Section 6.1 - Stamp duty + tax system Flashcards
1
Q
What is HMRC role when it comes to tax
A
- Large amount of income is taxed at source through PAYE
- To avoid tax evasion HMRC encourages tax payers to voluntairly declare the tax they owe and has run campaigns focused on particular target groups
- Those who are involved in tax avoidance schemes may have to pay HMRC the disputed amount of tax upfront while the dispute is being resolved - known as accelerated payments
2
Q
What is Stamp Duty land tax (SDLT)
A
- Self assessed tax on land transactions involving any estate, interest, right or power in or land
- When completing a SDLT agents should give:
1. The effective date of the transaction
2. The purchase price of the property
3. Calculation of the SDLT payable
3
Q
What are the rates of SDLT
A
Residential:
* £0 to £125,000 - 0%
* £125,001 to £250,000 - 2%
* £250,001 to £925,000 - 5%
* £925,001 to £1,500,000 - 10%
* Over 1,500,000 - 10%
Non-residential:
* £0 to £150,000 - 0%
* £150,001 to £250,000 - 2%
* Over £250,000 - 5%
4
Q
In terms of SDLT when is tax paid
A
- For residential and non-residential transactions, tax is paid at the rate on that part of the purchase price within in each tax band
- For example, the SDLT calculation for a residential property bought for £400,000 would be:
(£125,000 at 0%) + (125,000 at 2%) + (150,000 at 5%) = £10,000
5
Q
What do other additonal rates of SDLT occur
A
- An additonal 3% of SDLT is paid if buying a new residential property increases the number of houses owned by an indivdual
- First-time buyers do not pay SDLT on the first £300,000 on property purchases costing £500,000 or less
- There is a 2% SDLT surcharge for non-UK residents buying residential property costing £40,000 or more.
6
Q
What is Stamp duty reverse tax
A
- Is paid on paperless transactions (CREST) when an investor buys:
- Shares in a UK company (excluding AIM and AQSE listed companies
- Shares in a forgien company with a share register in the UK
- Option to buy shares
- Rights arising from shares already owned
- Interest in shares, such as an interest in the money made from selling them
- The amount of SDRT paid by an investor is worked out at a flat rate of 0.5%
7
Q
Whta is stamp duty
A
- When buying shares is greater than** £1000+ and the purchase is recorded on a stock transfer form**, the form will need to be stamped by the HMRC and stamp duty is charged.
8
Q
How are companies taxed in the UK
A
- Companies pay a single rate of corporation tax at **19% **of their profits
- Companies usually pay thier corpration tax nine months after the end of their accounting period
- Large (£1.5m+) and very large companies (20m+) are expected to pay their corporation tax in four quarterly instalments
9
Q
When are clients exempt and have to pay tax
A
- Where a financial adviser arranges the sale of a retail investment with a customer, then the charges made to the customer are exempt from VAT.
- If the service provided to the customer is advice or recommendation, any charges to the customer are subject to VAT
10
Q
Example of dividend income and tax
A
- In 2022/23 Laura has earnings from her employment of £18,070 and a dividend income of £22000
- Of the £18,070 e,ployment income, £12,570 is covered by personal allowance with the remaning £5,500 taxed at the basic rate of 20% (1,100)
- Of Laura £22,000 dividend income, the dividend allowance covers the firsrt £2000, with the remaning £20000 taxed at the basic dividend rate of 8.75% (1,750)
11
Q
What are the maximum contributions that can be made to a registered pension scheme
A
- The indivdual earnings subject to annual cap of £40,000 or basic amount of £3600
12
Q
What is the money purchase annual allowance (MPAA)
A
- Once a pension fund has been accesed flexibly, the future level of annual allowance is reduced to £4000
13
Q
What are the different types of ISA
A
- Cash ISA
- Stocks and shares ISAs - money can be invested in products including: shares and corporate bonds, gilts
- Innovative finance
- Help to buy ISA -For first-time house buyers and has an annual investment limit of £2400. The Government will pay a bonus of 25% of the amount invested up to a maximum bonus of £3000.
- Lifetime ISA - Availiable to adults under 40. Has an annual investment limit of £4000 with the Government adding a bonus of 25%.
- ISA’s have an annual investment limit of £20,000 and can be split between different ISAs and they are exempt from income tax and CGT
14
Q
How does UK collective Investment Schemes have an advantage over life funds
A
- They are exempt from tax on gains made within the fund.
- Where a fund holds more than 60% of its investments in interest bearing secruties, the income is deemed to be savings income
15
Q
When is tax payable on onshore funds
A
- Where a life assurance policy is surrendered or sold within 10 years or 75% of the policy term then 20% tax is payable by higher rate taxpayers.
