R01 Chapter 3 Flashcards
What tax are sole traders liable for?
Income tax.
Would a self employed partner still pay income tax?
Yes he will.
Only pay tax on his share.
What is a limited liability partnership (LLP)?
Separate legal persons and are subject to similar registration and accounting requirements.
Has limited liability like a company.
If partners are self employed, still get income taxed.
How is a large company normally ran?
As a Limited Company.
Do limited companies pay income tax?
No, they pay corporation tax on all gains (including capital gains)
Public companies
Must have at least 2 directors, two shareholders and a company secretary.
Must have Shares worth £50k to get an extra certificate from the registrar of companies.
Sole trader
Any individual who solely controls their business.
‘Self employed’.
The person is the business and vice versa
Personally liable for the assets of their own business
Profits liable to income tax.
Partnership
Owners are still self employed
Each partner has unlimited, joint and several, liability for the trade debts.
Owners pay income tax on their share of the profits, direct to HMRC
LLP
Separate legal persons.
Limited liability means that partners are not individually liable for partnerships debts
LTD/PLC
Legally separate identity from the owners of the business.
The company is responsible for its own debts.
Shareholders don’t pay tax on the company profits, the company itself does.
Do not pay income tax or capital gains tax.
They do pay corporation tax on all profit (including capital gains)
Powers of attorney act 1971
A person can give power to another individual to act on their behalf.
Mental capacity act 2005
An Enduring power of attorney can continue to hold power of attorney in the event of mental incapacity.
In order to qualify as an EPA:
Be established before 1st October 2007
Established while individual was at full mental capacity, 18+ and not bankrupt.
What are the two main types of lasting power of attorney?
Personal health and welfare
Property and financial affairs.
Contract law
Must be an offer and an acceptance.
Must be an intention to create a legally binding contract.
Contract law good faith
A positive duty voluntarily to disclose, accurately and fully, all circumstances material to the risk being proposed.
Insurance act 2015
Obligation of o make a fair presentation of the risk in a way that is reasonably clear to a prudent insurer
Contractual capacity
3 main people who have rules restricting capacity to contract are Minors, people with mental health issues and those under the influence of drugs or alcohol.
Offer and acceptance
The proposal form completed by the proposer is by law the offer.
This is then considered by the life office.
If prepared to accept the risk, the life office will issue a letter of acceptance.
Law of agency
An agency is a contract where one party (the agent) agreed to do certain acts on behalf of another party (the principal).
Forms of ownership (land/property)
Freehold
Leasehold
Freehold
Both the building and land is owned until owner sells its dies
Leasehold
The land is now owned by the buyer. It is leased from the person who owns the freehold rights as a ‘rent’. Lease is typically 99-125 years.
Is a freehold or leasehold easier to get a mortgage?
Freehold is easier
What 2 options do leaseholders have the right to do
Buy the freehold
Extend the lease
Joint ownership
When to or more people buy a house together.
Joint tenancy
Neither individual can sell without the others agreement.
Each have an equal share of the property.
L
Tenancy in common
Each owner hold their share separately. They can dispose of their share as they wish.
Shared ownership (new buyers)
First time buyers buy a share of the property (25%, 50% or 75%) with the remaining share owned by the housing association.
Purchaser pays rent on the non owned share.
Can buy additional shares until at 100% ownership.
First home scheme
Must be first time buyer with annual household income not exceeding £80k in the tax year. Must have mortgage or home purchase plan to fund a minimum of 50% of the discounted price.
Mortgage guarantee scheme
Aimed at increasing the availability of 91%_95% mortgages.
Government guarantees anything over 80%.
£600k maximum property value.
How old is a minor
Under 18 years old
Individual voluntary arrangement
Alternative to bankruptcy, a debtor may succeed in making an individual voluntary arrangement.
Once IVA is approved, creditors are unable to take legal action to recover debt
Fees are payable
Bankruptcy
Individual who are unable to pay their debts and financial commitments are faced with the possibility of bankruptcy where all of their assets are taken and shared among creditors.
When bankruptcy ends the debtor is largely free of those debts.
How is bankruptcy started?
