Tax - ALL Flashcards

Question

Is job seekers allowance taxable?

Answer 1

* Legislation allows taxpayers to invest **up to £20,000 per year** in an Individual Savings Account. * There are **four types** of ISA accounts: cash, stocks and shares, innovative finance, and Lifetime ISAs. The income from these accounts is tax free.

Answer 2

Gross profit **- (**Revenue expenses that are tax allowable **+** Cost of capital items within AIA **+** Any writing down allowances**) =** Business profit

Answer 3

* Expenses relating to **running the business** that are **typically recurring** e.g. salaries, rent, advertising, expenses, utility bills, cost of goods sold etc.* The **wholly and exclusively test** is used: expenses are deductible only to the extent they were incurred wholly and exclusively for business purposes (note proportionate amount of expense is allowable where expenses are for business and personal use)

Answer 4

In calculating her trading profit for the year, A may deduct as expenses the £36,000 (£3,000/ month × 12 months) for **rent and electricity**, the £24,000 of **salary** to the employee, and the £12,000 for **chemicals and supplies** she incurred over the year, but she may not deduct as an expense the £10,000 she paid for the new pressing machine, as it is a capital asset which is treated differently.

Answer 5

**Proportionate** to amount of the expense which was for business purposes

Answer 6

**A** may deduct the proportionate expenses of the van i.e. 80%.

Answer 7

* If a taxpayer buys a capital asset for their business, they may deduct all of the costs if it is plant or machinery, e.g. tools, machines, and computers **up to the available allowance**, but **not** cars, land, or buildings* AIA value will be given in question. Was £200,000 but increased to £1,000,000 from 1 April 2023.

Answer 8

29 October 2018. **3%** per year (excluding the cost of the land itself).

Answer 9

If the capital asset purchase exceeds the annual investment allowance (or is a car, land or building).* Life-long assets: **6%** per year* Other assets: **18%** per yearWriting down allowances allow tax payers to write off acquisitions over the life of the asset.

Answer 10

C would be able to write down 18% of the car's value (£3,375) in her first tax year. After claiming the allowance, the car would now have a tax value of £15,375 (£18,750 cost - £3,375 allowance). In her second tax year, she could take a writing down allowance of 18% of the car's then-current cost basis (that is, 18% of £15,375 = £2,768). In her third tax year, she would be able to write down 18% of the car's then-current basis (18% of £12,607) and take that as an allowance, and so on.

Answer 11

Life-long assets at 6% ('**special rate** pool') and other assets at 18% ('**main/standard** pool') are pooled separately.The deduction is based on the **current tax value** of all the assets in the relevant pool. The **value of the pool is decreased** by the writing down allowance claimed each year.

Answer 12

**No**, but it must file a **partnership tax return**, declaring the partnership's income, expenses, and deductions and clearly shows the net income of the partnership and each partner's share of the income. This is for informational purposes only.

Answer 13

* **Salary** paid by partnership (only if applicable)* **Interest** on capital account i.e. money contributed to partnership (only if applicable)* Entire **share of partnership profit** (even if not distributed)

Answer 14

A will be liable to tax on £45,000 (3/10ths of £150,000); B will be liable to tax on £30,000 (2/10ths of £150,000), and C will be liable to tax on £75,000 (5/10ths of £150,000). It **does not matter that the partners did not actually distribute** all £150,000.

Answer 15

The salary and/or interest are allocated to the partner first, and then the **net amount** is distributed as partnership profits.

Answer 16

After we allocate these sums to B and C, £120,000 remains to be distributed to the partners on their agreed 3:2:5 basis (A: £36,000, B £24,000, and C £60,000). Thus, A will be liable to tax on £36,000 (her profit share), B will be liable to tax on £44,000 (£20,000 salary + £24,000 profit share), and C will be liable to tax on £70,000 (£10,000 interest plus £60,000 profit share).

Answer 17

Where a business has an accounting period which is different to the tax year of April 6 to April 5, the period of their accounting period which overlaps with a relevant tax period is the **basis period**E.g.:- Accounting period: Jan 1, 2023 - Dec 31, 2023;- Basis period is Jan 1, 2023 - April 5, 2023 as part of the 2022/23 tax year.

Answer 18

Where a business has an accounting period which is different to the tax year of April 6 to April 5, and does not make up accounts to April 5 of that year, some profits made in the business's **first and second year** of trading will be taxed twice

Answer 19

Not until trade ceases, or if the business moves their accounting date closer to April 5

Answer 20

* **Add up all income** (non-savings, savings, and dividend) to get Gross Income* **Subtract out any interest on qualifying loans/allowable losses** to get Net Income* **Subtract out any allowances** (personal, marriage, and/or blind person allowance) to get Taxable Income* **Multiply** the income in each category by the **tax applicable** to that category.* **Subtract out any tax already paid at source** (e.g. PAYE system). If the result of the calculation is **positive**, that is the **amount the taxpayer still owes**. If it is **negative**, that is the **amount repayable to them**.

Answer 21

Loans used to fund:1. Capital contributions or loans to a partnership (e.g. lawyer who is a partner in a law firm)2. Investments in a closed trading company3. Payments of inheritance tax for personal representatives**Gross income - interest on qualifying loans = net income**

Answer 22

* An **entitlement of individual taxpayers** (including sole traders and partners). Tax is only paid on income that exceeds this amount (subject to reduction taper)* The amount is **changed annually** For the 2021/22 tax year, the personal allowance was set at £12,570. * The personal allowance is **tapered** (that is, reduced) by £1 for every £2 of income above £100,000.

Answer 23

The income tax personal allowance is reduced by **£1** for every **£2** above £100,000. Therefore, the allowance is reduced to £0 for incomes of £125,140 and above.

Answer 24

It allows a person to **transfer part of their personal allowance** to their spouse or civil partner if 3 conditions are metThe spouse receives a **credit of 20% of the amount transferred** against tax owed i.e. we don't just add the value of the allowance to the recipient spouse's allowance.

Answer 25

1. Could must be **married** or in a **civil partnership**2. **Transferring** spouse's income must be ***less than the personal allowance***3. **Recipient** spouse must be a basic rate taxpayer

Answer 26

**No**. They simply get an income tax reduction for 20% of the amount transferred, directly applied to their tax liability.Example: using 2021/22 figures, the **transferring spouse** would have an allowance of £11,310 (£12,570 - £1,260) and the **transferor spouse** would be entitled to an income tax liability reduction of 20% of the amount transferred (for tax year 2021/22 that's 20% x £1,260 = £252).

Answer 27

To **prevent** the receiving spouse from obtaining a **refund** based on the transferred allowance.

Answer 28

**No**, there are additional allowances but they are taxed at 0%. The amount of the allowances depends on the tax band the taxpayer is in.

Answer 29

1. **Basic** rate band: **£1 - £37,700** – 20%2. **Higher** rate band: **£37,701 - £150,000** – 40%3. **Additional** rate band: **£150,000 and above** – 45%Note: these bands apply to **taxable income** i.e. after allowances (personal, marriage) have been deducted.

Answer 30

He will not benefit from a Personal Allowance as his income is too high. T is an additional rate taxpayer. His tax liability is:* 20% tax on the portion of his income that is within the basic rate band, * 40% tax on the portion of his income that is within the higher rate band, and * 45% tax on the portion that is within the additional rate band. In a tax year in which the basic rate band applies to income up to £37,700, T's tax liability is £61,460: * Basic Rate Band Tax =£37,700 x 20% = £7,540 * Higher Rate Band Tax = (£150,000 - £37,700) x 40% = £44,920 * Additional Rate Band Tax = (£170,000 - £150,000) x 45% £9.000

Answer 31

1. Basic rate band: **£1,000**2. Higher rate band: **£500**3. Additional rate band: No savings allowance at all

Answer 32

Zero-rated

Answer 33

**Non-savings income**: (tax suffered = 20% of £30,000 = £6,000).**Savings income**: Since all of T's income (£30,000 + £2,200 = £32,200) is within the basic rate band, she is a basic rate taxpayer and is entitled to the £1,000 PSA. Thus, £1,000 of her interest will be taxed at 0% and £1,200 of her interest will be taxed at 20% (= £240). **Her total liability** is £6,240

Answer 34

**Non-savings income**: (tax suffered = (20% of £37,700 = £7,540)+(40% of £12,300 = £4,920) = £12,460).**Savings income**: Since all of T's income (£50,000 + £2,200 = £52,200) is within the higher rate band, she is a higher rate taxpayer and is entitled to the £500 PSA. £500 is taxed at 0% and £1,700 of her interest would be taxed at 40% (=£680). **Her total liability** is £13,140

Answer 35

**Non-savings income**: (tax suffered = 20% of £37,000 = £7,400).**Savings income**: Since her total income (£37,000 + £2,200 = £39,200) is above the basic rate band for the year, she is a higher rate taxpayer and is entitled to only the £500 PSA. Since T's trading income was £37,000 and the basic rate band was up to £37,700, £700 of the basic rate band remains. The first £500 of her £2,200 interest will be taxed at 0% and use up £500 more of the basic rate band, leaving £200 of her interest to be taxed at 20% (=£40). The remaining £1,500 of interest will be taxed at 40% (=£600). **Her total liability** is £8,040

Answer 36

£2,000. Available to all taxpayers, irrespective of band.

