Tax 1

Question 1

What is the tax personal allowance?

Answer 1

£12,570

Question 2

What is the income band for 20% income tax?

Answer 2

£0–£37,700

Question 3

What is the income band for 40% income tax? (higher rate)

Answer 3

£37,701–£125,140

Question 4

What is the income band for 45% income tax? (additional rate)

Answer 4

Over £125,140

Question 5

What is the income limit for personal allowance?

Answer 5

£100,000

Question 6

How is the personal allowance reduced over £100K limit?

Answer 6

reduced by £1 for every £2 of income over the £100,000 limit until it is fully exhausted

Question 7

What are the personal savings allowances? (PSA)

Answer 7

Basic rate taxpayers: £1,000

Higher rate taxpayers: £500

Additional rate taxpayers: £0

Question 8

What is the dividend allowance?

Answer 8

£500

Question 9

What is the marriage allowance? Who is eligible?

Answer 9

£1,260

allows one person in a marriage or civil partnership to transfer up to 10% of their personal allowance (rounded up to the nearest £10) to their partner. The annual allowance is 10% of £12,570, rounded up to the nearest £10 to give £1,260.

Maximum Tax saving = 20% of $1,260 = £252

Only eligible for basic rate tax payers

Question 10

What is the starting rate for savings and how does it work?

Answer 10

• You do not have to pay tax on up to £5,000 of interest on savings.
• This starting rate reduces by £1 for every £1 of other income (such as wages, pension, benefits and savings interest) above their personal allowance, meaning that it is zero if other income is £17,570 or more (ie, £12,570 personal allowance + £5,000 savings allowance).

Question 11

What are the tax rates for dividends?

Answer 11

Div income falling below the basic rate tax limit = 8.75%

Div income over the basic rate tax limit and below £125,140 = 33.75%

Div income above £125,140 = 39.35%

Question 12

What is the tax treatment for trustees for an income in possession trust?

Answer 12

• If the income is paid to the beneficiary via the trust, the trustees are responsible for declaring and paying income tax on income received by the trust, AT THE BASIC TAX RATE (ie, 8.75% for dividends and 20% for all other income).
• If the income is paid directly to the beneficiary, the trustees do not need to report it on the trust tax return
• The personal allowance, PSA, savings rate band and DA are not available to the trustees.

Question 13

What is the tax treatment for benficiaries for an income in possession trust?

Answer 13

• If the income is paid directly to the beneficiary, then it is taxed at the beneficiary’s marginal rate on the gross distribution.
• Beneficiaries can use the personal allowance, PSA, savings rate band and DA against trust income, where available.

Question 14

What is the tax treatment for trustees for discretionary & accumulation & maintenance trusts?

Answer 14

• Trustees are responsible for declaring and paying income tax on income received by the trust.
• If total income is above £500, then the whole amount (not just the amount over £500) will be taxed at the ‘trust’ rate of 39.35% for dividends and 45% for all other income (eg, rental income and savings interest) ADDITIONAL RATES

Question 15

What is the tax treatment for benficiaries for for discretionary & accumulation & maintenance trusts?

Answer 15

A beneficiary is taxable only on income that has been distributed to them by the trustees, or applied by the trustees for their maintenance, education or benefit, at their own marginal rate on the gross distribution

Question 16

What is the tax treatment for trustees in a bare trust?

Answer 16

NONE

Question 17

What is the tax treatment for benficiaries in a bare trust?

Answer 17

Any income tax liability falling on the beneficiary at their own rates, subject to their own personal allowances

Question 18

How are charities taxed?

Exemptions, if used for charitable pruposes, trading in goods

Answer 18

• Registered charities qualify for a number of exemptions, reliefs and allowances against income tax, capital gains tax (CGT), Stamp Duty Land Tax and tax on profits from certain activities
• In terms of income tax, most of the income received by charities is exempt from tax as long as it is used for charitable purposes. Charities can also claim tax relief on donations made by UK taxpayers under the Gift Aid scheme. However, they are unable to reclaim any tax deducted at source on dividends they receive.
• If charities trade in the provision of goods and services, they may be subject to tax on profits. Also, if the level of income from trading activities exceeds £85,000 (until 31 March 2026), they will need to become VAT-registered and account for VAT in the usual way.

