Taxation

Question 1

‘Residence’ mainly affects which 2 types of tax?

Answer 1

Income tax Capital gains tax.

Question 2

Any person who is present in the UK for at least ____(?) days in a given tax year is regarded as automatically UK resident for tax purposes

Answer 2

183

Question 3

Where someone is not resident for at least 183 days in a tax year, what is applied?

Answer 3

statutory residence test is applied (unless they are regarded as automatically not UK resident).

Question 4

What is UNEARNED INCOME?

Answer 4

Income that is not derived from employment or self‐employment (interest/dividends from investments, rental income, trust income, etc).

Question 5

True or false:People who are not UK‐domiciled but have been resident in the UK for tax purposes in at least 15 of the previous 20 tax years are deemed to be UK‐domiciled for inheritance tax purposes.

Answer 5

True

Question 6

People whose annual income exceeds £100,000 have a restricted personal allowance, what is it?

Answer 6

The allowance is reduced by £1 for every £2 they earn above the £100,000 limit

Question 7

What is Marriage allowance?

Answer 7

it is possible for spouses and civil partners to transfer up to 10 per cent of the basic personal allowance, providing the transferor is not liable to income tax, and the recipient is not liable to income tax at the higher or additional rate.

Question 8

What is Married couple’s allowance?

Answer 8

this allowance is available if one partner in a marriage or civil partnership was born before 6 April 1935.For 2021/22 it could cut a tax bill between £353 and £912.50 per year.

Question 9

What is Blind person’s allowance?

Answer 9

this allowance of £2,520 is available to those registered as blind with a local authority. If the allowance cannot be used by the individual, it can be transferred to their spouse or civil partner.

Question 10

What is Personal savings allowance (PSA) ?

Answer 10

this enables savers to receive a certain amount of interest tax‐free. For the 2021/22 tax year, the first £1,000 of savings interest is tax‐free for basic‐rate taxpayers. The first £500 of savings interest is tax‐free for higher‐rate taxpayers and there is no tax‐free interest allowance for additional‐rate taxpayers.

Question 11

What is Dividend allowance (DA)?

Answer 11

where an individual’s aggregate dividend income in a tax year falls within the DA, no tax is payable. In the 2021/22 tax year the DA is £2,000.

Question 12

What are Allowances for property and trading income?

Answer 12

There are two separate allowances of £1,000, one for trading income and one for property income. The allowances apply to those who, for example, make small amounts of money by selling on e‐bay or by renting a room in their house or a parking space. If trading/property income is less than £1,000 then no tax is payable on that income; if more than £1,000 then the individual has the choice to either deduct the allowance from trading/property income or calculate profit in the usual way and deduct allowable expenses.

Question 13

Name 3 types of deductions

Answer 13

certain pensions contributions certain charitable contributions allowable expenses

Question 14

What are the rates and bands of income tax?

Answer 14

Basic rate - 20% - 0–37,500Higher rate - 40% - 37,501–150,000Additional rate - 45% - 150,001+

Question 15

What is the set set order in which income tax is applied?

Answer 15

1) Non‐savings income (earned income, rent received, pension income etc)2) Savings income.3) Dividends.4) Chargeable gains on a non‐qualifying life assurance policy.

Question 16

Self‐employed people pay their income tax and what 2 other things in two equal parts?

Answer 16

Class 2 and 4 NICs

Question 17

The first payment is due on 31 _______ of the tax year in which their business year ends; the second is due on 31 _______, six months later.

Answer 17

January July

Question 18

What is Gift Aid?

Answer 18

the charity can recover the basic‐rate tax (20 per cent) that is assumed to have been paid on the amount of the gift, increasing the value of the net gift by 25 per cent.

Question 19

What is Payroll giving?

Answer 19

This enables employees to make tax‐efficient gifts by having a charitable gift deducted from their salary before income tax is charged. By making a gift in this way, tax relief is granted on the value of the gift at the individual’s highest rate of income tax. So, someone who earns £60,000 annually and gives £1,000 to charity via payroll will only be deemed to have a gross income of £59,000.

Question 20

What are National Insurance contributions?

Answer 20

National Insurance contributions are a form of taxation in everything but name. They are in effect a tax on earned income and are payable in different ways according to whether the earner is employed or self‐employed.

Question 21

What are the different `NIC classes?

Answer 21

Class 1,2,3 &4. (Self employed pay class 2 and 4)

Question 22

What is the personal savings allowance (psa) for 2021/22?

Answer 22

The first £1000 of savings interest is tax free for basic rate taxpayers The first £500 of savings interest is tax free for higher rate taxpayersThere is no tax free allowance for higher/additional rate taxpayers

Question 23

Give me examples of CGT

Answer 23

Examples include: 1) personal property worth more than £6,000; 2) a property or land that is not the individual’s main home; 3) the individual’s main home if it has been let out or used for business, or if it is very large;4) the sale of shares, if they are not held in an ISA5) business assets, such as land, buildings, machinery or registered trademarks.

Question 24

What is the annual exempt amount for CGT in 2019/2020?

Answer 24

£12,300

Question 25

True or false :The full CGT allowance also applies to a bare trust (which has a specified beneficiary who will have absolute entitlement to assets at 18), trustees of a trust for a vulnerable beneficiary, and to personal representatives.

Answer 25

True

Question 26

True or False :CGT applies to gains made since 6 April 2015 by individuals or trustees who are not UK resident on residential property located in the UK. Gains made during ownership prior to this date are ignored.

Answer 26

True

Question 27

True or False:Gains that accrue to non‐UK residents on non‐residential property have been subject to tax since 6 April 2019.

Answer 27

True

Question 28

Calculating CGT liability involves the following:

Answer 28

1) Calculate the amount of the gain.
2) Deduct the CGT annual exempt amount (if this has not been used against other gains in the same tax year)
.3) Deduct any losses that can be offset against the gain.
4) What remains is the taxable gain.
5) Add taxable gain to taxable income to establish what rate(s) of CGT should be paid.
6) Apply tax at appropriate rates. In 2019/20, for example, the rates are: 10 per cent for taxable gains falling in the basic‐rate income tax band; 20 per cent otherwise, with an 8 per cent supplement where the gain results from the sale of property not subject to private residence relief.

Question 29

What do PETs stand for?

Answer 29

potentially exempt transfer

Question 30

Most gifts made during a person’s lifetime are potentially exempt transfers (PETs) and are not subject to tax at the time of the transfer. After how many years do these transactions become fully exempt and no tax is payable.?

Answer 30

7 Years

Question 31

What gifts and transfers are exempt from inheritance tax?

Answer 31

1) transfers between spouses and between civil partners both during their lifetime and on death, provided that the receiving spouse/civil partner is UK domiciled2) small gifts of up to £250 (cash or value) per recipient in each tax year;3)donations to charity, to political parties and to the nation4) wedding gifts of up to £1,000 (increased to £5,000 for gifts from parents or £2,500 from grandparents)5) gifts that are made on a regular basis out of income and which do not affect the donor’s standard of living6) up to £3,000 per tax year for gifts not covered by other exemptions. Any part of this £3,000 that is not used in a given tax year can be carried forward for one tax year, but no further.

Question 32

What is Value added tax (VAT)?

Answer 32

Value added tax (VAT) is an indirect tax levied on the sale of most goods and the supply of most services in the UK.

Question 33

What is Value added tax (VAT)?

Answer 33

Value added tax (VAT) is an indirect tax levied on the sale of most goods and the supply of most services in the UK.

Question 34

What are Zero‐rated items in terms of VAT?

Answer 34

food, books, children’s clothes, domestic water supply and medicines

Question 35

What is the advantage of registering as VAT business?

Answer 35

An advantage of registering is that VAT paid out on business expenses can be reclaimed

Question 36

Two disadvantages of VAT registered businesses are…..

Answer 36

1) the fact that the firm’s goods or services are more expensive to customers (by the amount of the VAT that the firm must charge);2) the additional administration involved in collecting, accounting for and paying VAT.

Question 37

What is Stamp duty and stamp duty reserve tax?

Answer 37

Stamp duty is payable on paper documents that transfer the ownership of financial assets, such as shares and bearer instruments.Stamp duty reserve tax (SDRT) is charged on transfers that are completed electronically.

Question 38

What is Stamp duty land tax?

Answer 38

Stamp duty land tax (SDLT) is paid by the purchaser of property and there are different rates of SDLT which apply to different portions of the purchase price.

Question 39

What is Corporation tax?

Answer 39

Corporation tax is paid by limited companies on their profits(It is also payable by clubs, societies and associations, by trade associations and housing associations, and by co‐operatives.)

Question 40

What is Withholding tax?

Answer 40

The phrase ‘withholding tax’ refers to any tax on income that is levied at source before that income is received.

Question 41

Melanie bought a painting in a charity shop for £40. It turned out to be by a well‐known artist, and she sold it three years later for £2,000. She had to pay CGT on the gain she made. True or false?

Answer 41

False. Gains made on ‘chattels’ (movable objects such as jewellery, antiques and paintings) are exempt from CGT if their value is £6,000 or less.

Question 42

For how many years can the annual exempt amount for CGT be carried forward?

Answer 42

The CGT annual exempt amount cannot be carried forward at all.

Question 43

To qualify for roll‐over relief, a business must replace an asset not more than five years from the date of disposal. True or false?

Answer 43

False. Assets must be replaced within three years after the date of disposal.

Question 44

What kind of tax is payable when shares are purchased electronically?

Answer 44

Nine months after the end of the relevant accounting period.

Question 45

What is a chargeable lifetime transfer?

Answer 45

Some lifetime gifts - notably those to companies, other organisations and certain trusts - are not PETs but chargeable lifetime transfers, on which tax at a reduced rate of 20% is immediately due. This ‘lifetime’ tax is only payable if the value of the chargeable lifetime transfer, when added to the cumulative total of chargeable lifetime transfers over the previous seven years, exceeds the nil-rate band at the time the transfer is made. The 20% tax is only applied to the excess over the nil-rate band. As with PETs, the full tax is due if the donor dies within seven years (subject to the same taper relief) and any excess over the 20% already paid then becomes payable.

Question 46

What are the tax rates for calculating capital gains tax liability in the 2021/22 tax year?

Answer 46

20% (or 28% on residential property) on any amount above the basic tax rate.

Question 47

Define Disposal with respect to taxation.

Answer 47

For CGT purposes, a disposal can be the sale of an asset, transferring ownership to another party, giving it away, or receiving compensation for its loss or destruction

Question 48

What is Private residence relief?

Answer 48

Private residence relief is available when someone sells the property they have lived in as their main or only residence.

Question 49

What is Entrepreneur’ relief

Answer 49

A lower rate of 10% is applied to a lifetime limit of £10m of cumulative gains arising from the disposal of trading businesses and from certain disposals of shares in trading companies.The individual must generally own at least 5% of the ordinary share capital of the business.In addition they must be entitled to at least 5% of the distributable profits and net assets of the company.

Question 50

What is Roll-over relief

Answer 50

Business assets are chargeable to CGT. However, roll-over relief may be claimed if the assets disposed of are replaced by other business assets. This means that, instead of CGT falling due on the original disposal, it is deferred until a final disposal is made.