Answer 37

**Zero-rated**. Note, this means the Dividend Allowance **will use the relevant portion of the bands** at that point of the tax liability calculation.

Answer 38

1. Basic rate band: 7.5%2. Higher rate band: 32.5%3. Additional rate band: 38.1%

Answer 39

* The first £2,000 of dividends will be taxed at 0% (as T had £1,000 basic rate band remaining, it is used by the Dividend Allowance, and the first £1,000 of her higher rate band will be used by the allowance as well); and * The remaining £4,000 would be taxed at 32.5% (£1,300).

Answer 40

Claiming loss relief results in a sole trader or partners **paying less tax by offsetting the loss** against income that would otherwise be taxed.

Answer 41

**Only the taxpayer**. Losses cannot be transferred.

Answer 42

Generally each partner's share of a loss is proportionate to the partner's share of the partnership's profit (unless they agree otherwise). Therefore, a partner entitled to 20% of the partnership's profit may claim 20% of the partnership's loss.

Answer 43

1. Current year/prior year loss relief2. Carry forward of loss relief3. Carry forward relief on incorporation of a business4. Terminal loss relief

Answer 44

Setting off **all of the loss** against total income in the **current year** or **previous year**. No partial claims are allowed.

Answer 45

Trade **losses may be set off against the taxpayer's total income before personal allowances** from the current year or from the prior year. * **All or nothing**: A taxpayer must either **utilise all the loss available** for relief or **relieve all their available income**. No partial claims are permitted. * If a person claiming relief for a trade loss against total income is **unable to make full use of that loss**, they may use the balance as an **allowable loss to reduce their capital gains** and save capital gains tax.

Answer 46

It is **lost** - it cannot be carried forward.

Answer 47

* A may elect to offset her trading loss against property income, which would leave her with £12,000 of loss (since she must use the loss to offset total income before applying her personal exemption).* She could then choose to offset the £12,000 against her total income from the prior 2020/21 tax year (in which case she would apply for a refund due to the retroactive application of the loss) or use the loss to offset £12,000 of her capital gain. * Note that A may not deduct her personal allowance first to increase the amount she could carry back. Neither could she choose to offset only £15,000 of her 2021/22 income, as she must utilise all the loss available for relief or relieve all her available income.

Answer 48

They can use the balance to offset any **capital gains tax**

Answer 49

The loss to be offset is applied to the fullest extent possible, **before** the personal allowance

Answer 50

Losses are carried forward and offset against the *next available* profits in the **same trade*** Losses cannot be offset against any other forms of income* Often a "last resort" as it delaus relief for losses.

Answer 51

If a sole trader or partner transfers their business to a company and receives shares in return, they can offset any unused trading losses against **salary** or **dividends** they receive whilst they own the shares* Losses **cannot be transferred** to the company.

Answer 52

They are S' losses - they cannot be transferred to the company. However, if each tax year she receives £15,000 from the company in the form of **salary and/or dividends**, this **income can be reduced by the carried forward losses**, at least until the loss is fully utilised.

Answer 53

When a trader ceases trading, it allows a loss to be **deducted from trading profit in the tax year of cessation** (if there are any) and then to be **carried back to the three preceding tax years** on a last in first out basis* This would result in a tax refund* The losses may be set off only against profits of the trade; they **cannot be used to offset other income**.

Answer 54

HMRC can set aside a transaction if they can prove the arrangement **cannot *reasonably* be regarded as a *reasonable* course of action**It is a **high threshold** for HMRC to clear.

Answer 55

* **Avoidance**: appears to fall within technical rules but not within the spirit of the law* **Evasion**: illegal e.g. deliberately not declaring or hiding income

Answer 56

**General Anti-Abuse Rule** * It seeks to **deter taxpayers** from entering into schemes that abuse the tax system and promoters of such schemes e.g. moving to another state to avoid tax and then moving back* In assessing whether a tax arrangement is abusive, the rule requires HMRC to obtain the **opinion of an independent advisory panel** regarding the reasonableness of any particular arrangement.* If a tax arrangement is found abusive, HMRC may make a **tax adjustment which is just and reasonable** under the circumstances, such as taxing the income in a legitimate way. * GAAR does not provide for any other penalties per se, but a taxpayer who participates in an abusive scheme can be penalised under the general tax laws for filing an inaccurate return.

Answer 57

£325,000. 40%.

Answer 58

Chargeable **when made** (note, they may also suffer additional tax if the transferor dies within 7 years of the transfer and it exceeds the NRB)

Answer 59

When the donor dies within seven years, and the transfer exceeds the NRB

Answer 60

Transfers on which **IHT** is charged.* IHT is charged on "the **value transferred** by a chargeable transfer" (i.e. the value of the gift). * They include **gifts made on death** and **certain lifetime gifts**. * IHT can be imposed on the transfer of **any asset**-money, stock, cars, resi- dences etc.

Answer 61

Domiciled in UK: **All worldwide assets, wherever situated**Not domiciled in UK: **UK assets only**

Answer 62

Excluded property

Answer 63

Yes as the taxpayer is a UK domiciliary.

Answer 64

1. Whether there has been a **reduction in value** in the estate as a result of the transfer2. Whether donor **intended** to make a transfer of value (i.e. if there is no gratuitous intent, it is not chargeable)

Answer 65

When the transfer is to an **unconnected person** and there is no **gratuitous intent** behind the lower price

Answer 66

**No**, as this is an 'arm's length transaction', it is **unlikely A intended to make a gift** of £5,000 to S. Therefore, it is not a chargeable transfer for IHT purposes.

Answer 67

**Yes**. Because this is **not an 'arm's length transaction'**, A would likely be treated as having intended to make a gift of £5,000 to S. The £5,000 would likely be treated as a PET.

Answer 68

**No**, even though the donor's estate will be reduced because of the transfer. Examples: if a parent pays school fees on behalf of their children, or if an individual makes provision to look after a dependent relative or former spouse, such dispositions will be ignored for IHT.

Answer 69

For the purposes of IHT, the **loss to the donor's estate** is calculated rather than the gain to the recipient of the gift. * Typically, market value at the time of the transfer ("probate value") is used * It is difficult to value certain property e.g. stock in a small company because a number of factors may be relevant

Answer 70

The chargeable transfer here is £28,000 (the loss to A, as he had shares worth £48,000 and he now has shares worth only £20,000). We ignore the £8,000 gained by B.

Answer 71

The transferred property is **valued at the higher amount** if there is other property that is "related' to it (i.e. similar property owned by a spouse/civil partner).

Answer 72

A lifetime gift **from one individual to another** which is neither exempt nor chargeable, but becomes chargeable if the donor dies within seven years (payable by the recipient)

Answer 73

* Gift to **spouse/civil partner** (unlimited if domiciled in UK, up to £325,000 if domiciled outside UK* Gift to UK/EEA **charity** (unlimited* **Small gift** (up to £250 'all or nothing')* Gift on **Marriage** (limit depends on giver)* **Normal expenditure** out of income (subject to 3 requirements)* **Annual Exemption** of £3000

Answer 74

Completely exempt from IHT if spouse/civil partner is domiciled in UK

Answer 75

If the donor spouse in UK-domiciled and the recipient spouse is **non-UK domiciled**, only the **first £325,000 is exempt**. This is a cumulative restriction covering both lifetime and death transfers i.e. it is not per gift.

Answer 76

UK and EEA. No limit.

Answer 77

up to £250 ('all or nothing'). No limit on number of transfers.

Answer 78

If the gift exceeds £250 at all, the entire gift is chargeable, not just the portion which exceeds the threshold

Answer 79

1. **£5,000**2. **£2,500**3. **£2,500**4. **£1,000**These exemptions **apply per marriage/civil partnership**.

Answer 80

No. The limit applies per donor, per wedding

Answer 81

A gift is exempt from IHT if:* it is **regular/habitual** e.g. year after year* it is made from **surplus income** * the donor is left with sufficient income to **maintain their normal standard of living**, i.e. the donor was not trying to lower the value of their estate for IHT purposesThere is **no monetary limit** as "normal" income depends on the individual Examples: life assurance premiums or personal pension premiums paid by an individual in respect of another person, or to regular gifts of cash as Christmas or birthday presents.

Answer 82

£3,000. Yes, unused amounts can be carried forward **one year** and a current year's exemption is used **before the previous one**.It is set against gifts in chronological order in the tax year.

Answer 83

D will first use his £3,000 annual exemption for 2021/22 and then may use the £3,000 annual exemption brought forward from 2020/21. D cannot apply any unused annual exemptions from before 2020/21, and so £1,000 of the gift may be subject to IHT.

Answer 84

The gift will not be taxable, as the marriage exemption applies to the first £5,000, the £3,000 annual exemption for the current tax year (2021/22) applies to the next £3,000, and (because the father had not given any gifts the year before), the remaining £2,000 can be negated by pulling forward the annual exemption from 2020/21.

