q

EE and ER NICs

A

Primary class 1 are deducted from EEs pay
ERs pay secondary class 1 on the EEs cash earnings
ERs also pay class 1a on EEs non cash earnings eg BIK

48
Q

how to calculate gross earnings for NICs

A

Before allowable deductions, including cash equivalent benefits and excluding non cash equivalent benefits

49
Q

class 1 secondary contributions and employment allowance

A

Pay 13.8% on gross earnings over £8788 with no limit

In 20/21 there’s an employment allowance of 4k

50
Q

There is only a capital gain when there has been a…

A

chargeable disposal by a chargeable person of a chargeable asset

51
Q

chargeable disposals occur on..

A

sale of an asset
gift of an asset
when assets are lost or destroyed

gifts on death are exempt from CGT

52
Q

gifts that are exempt from CGT

A

gifts on death
gifts to spouse (no gain no loss)
gifts to charities

53
Q

chargeable person

A

an individual

54
Q

chargeable assets and exempt assets

A

EXEMPT ASSETS ARE:
cars
gilts
residents own home
wasting chattels (life under 50yrs)
non-wasting chattels (less than £6k)
qualifying corporate bonds
gambling
ISAs
medals
foreign currency
gold sovereigns

55
Q

How to calculate CGT

A

gross proceeds / mkt val minus incidental costs of sale = net proceeds

net proceeds less: cost, enhancement expenditure, incidental costs =

chargeable gain / loss

56
Q

gross proceeds

A

sale value (or market value if disposal is a gift or sold to connected party)

57
Q

incidental costs of sale

A

costs incurred which are necessary to make sale

58
Q

enhancement expenditure

A

capital expenditure that increases the value of the asset and is still intact at disposal

59
Q

chargeable gain

A

gain after deducting allowable expenses

60
Q

when do you pay CGT

A

On gains where disposal has occurred within the tax year, payable at 31st January

61
Q

What is the rate of CGT dependent on

A

The taxpayers income (BR, HR, AR)
Rate of CGT either 10% or 20%

62
Q

annual exempt amount for CGT

A

£12300 for CGT
Only used to bring gains to £Nil, not create a loss

63
Q

CGT and losses

A

current year losses HAVE to be offset in year
whereas with brought forward losses you can choose how much to use (i.e only enough to still utilise annual exemption)

64
Q

how to work out a part disposal (cgt)

A

Original cost X (A/(A+B)

A is market value of part disposed of
B is market value of remaining part of asset

65
Q

Connected parties and CGT

A

The proceeds are deemed at market value always

Losses can only be carried forward against gains with the same connect party

66
Q

Disposals to spouse or civil partner

A

no gain no loss

proceeds = cost

cost transferred over

67
Q

chattels and the two types

A

chattels are tangible moveable objects

non wasting (over 50yrs life)

wasting (under 50yrs life)

68
Q

What types of chattels are exempt from CGT

A

wasting

and non wasting under £6k

card

69
Q

CGT treatment of non wasting chattels

A

look at the cost and proceeds:

IF both are under 6k = exempt

IF both more than 6k = normal CGT

IF one above and one below = special rules (in reference material)

70
Q

special chattel rules

A

cost under 6k, proceeds over = LOWER of normal gain or 5/3 x (proceeds-6k)

cost over 6k, proceeds under = restrict loss proceeds are 6k

71
Q

What is PPR

A

principal private residence

72
Q

What is PPR relief

A
  • normally eliminates charge to CGT
  • dependent on periods of occupation during ownership of property
73
Q

How to calculate principal private residence relief

A

calculate the normal CGT first

IF ppr for whole ownership = exempt

IF never occupied = full CGT

IF part occupied = pro rata

74
Q

When can a PPR deemed occupied

A

Taxpayer must’ve occupied PPR at some point

75
Q

What periods are deemed occupation

A

9 months prior to disposal if after 06/04/20
18 months prior to disposal if before 06/04/20
Periods where taxpayer is working overseas
Periods where taxpayer working elsewhere in UK up to 4 yrs
Periods where taxpayer was self employed and working elsewhere up to 4 years
Periods up to 3 years

76
Q

What are the matching rules for shares (the order)

A

Same day
Next 30 days
Share pool

77
Q

FA 1985 Share Pool

A

Pools together purchases of shares in the same company
Needs date, number, and cost columns

78
Q

How to calculate disposal from share pool

A

Disposal =

Cost of pool x (Shares disposed / total shares in pool)

