Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Business Law > Taxation Of Individuals IT CGT And IHT > Flashcards

Taxation Of Individuals IT CGT And IHT Flashcards

You may prefer our related Brainscape-certified flashcards:
MBE flashcards MPRE flashcards Civil Procedure 1L flashcards
1
Q

What are the main types of taxes covered in the BLP module?

A

The main types of taxes covered are Income Tax, Capital Gains Tax (CGT), Value Added Tax (VAT), and Corporation Tax.

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

What distinguishes direct taxes from indirect taxes?

A

Direct taxes are imposed based on a taxpayer’s circumstances, while indirect taxes are imposed based on transactions.

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

What is an example of a direct tax?

A

Examples of direct taxes include Income Tax, CGT, and Corporation Tax.

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

What is an example of an indirect tax?

A

Value Added Tax (VAT) is an example of an indirect tax.

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

How are income receipts defined?

A

Income receipts are money received on a regular basis, such as trading profits, interest from savings, and rent received.

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

What are capital receipts?

A

Capital receipts are from transactions that are not part of regular activity, often considered ‘one-off’ transactions.

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

What constitutes income expenditure?

A

Income expenditure includes money spent as part of day-to-day trading, such as bills, marketing, and staff wages.

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

What is capital expenditure?

A

Capital expenditure is money spent to purchase a capital asset or enhance a capital asset, seen as a ‘one-off’ transaction.

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

When can capital expenditure be deducted for tax purposes?

A

Capital expenditure can generally only be deducted from the proceeds realized when a capital asset is disposed of.

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

What are capital allowances?

A

Capital allowances are tax reliefs for capital expenditure that allow certain types of capital expenditure to be deducted from income receipts.

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

What is the PAYE system?

A

The PAYE system is where income tax is deducted at source by the employer from an employee’s wages and accounted for to HMRC.

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

What is the tax year for individuals?

A

The tax year for individuals runs from 6 April in one calendar year to 5 April in the next.

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

What is the financial year for companies?

A

The financial year for companies runs from 1 April in one calendar year to 31 March in the next.

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

What is the first step in calculating an individual’s income tax liability?

A

The first step is to calculate Total Income, which is the taxpayer’s gross income from all sources.

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

What is Net Income?

A

Net Income is Total Income less available tax reliefs.

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

What is Taxable Income?

A

Taxable Income is Net Income less the personal allowance.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What is the purpose of the personal allowance?

A

The personal allowance allows a band of tax-free income for individuals.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

What is the Dividend Allowance?

A

The Dividend Allowance is a band of tax-free dividend income available to individuals for income tax purposes.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What is the definition of Total Income?

A

Total Income is a taxpayer’s gross income from all sources before any deductions.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

What does ‘grossing up’ refer to?

A

Grossing up refers to including the gross amount in the calculation of Total Income when income has been received net of tax.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

What is ‘grossing up’ in tax calculation?

A

Grossing up is the process of including the gross amount in the calculation of Total Income after tax has been deducted at source.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

How is savings income taxed for basic and higher rate taxpayers?

A

Basic rate taxpayers are entitled to the first £1,000 of interest received on savings tax-free, while higher rate taxpayers are entitled to the first £500 tax-free.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

What is the dividend allowance?

A

The dividend allowance allows individuals to receive the first £500 of dividend income tax-free (prior to 6 April 2024, it was £1,000).

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

Are benefits in kind subject to PAYE?

A

Benefits in kind are subject to income tax but are NOT subject to deduction of tax under PAYE.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
Q

What tax reliefs can be deducted to calculate Net Income?

A

The tax reliefs that can be deducted are interest paid on qualifying loans and pension scheme contributions.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
26
Q

What qualifies for interest tax relief?

A

Interest on qualifying loans includes loans for buying an interest in a partnership, contributing capital to a partnership, buying shares in a ‘close’ company, or investing in a co-operative.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
27
Q

How are pension scheme contributions treated for tax relief?

A

Pension scheme contributions are deducted from Total Income for the tax year, providing relief from income tax.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
28
Q

What is the personal allowance for the tax year 2024/25?

A

The personal allowance for the tax year 2024/25 is £12,570.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
29
Q

How is the personal allowance reduced for high earners?

A

The personal allowance is reduced by £1 for every £2 of Net Income above £100,000.

30
Q

What is the order of taxing different types of income?

A

Income must be taxed in the order of non-savings, then savings, and then dividend income.

31
Q

What are the tax rates for the 2024/25 tax year?

A

Basic rate: 20%, Higher rate: 40%, Additional rate: 45% for non-savings income. Savings and dividend rates vary.

32
Q

What is the personal savings allowance?

A

The personal savings allowance allows savings income to be taxed at 0% for the first £1,000 (basic rate) or £500 (higher rate).

33
Q

Who losses the benefit of personal allowance on savings income

A

Additional rate tax payers - over 125,140

34
Q

How do you work out reduced personal allowance for over £100,000 income

A

12,570 - [(net income - £100,000)/2] = reduced allowance

35
Q

What are the tax rates for savings income

A

Basic = 20%
Higher = 40%
Additional = 45%

36
Q

What are the tax rates for dividend income

A

Basic = 8,75%
Higher = 33.75%
Additional = 39.35%

37
Q

What are the taxable income amounts for each band

A

Basic = 0-37,700
Higher = 37,701 - 125,140
Additional = 125,140

38
Q

What is Capital Gains Tax (CGT)?

A

CGT is a tax on the profit made from disposing of a capital asset that has appreciated in value during ownership.

39
Q

What are the conditions for CGT to be charged?

A

CGT is charged where there is a Chargeable Disposal of a Chargeable Asset by a Chargeable Person which gives rise to a Chargeable Gain.