Answer 85

The recipient

Answer 86

A lifetime gift which is not exempt or potentially exempt

Answer 87

1. Charitable trusts, because they are exempt2. Bare trusts (trusts where the beneficiaries decide when the assets are distributed), because they are PETs

Answer 88

1. **Remaining NRB**2. Available **exemptions**, max of £6,000 if carrying over a full unused yearNote, any annual exemption will be **used up by PETs first** (even though no tax was actually paid on them yet)

Answer 89

Either the **donor** (at 25%) or the **trustees** (at 20%).The donor rate is higher because we have to 'gross up' the transfer if the donor pays the tax, as the amount leaving their estate is the transfer to the trust plus the IHT paid to HMRC

Answer 90

The PET of £1,000 will use some of the annual exemption for the tax year 2019/20. Therefore, T has made a taxable lifetime transfer to the trust of £495,000 (£500,000 less the £3,000 2020/21 annual exemption and less another £2,000 for the part of the annual exemption remaining from the previous year). The first £325,000 of this gift (the nil rate band) is taxed at 0%. Therefore, tax will be owed only on the remaining £170,000.If the trustees pay the tax, it will be £34,000 (£170,000 x 20%); if T pays the tax, it will be £42,500 (£170,000 x 25%). Additionally, if T pays the tax, the gift will be treated as having included the tax paid (because that also diminished Timothy's estate)-making the total gift £537,500 (£495,000 + £42,500).

Answer 91

1. Trustees: **20%**2. Donor: **25%**

Answer 92

1. Did donor **die within 7 years** of making the gift? If no, there is no IHT2. Were there any **other gifts made within 7 years before** your gift? If yes, you would assess how much as against the NRB at the time of death and that's the remaining NRB you have remaining for your gift.

Answer 93

Seven years

Answer 94

In cumulating the transfers, use the amount transferred **plus** the any tax paid by the **donor**

Answer 95

**No**. Just **CLTs**The only reason we consider **PETs whilst the donor is alive** is because they can use up any available **annual exemptions**.

Answer 96

1. Identify the **value transferred** using the loss to donor principle2. **Deduct annual exemptions** to arrive at the CLT3. Identify the **NRB** for the **year of transfer**4. Deduct other **chargeable transfers** made with seven years5. Pay tax on the excess at 20/25%

Answer 97

Because May 2014 is within seven years of January 2020, the £155,000 2014 gift uses up the first £155,000 of the nil rate band, leaving £170,000 remaining. The current chargeable transfer is £194,000 (the £200,000 transfer amount less the £3,000 annual exemption for the year the gift was made and the £3,000 unused annual exemption from the previous year). IHT must be paid on the difference between this amount and the amount of the nil rate band remaining (£194,000 - £170,000 = £24,000). If the trustees are paying the IHT at 20%, the tax payable is £4,800.

Answer 98

When the donor dies within 7 years of making the gift.Note, the value of the PET is the value at the date it was made - if the value has since increased, we ignore this.

Answer 99

The ones at the **date of death**

Answer 100

PET: **Seven years from the date of the PET**, not deathThis means a CLT made almost 14 years before death could still be relevant in extreme circumstances

Answer 101

After deducting two annual exemptions, this PET was £210,000. The PET in January 2021 now fails and becomes a chargeable transfer. The 2014 gift was made within seven years of the 2021 gift, so we have to take it into account. It used up the first £152,000 of the NRB, leaving £173,000 of NRB remaining. So, the first £173,000 of the chargeable PET is taxed at 0%. That leaves the remaining £37,000 (£210,000 - £173,000) subject to 40% inheritance tax (£14,800).

Answer 102

First calculate the **full tax owed**, and then reduce that monetary amount by the relevant % (this is because **taper relief reduces the tax payable**, it does not reduce the amount of the transfer)

Answer 103

3-4 years: 20% (i.e. pay 80% of the tax)4-5 years: 40% (i.e. pay 60% of the tax)5-6 years: 60% (i.e. pay 40% of the tax)6-7 years: 80% (i.e. pay 20% of the tax)

Answer 104

Because Marion died within seven years of the gift, the PET fails and is subject to tax. If Marion had not used any of her nil rate band before death, the first £325,000 of the gift is taxed at 0%, leaving the remaining £171,000 gift to be taxed at 40% (£68,400). However, as Marion died between six and seven years after making the PET, 80% taper relief is available; that is, only 20% of the £68,400 tax (£13,680) is payable by her son as recipient of the gift.

Answer 105

1. Start with CLT2. Calculate NRB remaining 3. Calculate tax at 40% 4. Apply taper relief if applicable5. Apply credit for IHT already paid when transfer was madeNote, if the lifetime IHT exceeds the IHT payable on death, **no refund** is given.

Answer 106

The same as with PETs. Kicks in after three years.

Answer 107

With a CLT, there will be a credit for lifetime IHT already paid.

Answer 108

Because the CLT was made within seven years of death, we must calculate whether additional death tax is owed by the trustees. We take the amount of the CLT (£645,000) and subtract out the nil rate band at the time of A's death (still £325,000), which leaves £320,000 subject to the 40% death tax, which comes to £128,000. However, the CLT was made between four and five years before Orla's death and so is entitled to 40% taper relief, meaning that only 60% of the £128,000 (£76,800) must be paid. The trustees already paid £64,000 in lifetime inheritance tax, which will be credited against the £76,800. Therefore, they now owe £12,800.

Answer 109

* **Business** relief* **Agriculture** relief

Answer 110

The value of business property given as a lifetime gift to a trust or at death is reduced by either **50% or 100%**, **before any annual exemptions**, and occurs automatically if the conditions are satisfied

Answer 111

* **Relevant business property** (different for 50% and 100% relief)* Business must be **trading*** Donor owned property for **at least 2 years** before the transfer (subject to exceptions)If these requirements are satisfied, the relief is automatic and there is no requirement to make a formal claim

Answer 112

100% relief and 50% relief

Answer 113

1. Sole-trade business or partnership interest2. Any number of shares in **unlisted** trading company

Answer 114

1. Shares in a **listed** company if the donor owns 50% or more2. Land, buildings, and plant/machinery owned by an individual but used by a company they control or partnership in which they are a partnerNote: related property is considered in deteriming control

Answer 115

**No** IHT will be owed on the transfer because it qualifies for **business (property) relief**.

Answer 116

The business is carried on by the sole trader, partnership, or company is **trading** (except if the trade is to make or hold investments or to deal in property e.g. acquiring land to obtain rental income/sell it on at a profit)* If shares are gifted in a trading company that holds **some assets as investments** (known as 'excepted assets'), then business relief is **available but is restricted to the company's trading asset proportion**.

Answer 117

One whose trade it is to make or hold investments

Answer 118

The relief is restricted to the trading and not investment proportion

Answer 119

Two years (subject to 2 exceptions)

Answer 120

1. **Replace** one business property asset with another **within three years**2. Inheriting business property assets from **spouse**

Answer 121

Similar (and available in addition) to business relief.If conditions are met, it automatically reduces, **before any available annual exemptions**, the value of farmland and farm buildings transferred either during lifetime or on death and is normally available at 100%.Note: the relief only applies to the **agricultural value** of the land - ignore any value ascribed to land if it were to be developed.

Answer 122

* **Agricultural property** (land or buildings)* Belonging to a **farmer/landowner** with a tenant* **Purpose not excluded** (e.g. grazing horses, fishing, shooting and other sporting rights are excluded)* **Sufficient ownership** (farmer 2 years, landowner 7 years)If the conditions are satisfied, the relief applies **automatically** and there is no requirement to make a formal application

Answer 123

Land or buildings used for the purposes of agricultural, within UK, Channel Islands, Isle of Man, or EEA

Answer 124

1. Farmer who owns the land and buildings and uses these in their own business2. Landowner who is letting out agricultural land to a farmer

Answer 125

1. Grazing horses (except for a stud farm)2. Fishing, shooting, or other sporting rights

Answer 126

Occupation by transferor: **Two years**Tenanted land: ***Seven* years**

Answer 127

When a farmer runs a farming business.Agricultural relief applies **first** to the agricultural value of the property, and business relief may be applied to the excess value in respect of assets used in the farming business which are not agricultural land or buildings e.g. plant, machinery, goodwill.

Answer 128

When the farmland is let out by the landowner

Answer 129

Only **CLTs into trusts**, because PETs are not immediately chargeable (for PETs the reliefs are taken into account in calculating IHT due)

Answer 130

The death tax due on transfer will be calculated with the benefit of reliefs, provided that the recipient of the gift has **either**:* **retained** the property until death of the donor or* **sold it and replaced it within 3 years** with other business/agricultural property as appropriate. All proceeds must be reinvested - there is no partial relief.

Answer 131

The net value of their assets to which they are beneficially entitled at the date of death

Answer 132

Total value of the assets owned by the deceased, less funeral expenses and any debt or liabilities owed by the deceased

Answer 133

Personal Representatives

Answer 134

1. Start with NRB for year of death2. Reduce NRB by chargeable transfers (PETs and CLG) within seven years of **death**3. Apply remaining NRB (if any) to death estate (and RNRB and Quick Succession Relief if applicable)4. Tax the excess at 40%

Answer 135

* NRB* RNRB* Quick Succession Relief

Answer 136

The inheritance tax payable on A's estate is £30,000: £400,000 estate - £325,000 nil rate band = £75,000 x 40% = £30,000.

Answer 137

The gift in 2018 is a £100,000 PET after applying available annual exemptions. The PET would become a chargeable transfer on A's death as she died within seven years of making the PET. We would apply the nil rate band available on A's death to the PET first, reducing the nil rate band available to cover her £400,000 death estate to £225,000. The PRs would have to pay £70,000 in inheritance tax: £325,000 nil rate band - £100,000 PET = £225,000 nil rate band remaining. £400,000 estate - £225,000 nil rate band = £175,000 x 40% = £70,000.

