TC/BPT Flashcards
How do you value quoted shares?
In general, all transfers are valued at their open market value at time of transfer.
Shares listed on the Stock Exchange are valued at the lower of:
the quarter up rule:
lower quoted price + ¼ × (higher quoted price – lower quoted price), and
the average of the highest and lowest marked bargains on the day of the
transfer.
For capital gains tax the proceeds would be valued using the formula:
Lower quoted price + ½ (higher quoted price – lower quoted price)
What is in IHT stage 1:
transfer
BPR
specific exemptions
annual exemptions (CY/PY)
chargeable amount
What is in IHT stage 2:
chargeable amount (from stage 1)
nil rate band
taxable amount
tax 20/25%
GCT (note if trustEE pays twentEE then GCT is just the chargeable amount if donAR pays quartAR-default-then GCT is chargeable amount+tax paid-think there is more tax and more GCT)
Qualifying R&D expenditure includes. (5)
-consumable/transformable materials
computer software
power, water, fuel
salaries of staff directly engaged on R&D work (e.g. engineers)
payments to subcontractors (see 4.3)
Any R&D capital expenditure (except land) qualifies for a 100% FYA (or
130% super deduction if qualifying plant and machinery) but not any
additional R&D relief (see below).
Payments to subcon under R&D.(2)
The amounts paid to a subcontractor which qualify as R&D expenditure,
and therefore eligible for the additional 130% relief available to SMEs,
depend on whether the company is connected with the company to
which the work has been subcontracted:
if the provider is an unconnected company only 65% of the
payment made is qualifying expenditure (i.e. only 65% of the cost
is eligible for the additional 130% relief available to SMEs).
if the provider is a connected company then the qualifying
expenditure will be the amount paid, but this is capped at the
provider’s own relevant expenditure in providing the staff (i.e. the
profit element charged by the subcontractor is not eligible for the
additional 130% relief available to SMEs).
The company can elect for any subcontractor to be treated as a connected company.
RDEC.(3)
13% above the line for large companies or SMEs who have work subcon from large.
The RDEC is a tax credit:
it is included in the calculation of trading income, and
it is deducted from the corporation tax liability to calculate corporation tax
payable.
Examples of allowable IFA trading expenses (debits) include:
Examples of taxable IFA trading income (credits) include:
payment of a royalty
loss on the sale of an IFA
amortisation of an IFA (except goodwill)
receipt of a royalty payment
profit on the sale of an IFA
revaluing an IFA.
Incidental costs of loan finance. (2)
-Incidental costs of loan finance (e.g. expenses in relation to raising the loan finance) follow the treatment of the loan itself:
if the loan is for non-trade purposes (e.g. to buy shares or an investment property) the incidental costs are treated as an NTLR debit.
if the loan is for trade purposes (e.g. to buy plant and machinery or a building used in the trade) the incidental costs are treated as a trading income debit.
-As interest paid to buy or improve a property is dealt with under the loan relationship rules above, it is not an allowable expense against property income.
Capital profits and losses on disposal. (2)
-The profit or loss on the disposal of a debt instrument (e.g. debentures, loan stock, gilts) is taxable as NTLR under the loan relationship rules, rather than as a chargeable gain or loss.
-The profit or loss on disposal is calculated as proceeds less cost (indexation is not available). This is not always the same as the accounting profit or loss on disposal which is calculated as proceeds less amortised cost.
Cars with 1-50 emissions enter the…
main pool, as do second hand zero emission cars (in OBT)
Enhanced capital allowances
130% of 100% FYA assets in main pool, 50% if special pool on qualifying plant and machinery
For expenditure on main pool qualifying assets:
– claim 130% super-deduction instead of the AIA
– keep asset separate (do not put in main pool).
For special rate pool expenditure:
– claim AIA first (gives 100% relief)
– then FYA = 50% × remaining cost
– balance to special rate pool: 6% WDA from following AP
Second hand assets, cars and expenditure in the period of cessation will not be
eligible for these temporary reliefs
Short life assets (SLA).
-Short life assets are main pool assets that are expected to be used for not more than eight years.
-A depooling election may be made to put a short life asset in its own pool (rather than the main pool) to enable the calculation of a balancing allowance on disposal.
-If the short life asset is not disposed of by end of eight years after the end of the basis period (or AP for companies) in which the expenditure was incurred it is transferred to the main pool at TWDV.
Time limits on depooling election in OBT
Super deduction is for
new and unused plant and machinery!!-shouldnt inc in R&D cacl for rdec or allowance if R&D but should be inc in 130% CA in comp
How to calc annual adjustments for partially exempt traders
The tests are usually performed once per quarter however at the end of the year will be performed on the total first with 2 basic tests and then the full if these are failed eg calc the full calc and perfrom tests on this
If the amount calculated is the same as is paid then no adj needed, however otherwise calc the difference based on what has been paid vs what should have , if final test on full annual amount is passed also no adj
See q2 sep 20 for more info on calc as was an exam q
How to treat entertainment expenses as employee
3 situations
Specific allowance-add to income and deduct amount actually spent
General/round sum allowance-include income but no deduction
Reimbursed directly-dont include in EE comp
How to treat entertainment expenses as employer
Speciifc allowance-not allowable deduction for employer
General-allowable deduction
Reimbursed directly-reimbursed amount is disallowable deduction
How to calc PPS vs OPS in employemnt income calcs
PPS treat like gift aid, OPS is a deduction from income
Gross PPS contributions are also deducted from net income when calculating
adjusted net income (see Income tax computation chapter)
However, this deduction can only be made on a paid basis i.e. any accrued pension
contributions at the end of the employer’s accounting period are disallowed expenses
but should get deducted in a subsequent period, when they are physically paid.
