Tax planning

Question 1

What is the SRB?

Answer 1

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

Question 2

What is the dividend allowance rates?

Answer 2

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

Question 3

What is the marriage allowance?

Answer 3

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

Question 4

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

Answer 4

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)

Question 5

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

Answer 5

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

Question 6

How does personal allowance tapering work? (3)

Answer 6

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

Question 7

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

Answer 7

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

Question 8

How does the annual allowance tapering work? (4)

Answer 8

-£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

Question 9

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

Answer 9

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

Question 10

What is gift holdover relief (3)

Answer 10

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

Question 11

What is business asset disposal relief? (4)

Answer 11

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

Question 12

Business asset rollover relief? (3)

Answer 12

-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

Question 13

What is incorporation relief? (3)

Answer 13

-Where you sell your business is return for shares

-Delays cgt

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

Question 14

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

Answer 14

28%

Question 15

When is capital gains tax due?

Answer 15

-If property, within 60 days

-Or 31st Jan following end of tax year

Question 16

When is inheritance tax due?

Answer 16

6 months after end of month of death

Question 17

Describe the nrb and How is main residence nrb reduced?

Answer 17

£1 or every £2 over £2m

-£175k pp

-must be direct discendant

Question 18

What investments avoid IHT?

Answer 18

Dc Pension

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

Question 19

Describe how salary sacrifice works for pension contribution (6)

Answer 19

-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

Question 20

Benefits of salary sacrifice

Answer 20

-Reduced employee/employer NIC’s

-Reduced pay if personal allowance issues

-Get employer contributions

-great income and better standard of living in retirement

Question 21

Drawbacks of salary sacrifice (6)

Answer 21

-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

Question 22

Considerations regarding IHT planning (14)

Answer 22

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

Question 23

Why is a deed of variation used?

Answer 23

To affect changes by the beneficiary in a will

Question 24

10 ways to drive tax efficiency for a client

Answer 24

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

Question 25

What is Cgt reinvestment relief?

Answer 25

Can claim 50% of your reinvested amount in SEIS against your chargeable gain (remember to also use cgt annual allowance)

Question 26

How do you determine a ltd compa profits

Answer 26

Profit minus costs from company year end when incorporated
Deduct corp tax
Deduct dividends taken
Carry forward loss/profit from previous year

Question 27

What is IHT business relief (4)

Answer 27

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

Question 28

What is entrepreneurs relief?

Answer 28

For sole traders/partnerships

Reduced 10% on gains up to £10m

On business assets

2 year hold

Question 29

What is investors relief?

Answer 29

Reduced 10% on cgt gains up to £10m

2 year hold

Question 30

Tax efficient ways to dispose of shares and pass to grandchildren for house (9)

Answer 30

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

Question 31

Does paying for a child school fees count towards IHT?

Answer 31

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

Question 32

Downsides of JISA’s (5)

Answer 32

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

Question 33

How do you setup a discounted gift trust? (9)

Answer 33

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