Answer 138

1. Gifts to spouse/civil partner (if UK domiciled)2. Gifts to UK/EEA charities

Answer 139

If the deceased was UK-domiciled but spouse is not, the limit is the NRB or £325,000

Answer 140

After deducting two annual exemptions, the £170,000 gift was a PET of £164,000. A's PRs owe £55,600 in inheritance tax: The PET of £164,000 becomes chargeable in January 2020. As this is the only lifetime transfer, a full nil rate band of £325,000 will be available. The PET is covered by the nil rate band, so no inheritance tax is payable by the donee (A's son) on A's death. However, only £161,000 of nil rate band remains. The value of A's assets at death was £600,000. From this, we deduct any exempt transfers on death. As half of the estate passes to his wife, the chargeable estate is reduced to £300,000, which leaves the other £300,000 as a chargeable gift. We tax the first £161,000 of that gift at 0% (the remaining nil rate band) and the remaining £139,000 (£300,000 - £161,000) at 40% =£55,600.

Answer 141

1. **Quoted shares** (Stock Exchange value)2. **Jointly owed assets** (Related property rules apply)

Answer 142

Per the official list published by the Stock Exchange at the date of death

Answer 143

Under the **related property rules** i.e. we take a higher valuation if the property is worth more combined with property already owed by the recipient

Answer 144

We use the **related property rules** so that the value of his half is £200,000.

Answer 145

On the date of the brother's death, we value his half share in the house on a **'stand-alone' basis**, which will be **less than half** because HMRC recognises that because the remainder of the property is owned by another tenant, the brother's half is not worth 50% of the whole property if sold in the open market. In these circumstances a **reduction in value of between 5% and 15% (usually 10%)** usually is appropriate. In practice, this discount will be subject to negotiation with HMRC.

Answer 146

1. Reversionary interests under a life interest trust2. Interests in a discretionary trust3. Non-UK assets for non-UK domiciled individuals

Answer 147

**Can deduct:**1. Mortgages2. Credit card debt3. Income tax owed4. Reasonable funeral expenses**Cannot deduct:**Probate costs (except overseas probate costs)

Answer 148

**10% of estate or baseline amount** must be given to charity for the IHT rate to be reduced to **36%** from **40%**

Answer 149

Value of estate chargeable to IHT after deducting all available reliefs, exemptions, and the available NRB, but **excluding the actual portion given to charity**. The **RNRB is ignored** for calculating the baseline amount.

Answer 150

A's baseline amount is £419,000: The PET will use up the first £144,000 of the £325,000 nil rate band (as we will be able to exclude the first £6,000 of the PET under the annual exclusion). This leaves £181,000 of nil rate band to subtract from A's £600,000 estate to arrive at the baseline amount (£600,000 - £181,000 = £419,000). Because the £50,000 gift to charity is more than 10% of A's base. line, the 36% tax rate applies. A's PRs will owe £132,840 in taxes: £600,000 estate - £50,000 exclusion for gift to charity = £550,000 chargeable transfer. The first £181,000 is taxed at 0% (the nil rate band remaining after applying it to the PET); the rest of the estate (£550,000 - £181,000 = £369,000) is taxed at 36% (£369,000 × 36% = £132,840).

Answer 151

If an individual dies leaving some or all of their NRB, a claim can be made for the unused % to be transferred to their **spouse**, who will then have an **uplifted NRB**. Note* a **claim** needs to be made by the executors of the second spouse* the uplifted NRB **cannot be used against lifetime tax** on CLTs.* NRB can transfer from more than one spouse to a **max of 2 x NRB** for year of death.

Answer 152

Uplift the spouse's current NRB at its **current rate** by the deceased's **unused %** of their NRB at the rate at the time

Answer 153

When Mrs A subsequently dies, her estate can benefit from two nil rate bands. The nil rate band available when calculating the death tax on her estate will be £325,000 x2 =£650,000.

Answer 154

Only her £325,000 NRB would be available against the lifetime tax. Thus, she or the trustees would owe the 25% or 20% lifetime tax on the part of the gift that is not covered by the annual exclusion or within her £325,000 NRB. Assuming she had made no other gifts: £500.000 - £6.000 annual exclusion = £494.000. The first £325,000 is taxed at 0%, leaving the remaining £169,000 to be taxed at 25% (if paid by Mrs A) or 20% if paid by the trustees.

Answer 155

**Lifetime tax on CLTs** (note, it **can** be used for any tax owed on PETs and CLTs on the **death estate**)

Answer 156

On the death of the first spouse, it is **recorded** as part of the second spouse's NRB. Upon the second spouse's death, their executors make the **claim**

Answer 157

The unused portion of Mr A's NRB is 90%. We do not transfer the £270,000 of NRB unused by her husband's estate. Rather, we uplift Mrs A's NRB by 90% resulting in an additional £292,500 of NRB for Mrs A (that is, 90% of the current NRB). Thus, Mrs A's total available NRB for calculating death tax is £617,500 (£325,000 + £292,500, which is 190% of £325,000).

Answer 158

Yes, but the uplift is capped at 100% on top of their own NRB (i.e. double their NRB)

Answer 159

Mrs A may claim the transferable NRB from either or both spouses, but she is limited to a 100% uplift (200% of the current NRB), even though 125% went unused by her two spouses. Her total NRB will be £650,000

Answer 160

1. Estate includes a home that was used as the deceased's private residence **at some point**, 2. Home or its sale proceeds are left to **lineal descendants** (children or grandchildren including step-/adopted/foster children) or spouses of suchRNRB is the **value of the dwelling at the time of death** (after deducting liabilities such as a mortgage secured on that property) **up to £175,000** and applies before NRB is applied. **Tapering** applies for estates **exceeding £2 million** (including to transferred RNRB)Note: RNRB **only applies to the death estate**, it does not apply to lifetime gifts of residential property.

Answer 161

A person or couple without children.

Answer 162

The Residence NRB will be available, as Colette left a qualifying dwelling to her children. The inheritance tax payable as a result of her death is £130,000: £825,000 estate £175,000 residence NRB = £650,000 - £325,000 general NRB =£325,000 x 40% tax rate = £130,000.

Answer 163

No, to the death estate only

Answer 164

**£2 million**.**£1** taper for every **£2** over.Effectively lost at **£2.35m**.

Answer 165

Assets minus liabilities, but **before deducting reliefs** (e.g. agricultural/business) and **exemptions** (spouse/charity)

Answer 166

The Residence NRB is available, as A left a qualifying residential property to his daughter. However, the Residence NRB will be tapered because the estate exceeds £2 million. The business relief available is ignored for this purpose. So, for purposes of calculating the Residence NRB, the estate is £2.3 million. The reduction is 50% of the amount of the estate over £2 million. Here that's 50% of £300,000, or £150,000. So we taper the £175,000 Residence NRB by £150,000, leaving a Residence NRB of £25,000. Therefore, the inheritance tax payable as a result of A's death will be £620,000: £2,300,000 total estate - £400,000 business relief = £1,900,000 - £25,000 Residence NRB = £1,875,00 - £325,000 general NRB = £1,550,000 x 40% death tax rate = £620,000.

Answer 167

1. First spouse did not have a qualifying home2. First spouse did not have or leave home to lineal descendants

Answer 168

Yes, but like the NRB, the uplift is capped at 100% on top of their own RNRB (i.e. double their RNRB)

Answer 169

Where a residence valued in excess on the RNRB is sold and replaced with a new residence which is valued at less than the RNRB or is gifted in a way which some of the RNRB will be unused, an uplift can be claimed reflecting the amount of RNRB which could have been used if it was the more expensive property that was gifted

Answer 170

The Residence NRB is limited to £70,000 (1/4 of £280,000) and, so, £105,000 is potentially wasted. However, downsizing relief is available. The downsizing addition is a multi-step calculation which would result in the full £175,000 RNRB being available. This would comprise £70,000 RNRB for property B and a downsizing addition of £105,000 in relation to Property A. Essentially, though, in these cases the full RNRB would be available on the death estate.

Answer 171

When an individual's estate increased due to a chargeable transfer made to them in the **five years before their death**.The relief depends on the number of years that pass between the first and second death, **decreasing by 20% each year**.

Answer 172

B's estate will be given **quick succession relief** on account of the gift from A because **B died within five years** of receiving the gift and the donor's estate (A's estate) had paid tax with respect to the gift.

Answer 173

1. Quoted shares2. Land and buildings3. Woodlands reliefThese are called '**post-mortem reliefs**' and are used when the PRs sell certain assets for less than probate value

Answer 174

Where PRs sell quoted shares/units in authorised unit trusts/shares in open-ended investment companies at a loss within **12 months** of the date of death.All profits and losses in the 12 months for such assets are aggregated and if there is a loss, a refund of IHT can be claimed.

Answer 175

Where PRs sell land or buildings at a loss (profit and loss are agregated if multiple sales) within **three years** of the date of deathNote: **losses in the fourth year** may be counted towards the relief but profits are ignored.

Answer 176

Losses can count toward the relief. Profits are ignored.

Answer 177

Deceased had land in UK that was not eligible for agricultural or business relief, but on which trees and underwood are growing

Answer 178

**Five** years prior to death (or had inherited the land on the death of another)

Answer 179

It excludes the value of the woodlands from the estate and IHT liability is deferred until the woodlands are disposed of.

