Personal tax Flashcards
Venture capital schemes
EIS - IT relief 30% x £1m (max) (£2m if KIC).
Termination payments (Fully exempt)
Payments made on death, injury or disability
Lump sum payments under registered pension scheme
Termination payments (Fully taxable and subject to Class 1 NIC)
Payment as reward for services
Gardening leave payments
Compensation for loss of office which was either contractual entitlement or reasonable expectation of payment.
Payment during, or in respect of notice periods which are equivalent to employees basic salary
Termination payments - Partly exempt IT with taxable amount only NIC
- Discretionary payments (ex gratia) as compensation for loss of office
-continued receipt of benefits (use of car)
-payments in respect of notice period in excess of PENP (basic salary)
exemption is up to £30k, statutory redundancy pay reduces £30k exemption
Termination payment excess above £30k exemption
excess treated as charged to IT
charged as non savings income rates and not liable to employee NIC
employer suffers class 1A
Actual payment recieved by employee recieved as:
Net of income tax via PAYE - if paid on leaving employment
or
Net of basic, higher and additional rates of tax as appropriate if paid after cessation of employment
Share schemes basic terms :
Grant, exercise and sale
types of non tax advantaged (treatment of grant, ex and sale) and names of tax advantaged schemes
Grant - option to buy at future date granted
Exercise - when buys shares
Sale - sale of shares
non tax advantaged :
Grant - no tax
Exercise - treated as employment income, MV less cost = taxable
Sale - capital gain on increased value of shares since exercise date = proceeds less cost - amount charged to IT on exercise = GAIN
Tax advantaged:
Company share option plan (CSOP)
Enterprise mgmt incentives (EMI)
Save as you earn (SAYE)
Share incentive plan (SIP)
CSOP
tax treatment:
Grant
Exercise
sale
NO IT or NIC
No IT or NIC
normal CG based on proceeds less exercise price
EMI
tax treatment:
Grant
Exercise
sale
BADR
1) No income tax or NIC
2) exercise = if issued at discount, discount is taxable as employment income
MV at grant - exercise price = taxable
or difference between MV of shares at exercise and exercise price IF LOWER
3) normal CG = Proceeds - ex price - amount taxable at exercise = gain
BADR requirement relaxed - no min 5% holding and 2 year period runs from grant date
Share incentive plan
requirements
must be open to all employees (no max holding)
all shares held in the plan in trust - not held by employees
four ways to provide shares (can use one or a mixture) (i.e. not just share options):
free shares, partnership shares, matching shares, dividend shares
see table in notes for limited and tax treatment
NIC and share schemes
if there is an IT charge, class 1A NIC may apply but only if shares are readily convertible assets. i.e. can be sold on a stock exchange
Employers CT liabilities
cost of providing
exercise
cost of providing tax advantaged scheme is allowable provided
shares are ordinary shares with no special rights
AND
Shares are in a listed company (or one of its subs)
OR
shares are in a company not under control of another company
DEDUCTION
MV of shares at exercise - Actual exercise price
given in AP of exercise
Majority of running costs in SIP are allowable
Employer pension contributions and auto enrolment
large one off employer contributions may be deductible from profits over a number of APs
over £500k = spreading up to 4 years
Auto enrolment
Employers must set up a scheme
Eligible employees automatically enrolled but can opt out
Employer obliged to contribute to scheme
Annual Allowance
what is it
restriction
Adjusted income
threshold income
how much does restriction reduce allowance
unused allowance
claw back of excess
£60k
if conts into individuals scheme exceed this - allowance charge added to tax payers IT liability - so HMRC can recover some tax relief already given
Allowance restricted if tax payer has:
adjusted income >260k
AND
threshold income >200k in tax year
Adjusted income:
NET income before PA + TP’s conts to Occupational scheme + ERs conts to Occupational scheme
Threshold income:
Net income before PA - gross contributions to personal scheme
restriction reduces allowance by £1 for every £2 the TPs adjusted income exceeds £260k
but cannot reduce allowance to less than £10k
unused allowance cfwd up to 3 years - CY allowance used first then PY on FIFO
Contributions in excess of annual allowance liable to Annual allowance charge -> claws back IT relief on excessive contribution by charging at IT (20%, 40%, 45%) -> added to TPs IT liability for year
SSAS, SIPP commercial property held by either
what can you and cant you do
commercial ads and dis
SSAS - Small self administered scheme
designed for small companies likely owner managed
subject to most rules of occupational scheme
- May borrow up to 50% fund value
- May lend 50% FV to own company
- May invest up to 5% of net pension fund in own shares
- NOT invest in residential property - unless - held in a real estate trust (REIT) or tangible moveable property eg fine wines
SIPP - Self invested personal pension plan
subject to all normal rules of any pension plan
- May borrow up to 50% fund value
- CANT lend
-CANT purchase shares in own company
without limit - including co’s in which person investing in pension also owns shares in
-CANT invest in res property unless REIT or tangible moveable property
Commercial property held by either
SSAS or SIPP may be set up to specifically hold comm prop used in business of sponsoring company (SSAS) or pension investor (SIPP)
Advantages:
No tax paid on CGs realised on disposal of building as pension funds dont pay tax
Rent paid by company will be deductible from trading profits and not be taxed in pension fund
Property will be protected from creditors
