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SQE > Tax > Flashcards

Tax Flashcards

1
Q

What are the four stages of working out IHT?

A
  1. Identify the transfer
  2. Find the value of the transfer
  3. Apply exemptions and reliefs
  4. Calculate
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2
Q

What is the NRB for IHT?

A

£325k

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3
Q

What is the RNRB for IHT?

A

£175k

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4
Q

When does RNRB apply?

A

Must pass to child, grandchild etc. current spouse or widower of a child etc.

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5
Q

What is the IHT discount for commercial land?

A

10%

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6
Q

What is the IHT discount for residential land?

A

15%

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7
Q

What is the IHT rate? What is the IHT rate if the charity exemption applies?

A

40%. 36%.

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8
Q

When does 100% business property relief apply for IHT?

A

For business or shares not listed on a recognised stock exchange

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9
Q

When does the 50% discount for business property relief for IHT apply?

A

For company shares listed on a recognised stock exchange if the transferor had voting control; or they personally owned that land, machinery, plant etc. for the business

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10
Q

How long do shares have to be held for to be exempt from IHT and what is the requirement?

A

2 years at least before death. Must be personal shares not listed on a recognised stock exchange.

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11
Q

How long must property be owned for before it qualifies for agricultural property relief? IHT

A

2 years personally owned
7 years if occupied by someone else for the purpose of agriculture

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12
Q

When does the 100% exemption to IHT apply for agricultural property relief? And when does the 50% exemption?

A

100% is if the deceased had right to vacant possession.
50% in all other cases

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13
Q

When does the charity exemption apply for IHT?

A

If 10% of the person’s net estate is for charity

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14
Q

When does a reduced rate of RNRB apply and how is it calculated?

A

If the estate is valued over £2m, the RNRB is reduced by £1 every £2 over £2m.

£175k - ((value of estate - £2m) / 2)

Spouse can add their entire RNRB. Max £350k

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15
Q

What reliefs are available for IHT?

A

Business relief, agricultural relief, charity, nil rate bands

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16
Q

What are the four steps for calculating tax for a PET?

A
  1. Identify the transfer
  2. Find the value transferred
  3. Apply exemptions and reliefs

Only chargeable if die within 7 years

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17
Q

How do you calculate tax if the item was more valuable as a set (PET)?

A

Value of set - value of remaining item = loss to estate

However if the spouse holds the other item in the set, value is HALF

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18
Q

What is the annual exemption for a PET?

A

£3k.

This can be carried forward one year for a max £6k exemption.

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19
Q

What gifts are exempt from IHT?

A

Gifts of under £250.
Expenditure out of normal income.

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20
Q

By how much are marriage gifts exempt?

A

If from parent, up to £5k exempt.
If from remoter ancestor, £2.5k.
£1k for anything else

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21
Q

At what rate are LCTs immediately chargeable at?

A

20%. Rises to 40% if die within 7 years.
Does have an NRB

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22
Q

What is the taper relief on gifts before death?

A

3-4 years before death: 80% of death charge
4-5 years: 60%
5-6 years;: 40%
6-7: 20%

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23
Q

How is trading profit or loss calculated?

A

Chargeable receipts - deductibles - capital allowances

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24
Q

What is a chargeable receipt?

A

Income for sale of goods and services provided by business

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25
Q

What is deductible expenditure?

A

Expenditure incurred for the trade. Salaries, heating etc

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26
Q

What is the capital allowance value for machinery and plant?

A

18%

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27
Q

What is the AIA?

A

£1m. Per tax year

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28
Q

What is trading loss relief?

A

Sole traders or partners can use,
Set off business loss against previous employment income

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29
Q

What is start up loss relief?

A

Can carry back loss against income for any of the first 4 tax years for any prior three years.
Start 3 years back and work forward.
From 31 Jan preceding loss.
Capped

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30
Q

What is carry across and carry back relief?

A
  1. Set against income against same tax year
  2. Set against income from preceding tax year
  3. Set against income from same tax year until this hits 0 then carry back
  4. Set against income of last tax year until hits 0 and carry forward.

By 31 January of end of current tax year.

Capped

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31
Q

What can you do if you carry across losses but not all losses are absorbed?

A

Set them off against capital gain
31 January of end of current tax year

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32
Q

What income reliefs are capped and how much by?

A

Start up and carry across,
50k or 25% of income (whichever is greater)

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33
Q

When is the level for compulsory vat registration?

A

Value of taxable supplies has to be £85k.

34
Q

What is carry forward relief?

A

Set off against subsequent years of profit indefinitely.
Must notify HMRC within 4 years after end of tax year of loss

35
Q

What is carry back of terminal trading loss relief?

A

In final 12 months of trading set off profits against the final tax year. Can go back a further previous 3 years.
Claim must be within 4 years.

36
Q

What is carry forward on incorporation relief?

A

Wholly or mainly incorporated for return of shares. (80%)
Indefinite relief.
Notify HMRC within 4 years

37
Q

What reliefs are available to partners and sole traders for income tax?

A

Carry forward relief, carry back relief (terminal), carry forward on incorporation, trading loss relief, start up loss relief, carry across and back relief

38
Q

How do you calculate corporation tax?

A
  1. Calculate income profits
  2. Calculate chargeable gains
    Disposal, gain or loss, reliefs, aggregate
  3. Calculate profits and apply relief
  4. Calculate tax
39
Q

How do you calculate chargeable gains for corporation tax?

A

Proceeds - costs = net proceeds of disposal

Less allowable expenditure = gain or loss

Less
Indexation allowance

40
Q

What is rollover on replacement relief for corporation tax?