Answer 180

The value of the land upon which trees are growing

Answer 181

Where an individual **gives away an asset** but **continues to be able to benefit** from that asset, it is still treated as part of the donor's estate at the date of death e.g. a house* The purpose of the rule is to operate as an **anti-avoidance** measure for IHT. * Note, the rules do not apply to situations in which HMRC has issued guidance on where it considers an **insignificant benefit** would remain

Answer 182

**Yes**, even though she doesn't own it anymore, the **gifts with reservation of benefit rule** means that the house will form part of her chargeable estate on death-and at a value of £600.000.

Answer 183

Pay market rent to the recipient

Answer 184

**Release the benefit**, e.g. move out of the house, before deathNote, to avoid 'death bed' releases of benefits, HMRC treat the release of a reservation as being a **PET at the date of release**.

Answer 185

As a PET valued at the date of release

Answer 186

Where the fits with reservation of benefit rule leads to a double charge to tax, HMRC will grant relief by computing **tax on the PET only vs tax on the gift with reservation of benefit only** and charging whichever of the two results in the most tax. (In most circumstances, taxing the house in the death estate and ignoring the PET will produce a higher tax charge.)

Answer 187

When the rule has been *avoided* by, e.g., selling a house, making a cash gift which is used by the donee to purchase a property in which the donor lives rent free. **Income tax** on the benefits received by the former owner may be charged.

Answer 188

**Income tax** charge levied on benefits enjoyed by former property owner if:1. Former owner **benefits directly or indirectly** from an asset they previous owned, and2. Transfer is **not otherwise within the gifts with reservation of benefit rules**

Answer 189

Later of:1. **Six months** from the end of the month in which the CLT was made, or2. **30 April** after the tax year in which it was made

Answer 190

**Donor** (note sometimes trustees will pay using the trust fund). HMRC can pursue recipients (i.e. trustees), or even beneficiaries in extreme cases.

Answer 191

* **Six months** after the end of the month in which the death occurred. * **Trustees** are liable to pay it from the trust fund as the donor is dead. * In extreme cases, the **PRs** may become liable, if the tax remains **unpaid 12 months** after the end of the month of death.

Answer 192

* **Six months** after the end of the month in which the death occurred. * **Recipient** is liable.* The **PRs** may become liable if the tax remains **unpaid 12 months** after the end of the month of death.

Answer 193

**Six months** after the end of the month in which the death occurred (note, it is usually paid earlier to obtain a grant of probate/letters of administration)

Answer 194

**Liability:** who must pay tax**Burden:** the source of the funds used to pay taxThis depends on the **property** concerned

Answer 195

Liable: **PRs**Burden: **Residue**, if will silent (except foreign property, which suffers the IHT not the residue)

Answer 196

If held in a trust:Liable: **Trustees**Burden: **Trust assets**

Answer 197

**Donee**. PRs liable if not paid within 12 months.

Answer 198

**PRs** liable. **Beneficiaries** bear the burden.Example: property passing from one joint tenant to another

Answer 199

10 instalments. First one due on the normal tax due date.

Answer 200

* Making **lifetime gifts** (may pay no tax if PET, taper relief, value at date of transfer not death)* Use of **Annual Exemptions*** Use of transferable **NRB** (wasted if not claimed)* Invest in **business** or **agricultural** property* Have **wills** drafted in a tax efficient way

Answer 201

Because for IHT purposes, it is the value at the date of transfer, not death, that applies

Answer 202

**Complete and submit** the **tax return** covering 6 April to death date (if applicable)**Complete and submit** the annual **tax returns** covering the period of administration of the estate (if applicable)**Settle all tax liabilities** arising from:* death* income made by PRs in administration of the estate* gains made by PRs in administration of the estate

Answer 203

PR must complete the deceased tax return for the period from **April 6 to date of death**

Answer 204

The estate

Answer 205

**No** as income/capital gains tax becomes liability of the estate at the point of death.

Answer 206

Make an informal payment covering the total liability for the whole period of administration, with a single income tax and capital gains tax calculation

Answer 207

**Basic rate** for both so:1. Non-savings income/interest: **20%**2. Dividends: **7.5%**Personal allowance, personal savings allowance and divident allowance are **not** available

Answer 208

Interest on the loan

Answer 209

A **base cost** equal to their **market value at death** (probate value). * If post-mortem reliefs apply, the new adjusted value will become the capital gains tax base cost.

Answer 210

**Year of death** and the **subsequent two years**

Answer 211

Capital losses are set against gains in the same year, and any excess losses are carried forward.

Answer 212

Upper rate, so **20%** for all assets except residential property which is **28%**

Answer 213

They have made a gain of £35,000. As it is their only disposal in 2021/22, they can offset the annual exempt amount of £12,300, leaving £22,700 taxed at 28% = £6,356.

Answer 214

They are deemed to acquire the asset **at the date of death** for **probate value**, i.e. market value at the date of death.(Value at time of distribution is irrelevant)

Answer 215

This will require comparing the **disposal proceeds** with their acquisition cost i.e. the **probate** value.

Answer 216

* The **profit** realised when an individual, a partnership, or a company disposes of a capital asset. * Capital assets include **almost every kind of property** (e.g. land, buildings, antiques, and shares of a company) although there are **some assets which are specifically exempt** * Taxable disposals (dispositions) may include the **sale** or **gift** of an asset, **trading** one asset for another asset, or even the **destruction** of an asset if insurance proceeds are received.* **Profit** = difference between the **sale price (or fair market value)** of the asset when disposed and the **costs of acquiring the asset** (including the costs of capital improvements made to the asset).

Answer 217

Disposals of interests in UK land, whether residential or commercial

Answer 218

1. **Cash** in sterling 2. Shares held in an **ISA**3. **Gilts** (Government bonds)4. **Wasting chattels** 5. Non-wasting assets worth **less than £6,000**

Answer 219

Moveable property with a **life of less than 50 years**, *excepting machinery used in business*Examples: cars, boats, watches, farm animals, racehorses, machinery not used in business

Answer 220

A chattel with a **useful life of more than 50 years** e.g. jewellery, fine art, and antiques worth less than £6,000 (i.e. a gain of £200 on a ring sold for £6,500 is chargeable to CGT)

Answer 221

The **£4,000 gain is not** subject to tax because the painting was sold for less than £6,000, but the **£2,500 gain on the second painting is subject to tax** because it was sold for more than £6.000.

Answer 222

* Transfers on **death*** Transfers to **spouses*** Transfers to **charities**

Answer 223

* A transfer of property upon the death of the property owner is **not a chargeable disposition for CGT** purposes; no capital gains or losses will arise for the deceased. * The person who takes the property by will or through intestacy takes it at market value at the date of death (known as '**probate value**'). * We often say that when **assets pass on death, there is a CGT-free uplift** to probate value (but IHT is charged)

Answer 224

**No**, as the asset passed on death. The probate value of the clock is £9,000 - and that value will be used both when **determining the size of the man's estate** and as the **acquisition cost of the clock for the man's niece**. So if she sells the clock three years later for £9,000, she will have realised no gain.

Answer 225

At the same cost as the donor spouse

Answer 226

The woman is deemed to transfer the shares for £40,000 and the woman's wife is deemed to acquire them at that same value. If the wife sells them 2 years later for £60,000, it is a chargeable gain of £20,000, not a loss of £5,000 because she took the shares at the base cost, not the market value.

Answer 227

Donor's base cost.

Answer 228

* CGT is generally due and payable in full on **31 January following the year in which the gain was made**. Details of disposals are included in an individual's tax return e.g. for tax year 2021/22, the CGT is due and payable on 31 January 2023. * Contrary to income tax, **payments on account of CGT are not required** on 31 January and 31 July following the tax year. * Note, for disposals of **UK residential property** (including by non-UK residents), any CGT due must be reported and paid within **30 days of completion**.

Answer 229

An estimate of the CGT due must be calculated and a payment on account is pay able **within 30 days** i.e. not later than **31 May 2021**.

Answer 230

Proceeds of sale (or market value) - costs of acquisition = capital gain/loss.

Answer 231

* Start with the price that was **paid**. * However, if an asset is disposed of by gift or the transaction is with a '**connected person**' (i.e. someone close to the person disposing of the asset), use **market value** instead. From this, we may **deduct incidental costs of disposal**, including legal fees, valuation fees, and any advertising costs.

Answer 232

Costs of acquiring an asset will **include allowable costs and expenses**. * These include the **actual cost of acquiring the asset in the first place**.* In addition to this, we can include any **associated expenses** such as legal fees, commissions, and stamp duty land tax.* Any expenditure which **enhances the value of the asset** is also deductible provided the enhancement is **still part of the asset** when it is sold/disposed of.* In addition, any **costs incurred by the owner in preserving, establishing, or defending their title** to an asset are also deductible e.g. any legal fees incurred in a boundary dispute with.

Answer 233

A's capital gain is £202,000: The net proceeds of the sale were £244,000 (£250,00 sale price - £6,000 agent's fee) and the full cost of acquisition was £42,000 (£40,000 cost of purchase + £2,000 legal fees). £244,000 - £42,000 = £202,000.