Presentation of a petition to a court for a bankruptcy,
Court will only consider if creditor is owed at least £5000
Preferential debts
Accrued holiday pay without limit owed to employees
Wages of employees due in last four months before the order, subject to a maximum amount per employee.
Floating charges
Any creditor holding a floating charge over an asset
Debts of the bankrupts spouse or civil partner
Any debts owed to a bankrupt’s spouse or civil partner will only be paid the debt owed to all other creditors has been repaid
Effect of bankruptcy
Can’t act as company director
Corporate insolvency
Compulsory liquidation begins when the company cannot pay its debts.
Alternatives to liquidation
Administration
Voluntary arrangements
What is succession
Succession is when someone effectively inherits something.
Be it a company, a job, a house.
Why is a will beneficial?
Because it lays out the estate and which assets are left to which beneficiaries
What are the three major formalities required when making a valid will
Writing - the will must be in writing.
Signature - must be sign ed by the testator.
Attestation - the testators signature must be witnesses by two completely separate and non related to the testator
A will is automatically revoked when
Marriage or civil partnership
Divorce or dissolution of a civil partnership
What is intestacy
When someone dies without making a will.
If someone does intestate, their spouse/civil partner receives
No issue = sole beneficiary
Issue =.personal chattels, plus statutory legacy of £322,000 plus half of any balance outright.
What is chattel?
All tangible movable property except
Money/securities for money
Property used at the date of death for business purposes
Property held solely as investment
If someone dies instate with no relatives, who gets the assets?
The crown
The Dutchy of Lancaster
The Dutchy of Cornwall
What is an executor?
People who are named in the will and are responsible for dealing with the estate
What is an ‘administrator’ in relation to intestacy
Someone who deals with and estate of someone who hasn’t got a will
What is probate?
A legal process that occurs when someone dies that involves the validation and administration of their will.
Under what circumstances may probate not be needed?
When the deceased only had savings or premium bonds, or had jointly owned land, property shares or money that automatically passed to surviving owners.
How do executors obtain a grant of probate?
They must prove the will in the Probate Registry m
What is a trust?
A trust is a means of arranging property for the benefit of other people without giving them full control over it.
What is a trustee
Someone who has control of an asset, who looks after the property instead of the beneficiary
Can trustees treat trust property as their own?
No, they have legal ownership, but can’t treat it as their own.
Express trust
Intentionally and expressly created, usually by some written method such as a deed or a will. The trust is expressly set out
Implied trust
Not created expressly but implied from the actions or circumstances of the parties
Presumptive trust
One person buys a property in the name of another
Successive trust
Property is held in trust for a succession of interest, taking effect on after the other
Constructive trust
Imposed by law, regardless of the intentions or presumed intentions of those involved
Resulting trust
Arises where there is a failure of the trust in which the property is held.
As the purpose of the trust can no longer be fulfilled, there is said to be a resulting trust. and ownership of the property reverts to that person
Bare or absolute trust
The trustees sole duty is to transfer the trust property to the appropriate beneficiary
Interest in possession trusts
A beneficiary has a present right to income, the trust property. The beneficiary might also be entitled to the capital
Discretionary trusts
A power of appointment trust where there is no-one with current interest in possession.
What is the main use of a trust?
Prominently in life assurance arrangements
To fund or mitigate IHT
Who distributes the estate
The executor
What are the ‘theee certainties’?
- words used just unmistakably show that a trust is intended
- the subject matter much be certain
- objectives of the trust must be certain
Can you amend beneficiaries on a trust?
It depends on the trust
What is a trustee’s duty?
Become familiar with the terms of the trust
Must administer the trust property for the benefit of the beneficiaries
What powers could a trustee have?
Maximise beneficiaries funds for example
Apply capital for the advancement of the beneficiary
Who can be a trustee?
Anyone over 18 and can legally hold property
A trustee will be removed if:
- resigns or dies
- retires under the provisions of the trust deed
- removed by other trustees
- removed by a relevant court
How can you name beneficiaries?
By name
As a description
(Example: all of my children in equal shares)
Life interesting beneficiary
Is entitles to the income from the trust property for life, but can’t touch the capital