79
Q

Bonus Issue

A

Free shares given in proportion to existing shareholding

NO cost, Shares imcrease

80
Q

Rights Issue

A

Shares given at a lower cost to existing shareholders, amount determined in proportion to existing shareholding

81
Q

Inheritance Tax

A

Tax on the transfer of wealth
Can be charged on certain gifts made during an individuals life / result of death

82
Q

lifetime tax

A

Can be charged on the transfer or gift of certain assets called chargeable lifetime transfers

83
Q

What can death tax be charged on

A

transfer / gift of assets made in the 7 years prior to death

value of assets being transferred at time of death (in death estate)

84
Q

What assets are liable to tax if the taxpayer is UK domicile

A

Liable to inheritance tax on their worldwide transfer of assets

85
Q

When is an individual deemed UK domiciled

A

Condition A - Born in Uk, domicile of origin Uk, resident in UK for 17/18 or later

Condition B - When they’ve been a UK tax resident for 15 of the last 20 years immediately prior to the tax year

86
Q

exempt transfers

A

transfers to spouse / parter

transfers to charities / political parties

87
Q

what is the value of transfer (inheritance)

A

measured as the fall in wealth of the donor

88
Q

Fall in wealth

A

Referred to as the diminution of value in the donors estate

89
Q

How to value shares (inheritance etc)

A

the LOWER of:
- the quarter up value
- average of highest and lowest marks bargains

90
Q

How to calculate the quarter up value

A

Lower quoted (bid) price + (higher quoted price - lower quoted price) x 1/4

91
Q

how to calculate average marked bargain value

A

highest marked bargain + lowest marked bargain / 2

92
Q

When is there no transfer of value

A

When there is no gratuitous intent

Payment is for maintenance of family

93
Q

Types of lifetime transfers

A

PETs - Potentially exempt transfers

CLTs - Chargeable lifetime transfers

94
Q

Potentially exempt transfers

A

No lifetime tax on PETs
Only chargeable to death tax if the donor dies within 7 years after the transfer
Exempt if donor survives

95
Q

Chargeable lifetime transfer

A
  • gift to a trust
  • appointed as trustee to look after the beneficiary assets
  • lifetime tax is 20% if trustee pays, 20/80 if donor pays tax
  • always assume the donor pays the tax
96
Q

Small gifts exemption against lifetime transfers

A

Small gifts up to £250 per donee each tax year to individuals

IF one exceeds £250, whole exemption doesn’t applt

97
Q

Marriage exemption (lifetime transfers)

A

£5000 parent to child
£2500 from grandparents
£2500 by one party of marriage
£1000 anyone else

98
Q

Annual exemptions (lifetime transfers)

A

£3000 - first 3k of value transferred is exempt and set against first gift
use this AFTER other exemptions
C/F up to one year only and use last

99
Q

Exempt transfers of value

A

Normal expenses out of income
Typical payment over years
Made out of income
Don’t affect transferors standard of life

100
Q

Calculation of lifetime tax

A

Nil rate band - 0%
Excess - 20%

101
Q

What is Nil rate band (lifetime tax)

A

£325000 for 20/21 year
0% where value of accumulated transfers in 7 years prior to transfer doesn’t exceed it

102
Q

What is lifetime tax charged on

A

20% on value representing fall in wealth of donor

103
Q

Steps in calculating lifetime tax

A
  • deal with transfers in chronological order
  • ignore exempt transfers
  • value transfers
  • deduct marriage and annual exemption
  • if PET = ignore for now
    -Calculate tax on CLTS
104
Q

What is death tax payable on

A

Lifetime gifts made within 7 years prior to death
Death estate

105
Q

Who’s responsible for paying death tax on gifts

A

Donee (received it)

106
Q

What does taper relief refer to

A

Reduces IHT due on death if donor survives at least 3 years after making the gift
% depends on the number of years
Applied AFTER tax has been deducted

107
Q

Death estate

A

Assets and liabilities at time of death
Transfers to people in will
No exempt assets
Exempt transfers = to spouse / charities / political parties
Legal debts are deductible

108
Q

Tax on the death estate

A

After any gifts within 7 years
Charged at 40% after deductions, remaining nil rate band and additional res nil rate band

109
Q

When can additional residential
Nil rate band be deducted

A

£175000
Provided the deceaseds home is in the estate and left to direct descendanf

110
Q

Who is death tax paid by

A

Residuals legatle (final named beneficiary) using value of assets

111
Q

Payments of lifetime tax

A

Transfers between 6th April - 30th Sept = next 30th April

Transfers between 1st Oct - 5th April = 6 months later

112
Q

Death tax payments

A

6 months after death

Personal Tax (1 decks)

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