Answer 234

It must still form part of the asset when it is disposed

Answer 235

In determining the amount of her gain, B's acquisition costs include both the original £275,000 acquisition cost, and the £105,000 she spent to obtain permission and add the extension, resulting in a gain of £45,000.

Answer 236

In determining the amount of her gain, B's acquisition cost is only the original £275,000 acquisition cost. She cannot deduct the £105,000 she spent to obtain permission and add the extension because the extension was destroyed and never rebuilt.

Answer 237

1. Private Residence Relief (only exemption available)2. Business Asset Disposal Relief3. Hold Over (Gift) Relief4. Replacement of Business Assets Relief (only one available to companies)5. Incorporation Relief6. Enterprise Investment Scheme Reinvestment Relief

Answer 238

* CGT relief which **exempts** all or part of a gain (i.e. not a deferral) which arises on a property which an individual has used as their **home**. * A gain will arise only if the taxpayer has been **absent** from the property at some point during their period of ownership. * Even then, some or all of those periods of absence may count as **deemed occupation** for PR Relief purposes.

Answer 239

**Gain x (period of occupation / period of ownership)*** If the taxpayer has lived in the property as their home throughout the **whole period of ownership**, **100% of the gain is exempt** and no gain is chargeable.

Answer 240

**Nine** months, regardless of how long the taxpayer lived there, as long as they **occupied the property *as their home* for some time**

Answer 241

H will be able to claim the **120 months** he actually lived in the home plus the **last nine months** before the sale.

Answer 242

1. Any period of absence, up to **three years**, for **any reason**2. Any period, with **no limit**, where the owner is **abroad** for **employment**3. Any period, up to **four years**, where the owner is absent from the property due to **working elsewhere** *(not abroad)*They **can** apply cumulatively.

Answer 243

Her chargeable gain is £15,000, as £285,000 of the gain is exempt. She owned the residence for 20 years. She actually occupied it for 16 years and lived with her boyfriend for four years. However, because she lived in the house both before and after she lived with her boyfriend, she can take advantage of the **three-year deemed occupation rule**. Thus, she will be treated as having not lived in the house only one year. Her exemption is £300,000 x (19 ÷ 20) = £285,000.

Answer 244

In this case, her taxable gain is £63,750. Since she did not move back into the residence, she **cannot take advantage of the deemed occupation rule for working abroad**. However, she will still be deemed to have occupied the residence for the last nine months she owned it. Thus, she will be deemed to have lived in the house the five years between purchase and moving in with her boyfriend, three of the years she lived with her boyfriend, the seven years before she left to work abroad, and the nine months (3/4 year) before the sale. Thus, her exemption is £300,000 x (15.75 ÷ 20) =£236,250.

Answer 245

They owned their home for 10 years. They actually lived in it for the first four years and the last one year. There's five years of actual occupation. They were gone working in Manchester for five years. The maximum period of deemed occupation for absence whilst working in the UK is four years. But then, we could also cover the remaining year using our absence for any reason so that's the whole 10 years treated as actual and deemed occupation. Therefore, no CGT is owed.

Answer 246

1. **All/part of trading business** carried on as a sole trader/partner for at least **two years** before disposal2. **Shares** in a trading company if the individual **owns at least 5% ordinary voting shares** (i.e. their 'personal company') *and* was an **officer/employee** for **two years** before disposal3. **Assets** owned and used by the individual's personal trading company for **two years** before disposal (if closing the business, the time frame is 3 years)Disposal of an asset in isolation will not qualify unless it is within the above provisions.Note, this relief applies **after** the Annual Exempt Amount is deducted.

Answer 247

**10%**. **£1 million** lifetime limit.

Answer 248

B may claim **Business Asset Disposal Relief** to reduce the capital gains tax to **10%** i.e. £40,000. The same would be true if B could not find a buyer for the business as a going concern and made his gain by selling the assets of the business individually, provided the assets were sold within **three years** of cessation.

Answer 249

Where an individual disposes of a **qualifying business asset** by **giving it away**, but donor and recipient agree to **defer any gain** on to the recipient, who when they dispose of the asset, will be treated as acquiring the gift at the donor's cost basis

Answer 250

B's chargeable gain on the sale of the cottage will be £170,000: * We first calculate A's gain (market value - acquisition cost) = £190,000 - £50,000 = £140,000. This is A's gift relief, so she owes no CGT. * We then calculate B's gain: (proceeds of sale - base cost (market value at time of acquisition - holdover gift relief) £220,000 - (£190,000 - £140,000) = £170,000.

Answer 251

1. **Assets** used for the purposes of trade or profession of the transferor or their 'personal company'2. **Shares** in an **unquoted** trading company3. **Shares** in the donor's **personal** company4. **Assets** that qualify for **agricultural property relief**Note, the above apply when gifting to an **individual**. Any asset qualifies when giving it to a trust

Answer 252

Where a sole trader, partner or company disposes of a **qualifying business asset** and reinvests the proceeds in other qualifying assets within **one year before** or **three years** after the initial disposal (note, this relief **defers the gain** until disposal of the new asset)Any proceeds not reinvested are chargeable.

Answer 253

Land, buildings, and plant/machinery

Answer 254

Until the replacement asset is disposed of

Answer 255

Because he has reinvested all the proceeds of sale in another qualifying asset within three years of the disposal, A can elect to **defer the gain (and thus CGT)** on the old building. The new building's acquisition cost for CGT is reduced by the deferred gain of £90,000, to £210,000. This will mean a larger gain when A disposes of the new building in the future.

Answer 256

If A had bought the new building for £250,000, then £20,000 of the proceeds would not have been reinvested. This would mean £20,000 of the gain would remain chargeable, being the proceeds retained. The rest of the gain can be deferred.

Answer 257

When an individual transfers their sole trader or partnership interest to a company, **part or all of the gain from the transfer is deferred** by subtracting the **acquisition cost of the company shares** from the gain, which will then be taxed when the shares are disposed of. The business interest is valued at **market rate** at transfer.

Answer 258

The shares will have an acquisition cost of £700,000, equal to the market value of the assets transferred. **Incorporation Relief** will defer T's gain of £250,000 and reduce the acquisition cost of her shares to £450,000. This will mean a larger gain when she disposes them in the future.

Answer 259

If an individual reinvests any chargeable gain in shares of **qualifying unquoted companies** within **one year before** or **three years after**, the **gain can be deferred** until the EIS shares are disposed ofThis relief applies to a caplital gain on any asset, not just business assets. The gains are **frozen** i.e. the acquisition cost of the EIS shares is not reduced, the gain is taxed at a later date.

Answer 260

When A sells the shares, the gain A made on the sale of the yo-yo is unfrozen and the £30,000 gain made will now be chargeable to capital gains tax. It is irrelevant that the shares were sold at a loss.

Answer 261

Replacement of Business Assets Relief

Answer 262

* Every **individual** is entitled to the Annual Exempt Amount (£12,300 for 2021/22 but changes annually).* It is similar to the Personal Allowance for income tax, in that the **first £12,300 of capital gains in the year are exempt** and not chargeable to CGT.

Answer 263

* Take chargeable gains remaining after all **reliefs** (other than Business Asset Disposal Relief, 'BADR') and deduct the **annual exempt amount**. * If BADR is available, deduct the annual exempt amount first and apply BADR's 10% rate after that.

Answer 264

They depend on the **individual's taxable income** and the **nature** of the asset being disposed. **Residential property (UK and overseas)*** **Basic rate taxpayer**: **18%** up to unused income tax basic rate band; and at **28%** on what exceeds the basic band. * **Higher/Additional Rate taxpayer** (including upper dividend rate): CGT is **28%**. **All other property*** **Basic rate taxpayer**: **10%** up to unused income tax basic rate band; and at **20%** on what exceeds the basic band. * **Higher/Additional Rate taxpayer** (including upper dividend rate): CGT is **20%**. The **unused basic rate band** is the amount of basic rate band remaining after an individual's income has been taxed.

Answer 265

* It is **automatically offset** against any capital gains in the same tax year (most tax efficient use is permitted)* Excess loss may be **carried forward**

Answer 266

A's CGT liability would be £10,120: We first determine his taxable capital gain (gain - Annual Exempt Amount = £70,000 - £12,300 = £57,700). We next determine how much of his basic rate income tax band is unused. This requires two steps: First, we determine A's taxable income (salary - Personal Allowance = £36,000 - £12,570 =£23,430), and then we subtract that from the top number of the basic rate band (£37,700. £23,430 = £14,270).Therefore, because A is a basic rate taxpayer, we tax the first £14,270 of his gain at 10% (£1,427) and tax the rest of his gain (£57,700 - £14,270 = £43,430) at 20% (£8,686). £1,427 + £8,686 = £10,113.

Answer 267

Put in AEA toward gains on **residential property first**, as they carry rates of 18% and 28% compared to 10% and 20% for all other assets

Answer 268

Losses are automatically offset, before the AEA is deducted

Answer 269

Losses which are carried forward deducted ***after*** the AEA, such that the AEA is not wasted

Answer 270

**No**. Capital losses must be set off against capital gains **in the same tax year**. This is **automatic**.

Answer 271

Taxpayers can deduct losses in the **most beneficial way to minimise tax liability**. If an individual has capital gains which are charged to tax at different rates, e.g. because one gain relates to a residential property, losses should be **offset against gains taxed at higher rates in priority**. So, losses should be allocated to gains in respect of residential property in priority, and then against other gains not eligible for Business Asset Disposal Relief.

