Revision Various Flashcards
Advantages and disadvantages of ltd company B2L
- advantages Corp tax 19% vs possible 40/45% Mtg int allowable expense Divs within allowance tax free Ltd company can retain profits Losses set against income - Disadvantages No AEA Annual returns and accounts= more expense Mortgage rates and fees higher Restricted mortgage range
Spousal Bypass Trust
- Allow member to be sure that surviving spouse is provided for
- via withdrawals / loans
- Member can choose trustees -one of which can be spouse
- Ensures members child can receive benefits on second death (spouse cant take whole payment as lump sum)
- If over 75 at time of death, scheme administrator must fiords the deduct 45% special lump sum death benefit charge - although tax credit attached so when paid out to a beneficiary, a tax credit is attached for amount of tax already paid_
Inheritance and bankruptcy
- If inheritance is received and then declared bankrupt, TIB can claim as an asset
- If declared bankrupt before inheritance, and death happens before discharge, must notify TIB of inheritance within 21 days of becoming aware she will receive
- TIM will then serve notice to executors within 42 days and executor must pay inheritance to TIB
- Even if distribution happens after discharge
- if death occurs after discharge, beneficiary does not need to inform TIB
Forming a trust in will (to ensure distributed as wishes)
- Write new will/codicil
- include a statement stating previous will revoked
- Include establishment of a discretionary trust
- Include meme of beneficiaries to reflect wishes ie to protect estate from TIB
EIS- Early encashment
- If sold writhing 3 years and gain made, original tax relief is claimed back by HMRC
- If loss from original investment , income tax relief claw back is based on lower amount
EIS - claim for tax relief
- Complete form EIS3 which is issued by company
- certifies company have not breached any conditions for being. Qualifying
- then claim relief on Self Assessment form (if no S/A can use claim part of form
- Also fill in part of form for deferral relief if being claimed or C/F 1 year
IF EIS Shares are sold at loss after 3 years
Disposal proceeds. - £35,000
Less cost. - £100,000 (reduced by income tax relief originally received)
Gives allowable loss
- Can be set off against income for year in which shares disposed of instead of against capital gains
Exam example
£60,000 purchase ( £18k original income tax relief) - sale £35k within 3 years
-30% of £35k - £10,500. Take £10,500 from £18,000 = £7,500
SO that’s the income tax relief relief deducted from purchase price = £52,500
£52500 minus £35,000 =
VCT conditions for approval (5)
- Income is wholly or mainly from shares our securities
- At least 70%, by value of it’s investments comprise of holdings in qualifying companies
- Holding in any one company must not represent more than 15% by value of its investments
- ordinary shares are listed on London Stock Exchange
- Must not retain more than 15% income it derives from shares or securities
HMRC - Failure to report CGT/Income tax accurately
- penalty/fine
- If believed inaccurate reporting is due to lack of reasonable care
- penalty percentage of correct amount due
- increased if feel deliberate
- reduced/waived if individual tells HMRC about error and cooperates
- tax due must be paid
Investment duties of Trustee
- Obtain and consider proper advice
- Duty of care to act appropriately/invest assets if they are own/ best interests of beneficiaries
- Monitor investments and regularly review
- Take note of standard investment criteria
- Consider suitability of investment and attitude to risk
- need for diversification
- make changes to investments if appropriate/rebalance
Deferring State pension
Key date ?
How many times defer
Pre April 2016
Post 2016
6/4/2016 key date
Defer once only
Pre 2016 - 5 weeks minimum defer 1% increase per 5 weeks (10.4% pa) Min 52 weeks defer for Cash lump sum 2% over base Spouse can inherit - Post 2016 9 weeks min defer 1% increase per 9 weeks / 5.8% pa No cash lump sum option Spouse cant inherit
Holiday lets - personal tax advantages
- Pension conts based on profits as net relevant earnings
- CAn offset all mortgage interest against rental income (9excluded from rules restricting mortgage relief)
- Can claim expenses eg agent fees
- CGT holdover and rollover relief
- Business relief available on death after 2 years
- Entrpreneur relief available on disposal
- Calim capital allowances on furniture /equipment/fixtures
How register with HMRC for Self Employed
- register self assessment with HMRC
- Must be done within 3 months of starting to trade
- Must register for class 2 NU contributions
Setting up a Charitable Trust
- Register with Charity commission
- if based in England and Wales and income over £5000
- Set up first before applying
- Decide on purpose
- Write a deed/governing document
- Choose a name
- Recruit trustees
- Decide how charity will be funded eg investments
EIS Loss relief
- When claim
_ WHat is effective cost
- Claim in year year of loss or 1 year after
- effective cost is amount invested less initial tax relief.- EIS value would have to fall below effective cost to register as a loss.
- Claim against CGT or income tax
- When offsetting income tax bill - effective loss multiply by marginal rate of tax ie 45% (effective loss is effective cost - selling price). Claim current year or previous year
Original minus tax relief = effective cost: effective cost minus selling price = loss available to offset marginal rate. Result can deduct from tax bill - For CGT - multiply effective loss by CGT rate.
- Claim using self assessment form
£100,000 cost sold £60k
£30k tax relief
Work out relief on £60k (£18k), so £12k taken from £100k
= £88k less 60k = £28k loss
Not enough to pay IHT
- Borrow against value of assets
- Apply to investment provider to use assets to pay direct to HMRC
- transfer national heritage /art to crown
- paid by 10 instalments if home kept and lived in
- interest charged if not paid by due date/financial penalties
- if beneficiary of PET has no funds to pay bill, estate becomes liable
Encashment of a bond in Trust
- encashment is a chargeable event
- Subject to income tax
- tax charged on settlor
- bond deemed to have suffered tax at 20% BR
- Settlor liable for any additional eg 20% if higher/25 % ART
- Can recover from trustees/trust
REITS
- How PDI. & Non PDI Paid
_ benefit of REITS
- What are they
Eligibility
- Property distribution paid net (gross up in calculation) add to Non savings
- Non add to Dividends
- If meet HMRC conditions, exempt from corporation tax
- REIT must be UK resident, closed ended and quoted on recognised stock exchange(inc AIM)
- 75% of REIT total gross profit must come from property letting
- 90% of rental profit for each accounting period must be paid within 12 months as dividend
- interest on borrowing must be 125% covered by rental profits
EIS Restrictions
- cant be connected to company when subscribing
- Need to have UK income tax liability (don’t have to be UK resident
- Can’t have a pre arranged exit strategy
_ restrictions (apply to VCT as well)
Fewer than 250 employees (500KIC)
- £15m gross assets held by co before & £16m after
- Max raised in last 12 months £5m /£10m KIC
- Total investments a company may raise in VCT EIS £12m / £20m KIC
SEIS
- Special Qualifying
- Trading under2 years
- Gross assets less than £200k
- fewer tha 25 employees
VCT HMRC Approval conditions
- Must not keep more than 15% of income it receives from shares or fixed interest securities
- At least 80% of investment must be in holdings in qualifying companies
- CAn’t hold more than 15% of investments in a single company
- At least 70% of investments must be in ordinary new shares
Multiple salaryNI
- Pay 12% on one employ and 2% on the other
- Salary 1 minus Primary threshold( 8,632) + Salary 2 minus PT minus £41,368 (50,000 - £8632)
Difference charged at 2%
Total would be 1 + 2
