Tax planning Flashcards

1
Q

What is the SRB?

A

-on the first £5000 above personal allowance
-if over £17.570=no srb

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What is the dividend allowance rates?

A

-£2000 per year
-8.75% basic rate
-33.75% higher rate
-39.35% additional rate

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

What is the marriage allowance?

A

10% unused personal allowance from
Spouse
£1260
Must earn below personal allowance to qualify

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Whats the main aim of transferring investment or policy ownership? (3)

A

To make use of both spouse allowances
-CGT PA £12,300
-IHT £3000 pa gift allowance

-For lower earning spouses to be more tax efficient

-Interspouse transfers are allowed for cgt (only pay if seperated)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

How long can you carry forward previous loses for cgt purposes?

A

-you have 4 years to register
-carried forward indefinately after that

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

How does personal allowance tapering work? (3)

A

£1 for every £2 over £100k
Effective 60% tax
On adjusted net income (income minus pension contributions/losses)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What is a good way to bring down earning if getting hit by personal allowance trap? (4)

A

-Pay more into pension (if affordable)
-Gift aid
-salary sacrifice
-carry forward of AA (3 years prior)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

How does the annual allowance tapering work? (4)

A

-£1 for every £2 over £260k
-Only if threshold income (income minus pension) is breached by limit of £200k
-Then adjusted income figure is used (includes pension)
-adjusted income minus £260k limit /2 = charge

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Common types of investments that drive tax efficiency in investments (3)

A

-Utilise all ISA limits
-Use friendly society plan-no tax on interest made
-Pension contributions maxed

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is gift holdover relief (3)

A

Beneficiary acquires asset at acquisition cost

-If assets, you are a Sole trader/business partner and you use the assets in your personal company

-If shares, must be in your personal company or not listed on any stock exchange

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is business asset disposal relief? (4)

A

A relief that reduces the amount of capital gains tax payable by business owners

Held for two years prior

10%

Relates to shares and assets used in the business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Business asset rollover relief? (3)

A

-Allows a person to defer the payment of cgt when using the money to reinvest into a new business

-acquisition cost of new asset is reduced by the amount of gain on the previous

-new asset must be purchased 12 months before disposal or withjn three years after

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is incorporation relief? (3)

A

-Where you sell your business is return for shares

-Delays cgt

-Gain made on disposal is deducted from acquisition cost of shares

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

How much is the cgt charge on BTL/additional residencies?

A

28%

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

When is capital gains tax due?

A

-If property, within 60 days

-Or 31st Jan following end of tax year

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

When is inheritance tax due?

A

6 months after end of month of death

17
Q

Describe the nrb and How is main residence nrb reduced?

A

£1 or every £2 over £2m

-£175k pp

-must be direct discendant

18
Q

What investments avoid IHT?

A

Dc Pension

Aim shares (2 years held)
Seis and eis (3 years)
Bonds in trusts (7 years bare trust)

19
Q

Describe how salary sacrifice works for pension contribution (6)

A

-Reduces salary for pension contribution

-employee saves money-reduction in nic’s and employer nic’s

-Employer pays into ps for employee

-Employee must agree in writing

-Cannot be retrospective

-Cannot wall below minimum wage

20
Q

Benefits of salary sacrifice

A

-Reduced employee/employer NIC’s

-Reduced pay if personal allowance issues

-Get employer contributions

-great income and better standard of living in retirement

21
Q

Drawbacks of salary sacrifice (6)

A

-Sick pay is calculated on income
-Death in seevice calculated on income
-DWP calculated on income
-Lending affordability impacted
-Documents/admin to setup
-May affect emploer benefits eg pay
Rise

22
Q

Considerations regarding IHT planning (14)

A

Nrb-RNRB
Gifting in previous year-what done
Gift annual exempt £3k plus 1 year carry forward
Gifts in last 7 years
Willing to consider outright gifts?
Willingness to use life policy to pay for IHT amount on death?
Willingness to use trusts
What are the accessibility for capital requirements (gift trusts)
Any other inheritances due?
Willingness to consider a deed of variation
Atr in this area?
Business releif @50/100%
Agricultural relief

23
Q

Why is a deed of variation used?

A

To affect changes by the beneficiary in a will

24
Q

10 ways to drive tax efficiency for a client

A

Transfer to lower paying spouse (for cgt, savings etc)

Realise and sell investments for cgt allowance-whats easiest to sell

Isa allowance-utilise as often better returns than bonds

Ns&I-tax free returns such as cerificates

Gift aid-reduce income for higher tax/alters tax bands

Pension contributions-inc benefits and tax relief/grows tf

Transfer inv bonds-5% withdrawals //onshore 20% already taxed in fund-tax credit

Transfer cash-savings allowances

EIS/VCT-30% income tax reduction on contributions (up to £1m) -needs to match risk profile-cgt free if held for three years

SEIS-50% income tax-up to 200k-3 year hold cgt free-100% iht relief-2 year hold

25
What is Cgt reinvestment relief?
Can claim 50% of your reinvested amount in SEIS against your chargeable gain (remember to also use cgt annual allowance)
26
How do you determine a ltd compa profits
Profit minus costs from company year end when incorporated Deduct corp tax Deduct dividends taken Carry forward loss/profit from previous year
27
What is IHT business relief (4)
2 year hold Transfer in lifetime and on death 100% relief-sole traders, partners, aim shares, eis/seis 50% controlling shares in fully listed companies, land/building in compant
28
What is entrepreneurs relief?
For sole traders/partnerships Reduced 10% on gains up to £10m On business assets 2 year hold
29
What is investors relief?
Reduced 10% on cgt gains up to £10m 2 year hold
30
Tax efficient ways to dispose of shares and pass to grandchildren for house (9)
Determine amount required Determine acq cost/current gain Utilise cgt allowance Transfer into spouse name-interspouse transfers Register Previous losses with hmrc/use previous losses Sell units over several years for tax efficiency Could bed and isa in new tax year/goft to jisa/gift to LT ISA Could use trusts Use of gift allowance/gifts out of incoem
31
Does paying for a child school fees count towards IHT?
No, not if paid directly to university or into child’s account for general expenditure help Theres no set limits but it cant be excessive
32
Downsides of JISA’s (5)
Can choose funds from 16 No access to fund prior to 18 May not use funds for university Investment risk/interest rate risk Charges/need for advice
33
How do you setup a discounted gift trust? (9)
Register trust Assign trustees (couple and children) Setup discretionary trust Setup investment bond within trust Setup suitable atr within funds in inv bond Withdrawal can be deferred Growth outside of estate Initial gift immediately reduces estate Can use annual gift allowance Treated as a pet-7 years outside of estate