Answer 272

The excess loss is **carried forward** to reduce capital gains in future years. The chargeable gains in the year will be nil and the **Annual Exempt Amount will be lost**. If the annual exemption is not used, it **cannot be carried forward or transferred** to another person. It is simply wasted.

Answer 273

The loss will completely offset the gain and A can **carry forward the unused loss** (£50,000 - £20,000 = £30,000). Anne **cannot use the £12,300 Annual Exempt Amount** to reduce the £20,000 gain to £7,700 and carry forward a £42,300 loss.

Answer 274

* They are deducted **after** the Annual Exempt Amount, unlike with current year capital losses, such that the Annual Exempt Amount is not wasted. * Capital losses brought forward are also **allocated against gains in the most beneficial manner** if there are gains charged to tax at different rates.

Answer 275

**Income** and **chargeable gains** ('taxable profits'). This includes trading profits, non-trading profits, property income and capital gains. Payments to **national charities are exempt** as 'qualifying charitable deductions'

Answer 276

* Tax due: **Nine months and one day*** Return due: **Twelve months**Example: a company with its year end on 31 December 2020 will pay its tax by 1 October 2021 and file its return by 31 December 2021.Note: companies/groups of companies with **profits over £1.5million pay tax earlier**, in quarterly instalments.

Answer 277

For a company's **accounting period** (which must be no longer than 12 months) is: (Trade Profit + Other Income + Chargeable Gains Charitable Donations) × 19% Note: If a company has a **long accounting period, two computations** are prepared: * one for the first 12 months and another for the remaining months. These will have two separate pay dates but only one submission date, which will be **12 months from the end of the long accounting period**.

Answer 278

Trade Profit = Turnover - Revenue Expenses - Allowable Capital Deductions

Answer 279

Dividends paid out: **not a deductible expense** (and shareholders will pay income tax on them)Dividends received: **usually exempt from tax** so not added to taxable income

Answer 280

**No**, but they are taxed on their net chargeable gains for the accounting period by way of corporation tax (gains are treated the same as other income of the company).

Answer 281

All chargeable gains made in the accounting period **less any current period capital losses** and any **unused capital losses brought forward**. No annual exemption applies

Answer 282

**Yes**. It allows a company to **defer a gain-and therefore the corporation tax due**-on the disposal of a qualifying asset, if the gain is **reinvested in another qualifying asset** within one year before or three years after the disposal. This is accomplished by subtracting the gain from the acquisition cost of the new asset.

Answer 283

Applying **replacement of business asset relief**, the company can defer paying tax on the £600,000 gain by subtracting it from the acquisition cost of the new plant, reducing the plant's acquisition cost £300,000.

Answer 284

1. Set off against total profits (*before* charitable donations) in the **current accounting period**2. Carry back to set off against total profits (*before* charitable donations) in the **preceding accounting period** (only available after a current period offset)3. Carry forward to set off against total profits (*after* charitable donations) of a **future accounting period**

Answer 285

If it so chooses, the £70,000 trading loss will offset all of Ambrose's £36,000 gains for the year (£15,000 + £21,000), with £34,000 loss remaining, which can be carried back to offset profits for the previous 12 months or forward to offset profits for a later year. The deduction for the donation to charity will be lost.

Answer 286

Company resident in UK and controlled by either:1. **Five** or fewer *shareholders*, or2. **Any number** of *directors who are also shareholders*99% of companies in the UK are close companies.

Answer 287

'Control' means ownership of:* **more than 50%** of the **shares** or **voting shares**, or * **over 50% of the share capital** of the company. Shares and rights of **associates** are included in the calculation. Associates include spouses, parents, siblings, and children.

Answer 288

To prevent shareholders and directors of close companies from using those companies as an extension to their own private banking facilities, without paying any tax e.g. taking loans from the company

Answer 289

A **taxable benefit** arises valued at the current official interest rate. If the loan is over £10,000, the benefit must be **reported and taxed** as earnings in income tax

Answer 290

A will be taxed on the **benefit** of the interest-free loan, which is £40,000 x 2.5% = £1,000.

Answer 291

The company must pay to HMRC **32.5%** of the loan within **nine months and one day** after the end of the accounting period in which the loan was madeIf it is **written off/repaid**, the notional tax will be refunded to the company.

Answer 292

The loan is taxed as a dividend distribution to the participator.

Answer 293

The tax consequences of these transactions are: Loan made on 1 May 2019 Goodge Ltd pays tax charge of £118,000 x 32.5% = £38,350, due on 1 April 2020. Instalment repaid on 1 May 2021 Goodge Ltd recovers tax charge (£37,000 x 32.5%) £12,025, repaid on 1 April 2022.Loan waived in December 2021 Goodge Ltd recovers the remaining tax of £26,325 on 1 April 2023. A is then treated as in receipt of an £81,000 dividend in the 2021/22 tax year which will be subject to income tax using the 38.1% additional rate for dividend income (assuming her £2.000 dividend allowance has already been utilised).

Answer 294

Any supply of **goods** or **services** made in the UK, unless exempt, which is made by a taxable person whilst **carrying on business**Specifically, the charge is on the **value of the supply** (defined widely to prevent VAT avoidance)

Answer 295

* **Output** tax is VAT charged **by** the business* **Input** tax is VAT **reclaimed** by the business.**Output Tax - Input Tax = Tax owed to HMRC/refund due from HMRC**

Answer 296

* To charge VAT **at each stage** in the supply of goods and services (output tax).* If the **customer is registered for VAT** and uses the supplies for taxable business purposes, they will **receive credit** for the VAT they paid (input tax). * The broad effect is that **for most businesses VAT is revenue neutral**, and the burden of VAT is actually **borne by the final consumer**.

Answer 297

A sole trader, partnership or company registered for VAT.

Answer 298

* Sale of shares of a company * Sale of a business as a going concern

Answer 299

1. Land2. Insurance3. Financial services4. Education5. Health services6. Postal services

Answer 300

* **Zero** rate: 0% (taxed at 0% i.e. not exempt)* **Reduced** rate: 5%* **Standard** rate: 20%

Answer 301

1. Food (other than in catering context)2. Books/newspapers3. Water/sewerage services4. Transport5. Residential construction

Answer 302

1. Domestic fuel2. Installation of energy-saving materials3. Child car seats

Answer 303

If its **gross income from sale of non-exempt goods** will, in any 12-month period, exceed the VAT threshold which is currently £85,000* Registration is compulsory when either the **historic** test or the **future** is satisfied (performed **simultaneously**)* Note, zero-rated, reduced rate and standard rate supplies are counted for the purposes of this threshold.

Answer 304

1. Historic test2. Future test

Answer 305

Taxable sales in the preceding 12 months, on a **rolling basis** (i.e. checked every month).HMRC must be notified within **30 days**. From the **start of the following month**, the business will be registered and must charge VAT.Example: Threshold is exceeded on 31 March 2021 for first time, must register for VAT by 30 April 2021 and charge VAT from 1 May 2021

Answer 306

Taxable sales in the **next 30 days** alone.If threshold is **expected to be exceeded**, HMRC must be notified before the relevant 30-day period expires. The business will be registered and VAT charged from the **date the business was aware** the threshold was going to be exceeded.

Answer 307

Using the **historic test**, by the end of December 2021, A's taxable sales were greater than £85,000, so registration became compulsory. Gavin had to **register by 31 January 2022** and start **accounting for VAT 1 February 2022**.

Answer 308

Under the future test, B must **register** **within 30 days of 1 February** (that is, 2 March, since 2021 was not a leap year), but he must **account for VAT from the date he became aware** (that is, 1 February 2021).

Answer 309

It enables businesses to:* **recover VAT** they paid on their own purchases (input tax) and * **avoid penalties for late registration**. Note, the downside is they ahve to charge their customers VAT thereby increasing their prices.

Answer 310

Someone who only supplies exempt items or services

Answer 311

* If **taxable turnover falls below £83,000** for a 12-month period* If it **stops trading or supplying** goods or services that are subject to VAT (must be cancelled within 30 days)

Answer 312

Owners of interests in **commercial land and buildings**. * Once the option is exercised, it applies to **all future supplies** relating to that land or building including selling/leasing it. * Owners may do this in order to **recover input VAT** they have to pay e.g. if they purchase a commercial building that is less than 3 years old, they have to pay 20% VAT

Answer 313

* **Standard rate VAT** (20%) must be charged on the sale or lease (premium and rents) of the property * Opting to tax the building converts the renting out of the building into a taxable supply and means the **input tax suffered on the purchase price is recoverable*** Any **inputs relating to the supply may be recovered**, including heating costs, cleaning, and repairs. The option to tax r**elates to individual land or buildings**, not to all the land and buildings owned by the person opting to tax. However, if made, the **option applies to the whole building**. This may be a problem if there are several tenants, some of which make exempt supplies.

Answer 314

Tenants who wholly or partially make exempt supplies, as they will not be able to recover input tax on their lease

Answer 315

Residential

Answer 316

1. Supply (i.e. construction) of new commercial building (taxed at 20%, not exempt)2. Sale of a commercial building less than three years old (taxed at 20%, not exempt)

Answer 317

Six months, as long as it hasn't been put into practice

Answer 318

**No**, an option to tax is made by the owner of the land or building and **does not transfer** with the land or building on any future disposal.