A

Postpone tax until the asset is disposed of entirely.
Cannot be for investment, must be for use.
Can apply for 1 year before replacement or 3 years after.

41
Q

What is a large company and when must they pay tax?

A

Profit is 1.5m.
4 instalments.
First is due 6 month and 13 days after accounting period.
Then every three months.

42
Q

When is corporation tax due?

A

9 months and 1 day from end of accounting period.

43
Q

What is a very large company and when does it have to pay corporation tax?

A

£20m profit.
4 instalments
First is 2 months and 13 days after accounting period. Then every three months

44
Q

When aren’t loans to group companies taxed

A

If the loan is under 15k, the person is a full time employee and has no more than 5% shares

45
Q

What are the 3 steps to calculate income tax?

A
  1. Chargeable receipts
  2. Subtract deductibles and capital allowances = trading profit
  3. Calculate
46
Q

What is the calculation for income tax?

A

Total income - reliefs = net income
Deduct allowances = taxable income
Separate nsdi, dividends and savings
Calculate

47
Q

What is exempt from income tax?

A

Interest on damages for PI or death; ISA interest; savings certificates interests; state benefits

48
Q

What loans are exempt from income tax?

A

Loan for partnership, loan for IHT, loan to invest in close trading company

49
Q

What is the personal allowance and when is it reduced?

A

12, 570.
Reduced by £1 every 2 over 100k.
No allowance over 125,140

50
Q

How do you calculate the reduction in income tax personal allowance over 100k?

A

12570 -( (net income -100k) / 2 )

51
Q

What is the marriage allowance for income tax?

A

1250 transfer to spouse
Not available above base rate

52
Q

What is the allowance for the blind for income tax?

A

2.5k

53
Q

What is the property and trading allowance for income tax?

A

£1k

54
Q

How much is corporation tax?

A

19%

55
Q

When is the tax year?

A

6 April to 5 April

56
Q

When is the corporation tax year?

A

01 April to 31 march.

57
Q

What is the personal savings allowance?

A

Basic rate = £1k
Higher rate = £500
Additional = none

58
Q

What is the dividends allowance?

A

£2k flat rate

59
Q

What are the current tax brackets?

A

20% up to 50,270
40% up to 150k
45% for more

60
Q

What are the dividends tax rates?

A

Basic = 8.75%
Higher = 33.75
Additional = 39.35

61
Q

When is the deadline for income tax?

A

31 Jan following tax year

62
Q

What are the 5 steps for calculating CGT?

A
  1. Identify disposal
  2. Calculate gain (subtracting initial and subsequent disposal expenditure)
  3. Apply reliefs
  4. Deduct exemptions
  5. Apply tax at 20%
63
Q

What is the current allowance for CGT?

A

12 300

64
Q

What are the current brackets for CGT?

A

10% for basic rate
20% for all other bands

65
Q

When do PRs pay CGT?

A

Only on disposal at a flat rate of 20%

66
Q

What is the rate of CGT on residential property (not main home)?

A

18 % basic rate
28% all other rates

67
Q

When must an estate (deceased) have a tax return?

A

Complex estate of £2.5m or the tax due exceed £10k or the value of assets sold in any one year exceeds £500k

68
Q

What is the % for BADR and what is the time limit for disposal?

A

10% (capped at £1m)
Time limit is 1 year before disposal or 3 years after.

69
Q

When can you pay CGT in 10 instalments?

A
  1. Gift
  2. Asset is land or controlling shareholding
  3. Hold over relief is not available

First instalment will be due 31 Jan following end of tax year

70
Q

What reliefs are available for CGT?

A

Roll over, roll over on incorporation, wasting assets, residential relief, buy back of shares, hold over relief

71
Q

What is roll over relief for CGT?

A

No CGT charged if sale proceeds are invested in other business assets.
Does not include shares.

If disposed of by a shareholder, they must hold 5% voting shares

Must claim within 4 years of the asset obtained

No annual exemption applies

72
Q

What is wasting assets disposal relief? CGT

A

If lifespan under 50 years, exempt if disposal is under £6k

73
Q

What is rollover on incorporation relief (CGT)?

A

Charge of CGT postponed.
Must receive shares in return and then will pay CGT when dispose of these shares

74
Q

What is hold over relief for CGT?

A

Applies to gifts of business assets
Charged on disposal of gift
Must be entitled to 5% profits and assets on winding up OR 5% of proceeds to the sale of the whole capital.
Must be an employee or officer gifting it
Can be shares not listed on stock exchange or a personal company (5% voting)
Does not apply if the donee is a company

Both parties to apply for relief within 4 years

75
Q

When is CGT payable on buy back of shares?

A

If shareholders profit

76
Q

What does buyback of share relief do to CGT?

A

Charges to income tax, not CGT.

77
Q

When can buyback of share relief be claimed?

A
  1. Trading company not listed on recognised stock exchange
  2. Buyback must be to raise cash for IHT or to benefit the trade
  3. Seller must have owned the shares for 5+ years
  4. Selling all it substantially reducing shareholding by 25 - 30%
78
Q

What tax applies to buyback of shares?

A

Dividends tax brackets

79
Q

When must buyback of shares tax be filed?

A

On or before 31 Jan following end of tax year.
Calculation must be submitted to hmrc within 30 days of the sale.

80
Q

How do you calculate net current assets? And net assets?

A

Current assets - current liabilities.
Fixed assets + current assets - current liabilities - long term liabilities

81
Q

Who can make a security of costs application?

A

Defendant against claimant..

SQE (3 decks)

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