Taxation of investments Flashcards
Income Tax Relief on EIS investment
30% but must be held for 3 years
Income Tax Relief on SEIS investment
50% but must be held for 3 years
Income Tax relief on VCT investment
30% but must be held for 5 years
EIS investment limit
- £1m
- Or £2m for knowledge intensive companies
SEIS investment limit
- £100,000
VCT investment limit
- £200,000
Tax on EIS/SEIS dividends
- Subject to income tax at dividend rates
Tax on VCT dividends
- Paid tax free
Tax on sale of EIS/SEIS
- Gains liable to CGT if disposed of within 3 years
Tax on sale of VCT
- Exempt from CGT
CGT deferral
- Gains made on other assets can be deferred by re-investing in EIS shares
- Must be done within 1 year prior or 3 years after gain is made
- 50% of gains made on other assets are exempt when re-invested into SEIS shares
- Up to a limit of £100,000 of gains reinvested in each tax year
IHT treatment of EIS/SEIS
- Qualify for Business Relief once held for 2 years
IHT treatment of VCT
- Business Relief not available
- Forms part of investor’s estate
EIS qualifying conditions
- Gross assets no more than £15m before and £16m after investment
- Qualifying trade
- Permanent establishment in UK
- Unlisted
- Fewer than 250 employees
- No more than £5m from EIS in last year
- No more than £12m raised ever
- Must be for new shares
SEIS qualifying conditions
- Must be unquoted
- Must be independent
- Gross assets no more than £200,000 before
- Fewer than 25 employees
- No more than £150,000 raised in last 3 years
- Genuine new trade
- Can’t have used EIS/VCT
VCT qualifying conditions
- Must not be a close company
- Must be listed on EEA exchange
- Income must derive from dividends
- 70% of investment in qualifying trade companies
- No more than 15% to one company
- At least 10% investment in company must be ordinary shares
- At least 70% of total investments must be in ordinary shares
- Companies must have gross assets below £15m before and £16m after
- Companies must have fewer than 250 employees
CGT on Gilts/Corporate Bonds
- Exempt from CGT
Deductible property expenses
- Repairs and maintenance
- Interest at basic rate (not applicable to FHL)
- Legal/property management fees
- Insurance
Rent a room relief
- No income tax if gross receipts are less than £7,500
- Where more than £7,500, the landlord can either be taxed on the usual basis
- Or they can be taxed on the amount exceeding £7,500 with no deduction for expenses
- Does not apply to self contained or unfurnished accommodation
Reporting v Non-reporting funds
Reporting:
- Taxed as normal UK collectives in respect of income/gains
- Income taxed as it arises not when it is distributed
Non-reporting:
- Gain calculated with CGT principles (no exemption)
- But taxed as income (no allowances)
Qualifying rules for a Whole of Life policy
- Must secure a capital sum on death (or on death or earlier disability) and no other non-permitted benefits.
- £3,600 annual premium limit
- Annual or shorter premiums for at least ten years or until earlier death (or disability).
- Total premiums payable in any one year
must not exceed twice the total premiums payable in any other year, or one-eighth of
the total premiums payable over the first ten years. - The capital sum on death must be not less than 75% of the premiums that would be
payable if death were to occur on the life assured’s 75th birthday.
Taxation of an Investment Bond in trust
- If the settlor is alive (or the chargeable event occurred in the tax year of their death) and UK tax resident, the settlor is taxable on it. Any tax paid can be recovered from the trustees.
-If the settlor is died in a previous tax year, or resident outside the UK, immediately before the chargeable event and the trustees are resident in the UK, the trustees are chargeable on the gain. Taxed at 20% in standard rate band and 45% above (no tax credit). - If the trustees are not resident in the UK, they cannot be held liable for any tax but any UK resident beneficiaries receiving a benefit under the trust from the gain will be taxable. No top-slicing.