Answer 319

**One month after the end of each VAT quarter*** Note: Different businesses are allocated four different VAT periods in a year (for example, March-June-September-December) so HMRC has an even distribution of VAT receipts during the year.

Answer 320

The **tax point** *(time of supply)*

Answer 321

The time the goods are **removed**, or the time they are **made available** to the person to whom they are supplied

Answer 322

When the service is performed

Answer 323

1. If supplier **issues VAT invoice** or **receives payment** *before* the goods are delivered or made available, the tax point becomes that **invoice or payment date**2. If a **VAT invoice is issued within 14 days** after the default tax point, the **invoice date** becomes the new tax point

Answer 324

* Invoices can be used by a business seeking to **deduct input tax from their output tax**. * A person deducting input tax in a VAT return must have tax invoices to **back up any claim**.

Answer 325

All customers, regardless of their VAT status.

Answer 326

* Supplier's **VAT number*** **Tax point*** **Value** of the supply* **Rate** of tax charged.

Answer 327

* A business must **file an electronic VAT return each quarter**, and payment of any VAT due is made by **direct debit** to HMRC. * The amount payable is the VAT the business charged its customers on all supplies of goods and services (that is, the business's **output tax**) **less** any VAT the business paid on goods and services related to the goods or services it supplied (that is, the business's **input tax**). * Businesses must remit the VAT collected after deducting input tax to HMRC only to the extent that the goods on which VAT was paid were **used in business activity**.

Answer 328

HMRC will issue a rebate

Answer 329

Only for the business proportion

Answer 330

1. Cars2. Business entertaining3. Supplies made to the business that relate to any non-business activity

Answer 331

* **Zero-rated supplies**: able to reclaim input tax from HMRC-they often make monthly claims to aid cashflow* **Exempt suppliers**: cannot reclaim VAT as they cannot register* **Combination of zero-rated and exempt supplies** (a 'partially exempt trader'): normally only a proportion of their input tax will be recoverable.

Answer 332

Records and accounts of **all taxable goods and services that it receives or supplies** (including exempt supplies) in the course of its business. * Annual accounts* Bank statements* Invoices for purchases and sales* Daily records of takings* Relevant correspondence* VAT Account (i.e. a summary of the input and output VAT of the business for each tax period) All records must be kept **up to date** and contain **enough detail** to allow the business to calculate how much VAT to pay to or reclaim from HMRC (no prescribed form for this)

Answer 333

Standard rate: Divide the VAT-inclusive amount by **6** (x + 20% VAT = 6/5*x)Reduced rate: Divide the VAT-inclusive amount by **21** (x + 5% VAT = 21/20*x)

Answer 334

* To calculate the VAT payable/repayable for the quarter ended 31 March 2020, we first calculate D's output tax: £20,000 x 20% = £4,000 (we don't charge VAT on zero-rat- ed supplies). * We then calculate his input tax (£30,000 x 1/6) = £5,000). * Finally, we subtract D's input tax from his output tax: £4,000 - £5,000 = -£1,000. * Since the result is a negative number, D is entitled to repayment of £1,000 from HMRC.

Answer 335

* To calculate the VAT payable/repayable for the quarter ended 31 March 2020, we first calculate D's output tax: £20,000 x 20% = £4,000 (we don't charge VAT on zero-rat- ed supplies). * We then calculate his input tax (£30,000 x 1/6) = £5,000). The VAT on the car is not recoverable. Therefore, we would subtract only £2,500 input tax from D's output tax (£4,000 - (£15,000 x 1/6) = £1,500). * D would owe £1,500 VAT to HMRC.

Answer 336

A person who fails to comply with the VAT legislation is liable to a **range of criminal and civil penalties**, plus **interest** on late payments of tax* **Failure to register**: a penalty charge of a % of the VAT due from when they should have registered, which increases the longer the delay. * **Late submission of return/payment**: HMRC can impose a % surcharge on the VAT due, which increases, to a maximum of 15%, for consistent defaults. * **Under-declaring due to significant/repeated lack of care**: penalty can be charged as a % of the tax that should have been paid. * **Dishonest evasion of tax**: a penalty can be imposed up to the amount of VAT evaded, an unlimited fine and imprisonment for up to seven years.

Answer 337

When a person purchases an **interest in land or buildings** in the UK. * They must send HMRC a **Stamp Duty Land Tax return** within **14 calendar days of completion**, irrespective of whether any SDLT is actually due. * If the consideration given for the property **exceeds the applicable SDLT threshold,** the buyer must also **pay** the SDLT within this period.

Answer 338

Within **14 days of completion**, even if SDLT is not payable

Answer 339

The **consideration** exchanged for the property Examples: money (purchase price including VAT), value of work performed, value of other property, amount left owing on a mortgage taken over by the transferee etc.

Answer 340

Within **14 days** of completion

Answer 341

The **market value** of the land/buildings* Note: this often happens when a sole trader incorporates their business. The **company** will have to send an **SDLT return** on completion and **pay SDLT if the fair market value** of the land exceeds the applicable threshold.

Answer 342

Property transferred:1. As a gift2. To a spouse3. To a *former* spouse upon divorce4. Under a variation of a will changing the beneficiary within two years of the decedent's death

Answer 343

* Up to three months: **£100*** Over three months: **£200*** Over one year: Up to 100% of the SDLT dueNote: if the SDLT is **paid late**, **interest** may be charged.

Answer 344

Whether the property is residential, non-residential, or mixed

Answer 345

Because the applicable rate applies to the amount of consideration within the threshold, before applying higher rates to excess amounts

Answer 346

* X's **buyer** would have to **file an SDLT return with HMRC within 14 days** (that is, by 15 October 2021) but would not owe any SDLT on the purchase, as the consideration the buyer paid for the home was less than the SDLT threshold (i.e. it was all within the nil rate tier) for residential property. * X would also have to **submit a return to HMRC within 14 days** as to the purchase of her **new home**, and she would have to **pay HMRC £4,000 SDLT within the 14-day period** as well. Xenia paid £280,000 for her home. There is **no deduction for the value of her old home**. Thus, the first £125,000 of the purchase price is taxed at 0%, the next £125,000 is taxed at 2% (£2,500), and the remaining £30,000 of the £280,000 purchase price is taxed at 5% (£1,500). £2,500 + £1.500 = £4,000. Note: rates have since changed.

Answer 347

* X would have to send an **SDLT return to HMRC within 14 days** of completion of the purchase. But she would owe no SDLT because she paid less than the threshold for the tax applicable to non-residential property.

Answer 348

**3%**, e.g. the 0% rate becomes 3%; the 2% rate becomes 5%, etc.£40,000 lower limit.

Answer 349

Bonnie's SDLT would be £6,000 based on 2021 rates: 3% (0% + 3% = 3%) on the first £125,000 of the purchase price =£3,750 + 5% (2% + 3% = 5%) on the purchase price falling within the £125,001 - £250,000 tier (5% x £45,000 = £2,250) £3,750 + £2,250 = £6,000

Answer 350

Where the new property replaces the purchaser's only or main residence

Answer 351

Based on either or both of:1. Lease **premium** paid up front (same rates as purchase of property), or2. **Net present value** of the rent payable (lower rate)Note: tax paid for each part is calculated separately.For **non-residential leases**, net present value ('NPV') is taxed at (should be in Q):* 0% for the first £150,000, * 1% for NPV amounts greater than £150,000 but not more than £5,000,000,* and 2% for amounts over £5,000,000.

Answer 352

**SDLT on Lease Premium**: Since the lease is for non-residential property, the first £150,000 will be taxed at 0%. The remainder of the lease premium (£95,000) all falls within the 2% tier. 2% x £95,000 = £1,900. **SDLT on Rent**: Use the present value of the rent rather than the actual full rent (here, £183,000 rather than £210,000). For non-residential property, the first £150,000 rent is taxed at 0%. After that, net present value up to £5 million is taxed at 1%. Thus, the remaining £33,000 of net present value above £150,000 is taxed at 1% (£330).**Total SDLT payable** = £1,900 + £330 = £2,230.

Answer 353

**No SDLT** would be due because each component of the lease price is below the £150,000 threshold.

Answer 354

* Purchase of First Residence* Multiple Dwellings Relief for Linked Transactions* Multiple Dwellings Relief for over 6 properties in a single transaction

Answer 355

£500,000 for 2021

Answer 356

**0%** on the first £**300**,000; **5%** on remainder up to £**500**,000 (2021 rates)

Answer 357

If the property is worth more than £500,000, there is **no relief at all** and usual rates apply

Answer 358

SDLT payable by B if she has never owned another property. (£300,000 x 0%) + [(£375,000 - £300,000) x 5%] = £3,750 SDLT payable by B if she already owns a house that she intends to keep. (£125,000 x 3%) + [(£250,000 - £125,000) × 5%] + [(£375,000 - £250,000) x 8%] = £20,000 SDLT payable by B if the property was a nonresidential one. (£150,000 x 0%) + [(£250,000 - £150,000) x 2%] + [(£375,000 - £250,000 x 5%] = £8,250

Answer 359

SDLT is calculated based on the average consideration, i.e. **total considerations divided by the number of properties**

Answer 360

Purchaser can choose to apply **non-residential** rates (note, this may not result in less tax being payable).