40
Q

What is a Chargeable Disposal?

A

The two main instances of disposal are the sale of an asset and the gift of an asset during the taxpayer’s lifetime.

41
Q

Is there a chargeable disposal on death?

A

No, the personal representatives of the deceased’s estate acquire the estate at its then market value, known as ‘a free uplift on death’.

42
Q

What types of assets are excluded from CGT?

A

Excluded assets include Principal Private Residence (PPR), motor cars for private use, certain investments, and UK sterling or foreign currency for personal use.

43
Q

How is a Chargeable Gain calculated?

A

A gain is calculated based on the consideration received minus allowable expenditures.

44
Q

How are disposals between spouses treated for CGT?

A

Disposals between spouses are treated as neither a gain nor a loss, so no CGT is payable.

45
Q

What is the consideration received in a disposal at arm’s length?

A

The consideration received is the price paid by the buyer when the asset is sold.

46
Q

What happens in disposals between connected persons?

A

The seller is deemed to have received market value, irrespective of the actual sale proceeds.

47
Q

What is the basic calculation of the gain?

A

The basic calculation is: Consideration Received - Allowable Expenditure = Gain.

48
Q

What types of allowable expenditure can be deducted?

A

Allowable expenditure includes disposal expenditure, initial expenditure, and subsequent expenditure.

49
Q

How can capital losses be used?

A

Capital losses can be deducted from capital gains in the same tax year or carried forward to future years.

50
Q

What is the Annual Exemption (AE) for CGT?

A

The annual exemption for the current tax year is £3,000, allowing individuals to make gains up to this amount tax-free.

51
Q

What are the CGT rates for individuals?

A

The rates are 10% for basic rate taxpayers and 20% for higher and additional rate taxpayers.

52
Q

What is Business Asset Disposal Relief?

A

It reduces the higher rate of CGT from 20% to 10% for qualifying disposals of business assets.

53
Q

What is the lifetime allowance for Business Asset Disposal Relief?

A

The lifetime allowance is set at £1 million, allowing gains up to this amount to be taxed at a reduced rate of 10%.

54
Q

What is Investors’ Relief (IR)?

A

IR reduces the higher rate of CGT from 20% to 10% for gains on disposals of qualifying shares held for at least three years.

55
Q

What is the impact of disposing of a buy-to-let property investment on Business Asset Disposal Relief?

A

The disposal of a buy-to-let property investment or other non-trading business will not qualify for Business Asset Disposal Relief.

56
Q

What is Investors’ Relief (IR)?

A

IR was introduced to benefit investors in unlisted trading companies who hold their shares for at least three years.

57
Q

What does Investors’ Relief (IR) reduce the higher rate of CGT to?

A

IR reduces the higher rate of CGT from 20% to 10% for gains arising on disposals of qualifying shares, subject to a lifetime limit of £10 million.

58
Q

What conditions must be met for shares to qualify for Investors’ Relief?

A

Shares are qualifying if:
1. They are fully paid ordinary shares issued for cash consideration on or after 17 March 2016.
2. The company is a trading company or the holding company of a trading group.
3. None of the company’s shares were listed on a recognised stock exchange at the time of issue.
4. The shares are held for at least three years from 6 April 2016.
5. The individual (or connected person) is not an officer or employee of the company.

59
Q

What are the two main business reliefs that defer CGT liability?

A

The two main business reliefs are:
1. Replacement of business assets relief (‘Rollover Relief’)
2. Gift of business assets relief (‘Hold-over relief’)

60
Q

What is Replacement of business assets relief (Rollover Relief)?

A

Rollover Relief allows a taxpayer to postpone CGT liability on the sale of certain business assets by ‘rolling over’ the gain into the replacement asset.

61
Q

What types of assets qualify for Rollover Relief?

A

Qualifying assets include land and buildings, fixed plant and machinery, and goodwill.

62
Q

What is the effect of Rollover Relief on the acquisition cost of a replacement asset?

A

The acquisition cost of the replacement asset is reduced by the amount of the gain being rolled over.

63
Q

What is Gift of business assets relief (Hold-over relief)?

A

Hold-over relief allows the donor and donee to postpone CGT liability when a business asset is given away, with the donee’s acquisition cost reduced by the donor’s deemed gain.

64
Q

What happens to CGT liability under Hold-over relief?

A

The CGT liability is postponed until the donee ultimately disposes of the asset.

65
Q

What types of business assets can qualify for Hold-over relief?

A

Business assets include goodwill, assets used in the business, and shares in a trading company not quoted on a stock market.

66
Q

What triggers CGT liability?

A

CGT is charged when there is a chargeable disposal of a chargeable asset by a chargeable person, resulting in a chargeable gain.

67
Q

What are the two main types of disposal for CGT?

A

The two main types of disposal are a gift and a sale of an asset.

68
Q

What is the starting point for CGT calculation?

A

The starting point is establishing the consideration or proceeds received by the seller on the disposal of the asset.

69
Q

What are the CGT rates for different taxpayers?

A

CGT is charged at 20% for higher and additional rate taxpayers, 10% for basic rate taxpayers, and 10% for those benefiting from Business Asset Disposal Relief or Investors’ Relief.

70
Q

What are some ways to mitigate CGT liability?

A

Ways to mitigate CGT liability include allowable expenditure, Business Asset Disposal Relief, Investors’ Relief (if conditions are met), losses, and an annual exemption.

71
Q

What is needed for business asset disposal relief to apply

A

Need to be an officer or employee of the company who holds at least 5% of the ordinary voting shares and is entitled to at least 5% of the profits available for distribution and 5% of the net assets on a winding up, for at least two years before the date of disposal.

Business Law (9 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions