Taxation of direct investments Flashcards
Is the rule regarding £100 per annum for a child which is then taxed on a parent just for the one parent or is this for two?
This is £100 per parent therefore if the gift is joint then the limit will be £200
What is the interest paid for this tax year by UK banks?
Gross
With a building society demutualisation what happens if the member is paid a cash bonus? (From a tax perspective)
This will be a chargeable gain if the saver is a member of the building society ( ie has a share account). It will not be a chargeable gain if they have a deposit account
With a building society demutualisation what happens if free shares are given to an individual from a tax perspective
There will be no tax liability created but any gain on disposal would be a chargeable gain and the acquisition value would be nil.
Which investments are tax free under NS & I? (4)
- Direct ISA
- Premium Bonds
- Savings certificates ( both fixed and interest linked)
- Children’s bonds
Explain gilts?(5)
- Gilts pay a fixed interest - coupon
- Set amount (usually £100)
- Usually have a fixed term
- Coupon is paid gross unless the investor has elected to be paid net
- No CGT payable
What is a local authority bond? (5 features)
- Represent local borrowing
- Pay fixed interest
- Usually at end of a fixed term
- Paid net of tax
- Qualifying corporate bond and therefore no CGT payable on any gains
What is a corporate bond?
- Form of borrowing by a company
- Pay fixed interest
- Have a redemption value
- No CGT on a qualifying corporate bond but CGT on a non-qualifying bond
What is the difference and features between a permanent interest bearing share (PIBS) and a perpetual subordinated bond? (8)
- PIBS are issues by building societies to raise capital
- If the build society demutalises then they become PSBs
- PSBs have identical features to PIBS
- fixed interest investments
- Interest normally paid half yearly
- interest is paid gross
- Must be declared by UK tax payer
- Qualifying corporate bond so no liability to CGT - therefore losses can not be offset either
Name some features of a share? (4)
- Part ownership of the company
- voting rights
- Gains/Losses subject to CGT rules
- Can use dividend allowance
What would happen if a UK resident where to receive a dividend from an overseas country? (3)
- It will have withholding tax deducted at source
- This is if a double taxation agreement is in place
- UK resident could then either pay the foreign tax or pay the amount of UK tax due
What is the requirement for the annual income to be below in order for property profits to be allowed to be collected through PAYE?
Under £2500 and if the individual already pays PAYE
Is rental income classed as relevant UK income for pensions contributions?
No, even though it falls under the heading of non savings income it is not classed as relevant UK income for pension contributions
(exception is furnished holiday lettings or were the HMRC allows the business to be taxed as a trade)
What are the allowable deductions for property income? (6)
- Repairs and maintenance - this must be routine expenditure and will not be required to pay CGT
- Interest - any interest on a property loan can be offset against rent received from any of the properties in the property pool - this is being restricted in 2017/18
- Other expenses eg insurance premiums, ground rents
- Capital allowances - plant and machinery in no residential properties
- Wear and tear allowances - with a furnished buy to let the landlord can claim the expense of replacing or repairing the item under wear and tear
- premiums on short leases- where lump sums are received at the outset for the grant of a lease of less than 50 years
What are the 4 advantages if HMRC accepts that a property business can be taxed as a trade?
- Rent received can be used for relevant UK income for pension contributions
- CGT rollover relief, holdover and entrepreneurs relief
- IHT business relief
- More scope for setting off losses