Question 19

How is Commercial Property taxed?

Answer 19

Rental profits from commercial property are taxed in the same way as any other rental income

Question 20

What are is the definition and tax treatment for OEICs Paying Interest?

Answer 20

• If the OEIC holds 60% or more of its assets in fixed-interest securities, it pays interest.
• Income will be paid gross and individuals will pay any tax due on this at the applicable rate for savings income via their tax return

Question 21

What are is the definition and tax treatment for OEICs Paying Dividends?

Answer 21

• If the investments comprise less than 60% in equities, the OEIC pays dividends.
• Dividends will be paid gross and individuals will pay tax at the applicable rate for dividends via their tax return

Question 22

What is an equalisation payment?

Answer 22

A payment made to compensate the buyer of a fund for paying accrued interest imbedded into the NAV price of the fund on purchase

Question 23

How are equalisation payments taxed?

Answer 23

• It is not liable to income tax.
• The payment is deducted from the cost of the holding when calculating any chargeable gain on an eventual disposal.

Question 24

How are investment trusts taxed?

Divs, O/S Divs & other income

Answer 24

• Domestic dividends are received and the investment trust has no further liability. This is known as franked income.
• Overseas dividends may be received net of foreign withholding tax. The investment trust is liable for corporation tax on the grossed-up income. Depending on any double taxation agreements (DTAs)
• The investment trust is liable for tax on other income at the applicable rate of corporation tax.

Question 25

What is a REIT Property Income Distribution (PID) and how is it taxed?

Answer 25

PIDs are taxed as property rental income in the hands of the investor (not as ordinary dividends). This tax is deducted at source (20%). Basic rate taxpayers have no further tax to pay; higher and additional rate taxpayers have a further tax liability of 20% and 25% respectively

Question 26

What is a REIT non-Property Income Distribution (PID) and how is it taxed?

Answer 26

The non-PID element of dividends is treated in exactly the same way as an ordinary dividend. The dividend allowance applies to the non-PID element only (not the PID element), after which REIT investors are taxed at their marginal rates

Question 27

What is the lower earnings limit for NI Class 1? and how much NI is payed by the individual?

Answer 27

£123 pw (=£6,500 py)

8%

Question 28

What is the upper earnings limit for NI Class 1? and how much NI is payed by the individual?

Answer 28

£967 pw (slightly higher than £50,270)
2%

Question 29

What is the Primary Threshold for NI?

Answer 29

£242 (=£12,584) between the and £967 per week = 8%

Question 30

How much NI do employers pay?

Answer 30

13.8%

Question 31

How much class 2 NI can the self employed choose to pay?

Answer 31

Class 2 NICs may be paid at a flat rate of £3.45 a week on earnings above the small profit threshold of £6,725 per year

Question 32

How much class 4 NI do the self employed pay?

Answer 32

On annual profits between £12,570 and £50,270, 6% is payable; and over that amount, the rate is 2% (Class 4 NICs do not count towards benefit entitlements)

Question 33

What are voluntary NI contrubutions and how much?

Answer 33

Class 3 contributions, paid at a flat rate of £17.45 a week by people wanting to fill gaps in their NIC record

Question 34

What are the Ni liabilities for pensions if they work over the pension age?

Answer 34

• Once an individual reaches state pension age, even if they continue to work, they will no longer have to pay NI.
• the EMPLOYER will still have to pay NI even once the employee has reached state pension age.

Question 35

How is NI calculated in regards to income for employees and employers?

Answer 35

• Employee NI is NOT deducted before the calculation of Income tax
• Employer NI IS deducted before tax on their profit is calculated

Question 36

How is CGT caluculated when when a couple who own a house jointly sell to another party?

Answer 36

CGT is potentially payable by both parties based on the percentage that they own – though both sellers will be entitled to an annual exempt amount

Question 37

How much annual exemption is available for pre-owned assets? and how are they tax after?

Answer 37

£5,000

Then taxed as income tax (for property this is the annual rental)