Taxation of other investments/wrappers Flashcards
What are the features of exchange traded funds?
- Index tracking funds listed on major stock exchanges
- Open ended funds
- Traditionally based off shore and therefore no stamp duty reserve tax on the purchase
- It is therefore either reporting or non reporting
What is a property authorised investment funds (PAIFS) - 6 elements
- OEICS with no corporation tax to pay in the fund
- Rental profits are distributed net of 20% income which can be reclaimed by non tax payer
- CGT is payable if gains are made
- In order to qualify 60% of total assets must be in the tax efficient part and this must generate 60% of the net income
- No corporate investor can hold more than 10% of the net asset of the fund
- It can be invested into a REIT
What are the features of REITS - real estate investment trusts? (5)
- Investment trust companies with the major part of the investment and activity in renting our properties
- Can be commercial, residential or overseas
- Two separate entities - ring fenced property letting part with no corporation tax on rental properties/other activities on which are subject to corporation tax
- Liable for CGT
- Can be held in an ISA
What are the features of the tax exempt letting element? (5)
- At least 75% of the trust’s gross profits must come from this
- It must contain a minimum of 75% of the total trusts assets
- 90% of the profits generated from this element must be distributed to investors within 12 months at the end of the accounting period
- interest on the borrowing must cover at least 125% of the rental profits
- No single property is more than 40% of the market value of the portfolio
What are the 2 forms of income that investors receive with REITS?
- Income from the property letting element which is distributed net of 20% income tax ( reclaimed by non Tax payer and additional to pay if HRT or ART)
- Income from other activities paid as dividends
What is the definition of an EIS?
- Tax incentive for direct investment into new issues of shares in a qualifying unlisted companies
- Companies are not listed on any major exchange in the world (AIM may qualify as EISs)
- Have a high risk of failure and the secondary market for their shares is illiquid
What is the income tax treatment for an EIS? (6)
- 30% income tax relief for investing in EIS shares up to £1m per year
- Tax reducer
- Can be claimed up to the amount of income tax in the year or the previous tax year
- Available to UK tax payer and cannot have any connection to the company
- Tax relief only available to the original purchaser
- Shares need to be held for 3 years - if disposed within this time then HMRC will reclaim
What is the CGT treatment? (4)
*No CGT on any gain provided it is held for 3 years
*Losses on EIS can be offset against income or chargeable gains
If taxable gain on disposal then the CGT can be deferred
*Reinvestment should be one year before and ending three years after the disposal which created the gain. The deferred gain may later be taxable on disposal of the EIS (At the rate of CGT at that point not the original rate
Do the EIS shares qualify for IHT business relief?
Yes once they have been held for 2 years. No IHT therefore will be paid on the death of the investor
What is the requirement of the assets of the company with the EIS shares? (2)
The assets must be below £15m before the investment and no more than £16m immediately afterwards
Must have no more than 250 full time employees at the time of the share issue
What are SEIS - seed enterprise investment scheme? (11)
- Direct investment into smaller start up companies
- Must have been trading for less than 2 years
- gross assets under £200000
- fewer than 25 full time employees
- tax relief of up to 50%
- Max of £100000 per tax year
- tax reducer
- Can be offset against the previous year
- Shares need to be held for 3 years
- An investor can be the director but must have a shareholding of less than 30%
- If gain made and on another investment and this is reinvested into a SEIS, then 50% of the gain will be exempt from CGT - this can be carried back one year
What are VCTs? (15)
- Similar to a investment trust company but has more beneficial tax treatment
- Indirect pooled investment in unlisted shares
- High risk of failure and illiquid markets
- Within 2 years of issue must have at least 70% of fund invested in unlisted ordinary shares including AIM shares
- Must distribute at least 85% of its income
- All money raised by VCT must be reinvested within 2 years
- Assets need to be below £15m at time of investment and no more than £16m after
- Holding in 1 company can be no more than 15%
- less than 250 full time employees at time of share issue
- 30% income tax relief
- Tax reducer
- Unlike EIS - no carry back
- Shares need to be held for 5 years
- No CGT
- CAn not defer CGT by reinvesting into a VCT
