Tax planning Flashcards
What is the SRB?
-on the first £5000 above personal allowance
-if over £17.570=no srb
What is the dividend allowance rates?
-£2000 per year
-8.75% basic rate
-33.75% higher rate
-39.35% additional rate
What is the marriage allowance?
10% unused personal allowance from
Spouse
£1260
Must earn below personal allowance to qualify
Whats the main aim of transferring investment or policy ownership? (3)
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 long can you carry forward previous loses for cgt purposes?
-you have 4 years to register
-carried forward indefinately after that
How does personal allowance tapering work? (3)
£1 for every £2 over £100k
Effective 60% tax
On adjusted net income (income minus pension contributions/losses)
What is a good way to bring down earning if getting hit by personal allowance trap? (4)
-Pay more into pension (if affordable)
-Gift aid
-salary sacrifice
-carry forward of AA (3 years prior)
How does the annual allowance tapering work? (4)
-£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
Common types of investments that drive tax efficiency in investments (3)
-Utilise all ISA limits
-Use friendly society plan-no tax on interest made
-Pension contributions maxed
What is gift holdover relief (3)
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
What is business asset disposal relief? (4)
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
Business asset rollover relief? (3)
-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
What is incorporation relief? (3)
-Where you sell your business is return for shares
-Delays cgt
-Gain made on disposal is deducted from acquisition cost of shares
How much is the cgt charge on BTL/additional residencies?
28%
When is capital gains tax due?
-If property, within 60 days
-Or 31st Jan following end of tax year
When is inheritance tax due?
6 months after end of month of death
Describe the nrb and How is main residence nrb reduced?
£1 or every £2 over £2m
-£175k pp
-must be direct discendant
What investments avoid IHT?
Dc Pension
Aim shares (2 years held)
Seis and eis (3 years)
Bonds in trusts (7 years bare trust)
Describe how salary sacrifice works for pension contribution (6)
-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
Benefits of salary sacrifice
-Reduced employee/employer NIC’s
-Reduced pay if personal allowance issues
-Get employer contributions
-great income and better standard of living in retirement
Drawbacks of salary sacrifice (6)
-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
Considerations regarding IHT planning (14)
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
Why is a deed of variation used?
To affect changes by the beneficiary in a will
10 ways to drive tax efficiency for a client
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
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)
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
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
What is entrepreneurs relief?
For sole traders/partnerships
Reduced 10% on gains up to £10m
On business assets
2 year hold
What is investors relief?
Reduced 10% on cgt gains up to £10m
2 year hold
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
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
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
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
