Taxation of investments

Question 1

Income Tax Relief on EIS investment

Answer 1

30% but must be held for 3 years

Question 2

Income Tax Relief on SEIS investment

Answer 2

50% but must be held for 3 years

Question 3

Income Tax relief on VCT investment

Answer 3

30% but must be held for 5 years

Question 4

EIS investment limit

Answer 4

• £1m
• Or £2m for knowledge intensive companies

Question 5

SEIS investment limit

Answer 5

• £100,000

Question 6

VCT investment limit

Answer 6

• £200,000

Question 7

Tax on EIS/SEIS dividends

Answer 7

• Subject to income tax at dividend rates

Question 8

Tax on VCT dividends

Answer 8

• Paid tax free

Question 9

Tax on sale of EIS/SEIS

Answer 9

• Gains liable to CGT if disposed of within 3 years

Question 10

Tax on sale of VCT

Answer 10

• Exempt from CGT

Question 11

CGT deferral

Answer 11

• 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

Question 12

IHT treatment of EIS/SEIS

Answer 12

• Qualify for Business Relief once held for 2 years

Question 13

IHT treatment of VCT

Answer 13

• Business Relief not available
• Forms part of investor’s estate

Question 14

EIS qualifying conditions

Answer 14

• 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

Question 15

SEIS qualifying conditions

Answer 15

• 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

Question 16

VCT qualifying conditions

Answer 16

• 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

Question 17

CGT on Gilts/Corporate Bonds

Answer 17

• Exempt from CGT

Question 18

Deductible property expenses

Answer 18

• Repairs and maintenance
• Interest at basic rate (not applicable to FHL)
• Legal/property management fees
• Insurance

Question 19

Rent a room relief

Answer 19

• 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

Question 20

Reporting v Non-reporting funds

Answer 20

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)

Question 21

Qualifying rules for a Whole of Life policy

Answer 21

• 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.

Question 22

Taxation of an Investment Bond in trust

Answer 22

• 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.