Max indivudal contributions the max you can deduct is higher of 3600 or relevant earnings (taxable trading income/employment income) but overall for both is 40k allowance (ie employee and employer) can cf 3 years unused FIFO after cy annual allowance (OBT)
What is the benefit for flat with annual value of 8700 rented for 4 months with rent paid of 900 per month.
Its actually the higher of the annual value or rent paid in this case it woul dhave been 87004/12=2900 or 9004=3600
Therefore benefit is 3600
Any bills paid should also be added and payment made by employee deducted.
What is the capital contribution cap on the list price of the car?
5k
What to do with trading income <1k in income tax
exempt
Property allowance
For indivudal only basically if expenses <1k then deduct 1k from property income instead, the owner can disapply if they wanted to create a loss but need to elect for this
How are finance costs for RESIDENTIAL treat in property income? (1)
Tax reducer:
Cant produce a refund
The relief is calculated based on 20% of the lowest of:
-finance costs for the tax year plus any finance costs brought forward (see
below)
-property business profits: the profits of the property business in the tax year
(after using any brought forward losses)
-adjusted total income: non-savings income (after losses and reliefs) after deducting the personal allowance (£12,570 for 2022/23).
If the lowest is property business profits or adjusted total income then the difference
between that figure and finance costs is carried forward to calculate the basic rate tax
reduction in the following years.
Finance costs for non res property is an allowable deduction
Capex in property income
Capital allowances are available only on plant and machinery used for repairs and
maintenance, not for plant and machinery used in the rental property (e.g. furniture).
Capital allowances may also be claimed for motor vehicles used in the property
businesses, unless a fixed rate deduction has been claimed (see Trading income
chapter).
Replacement furniture relief in property income. (4)
-There is no relief for the initial expense of purchasing domestic items used by a tenant (e.g. beds, fridges, floor coverings, crockery); but the cost of later replacing them is allowable, even if the property is not fully furnished.
-The amount of relief available is reduced by any proceeds from the sale of the asset being replaced, but increased by any costs of disposal of the old item. The old item must no longer be available for use by the tenant.
-Relief is only available for a like for like replacement: no deduction is available for any element of improvement (e.g. if a washing machine is replaced with a washer dryer, only the cost of a replacement washing machine would qualify for relief).
-Expenditure on a replacement asset that is improved purely because of advances in technology is allowable in full.
fixtures in property income
The cost of replacing fixtures which are integral to the property and not normally removed if sold (e.g. sanitary ware, light fittings, boilers) is deductible as a repair to the property
Allowable property income deductions
Examples of allowable deductions include:
insurance e.g. buildings insurance
finance costs relating to non-residential properties e.g. mortgage interest (see
below for treatment of finance costs relating to residential properties)
legal and professional costs e.g. agent’s fees
rates and taxes paid by landlord e.g. council tax, water rates
ancillary services provided by landlord e.g. cleaning, gardening
repairs and maintenance e.g. painting and decorating
fixed rate deductions for motor vehicles used in the property business (unless
capital allowances have been claimed - see Trading income chapter).
Only deduct expenses relating to periods where the property is rented out or
available for rent (e.g. time apportion expenses if the landlord lives in the property for
part of tax year).
What is fall in value relief and how is it applied
If something eg is put into a trust for 270k and then sold for 267k then 3k FIV is available off the GCT for the purpose of calcuating the IHT
However DOESNT impact the NRB remaining for treansfers (just use GCT at end of stage 2)
This relief does not apply to chattels with a life of no more than 50 years, or plant and
machinery.
RNRB cap
Estates over 2m reduced by £1 for every £2 over
How to handle life assurance policies in IHT
-If the policy relates to the individual’s own life, include the proceeds (not the market value) of the policy in the death estate calculation
-If the policy is held in trust do not include it in death estate: no inheritance tax will be due on the proceeds.
-If the policy relates to someone else’s life include the market value of the policy in the death estate calculation.
rent a room relief.(2)
ON PROPERTY INCOME (if less than limit then the incme would be exempt)
normal expenses or 7500, if more than persion is 3750 per person
An individual cannot claim the property allowance on income qualifying for rent-aroom relief, therefore the income qualifying for rent-a-room relief is not included in the
rental income figure used to determine if the income exceeds the property allowance-ie the allowance of 1k if rental receipts arent greater than this
private residence relief.(3)
exempt if occupied whole time
partially exempt for deemed occupation:
3 years for any reason
4 years whilst working in the UK
Any period working abroad
However,
-must not have another private residence during this time.
-can let out the property during the period of absence (but this will not qualify for letting relief – see below).
letting relief. (3)
CGT
-Letting relief applies when the owner lets part of the property whilst
still occupying the remainder (i.e. shared occupation).
-If the owner has one lodger, living as a member of the family, sharing the home and meals with them, full PRR is available and letting relief is not considered.
-Letting relief is the lowest of:
- £40,000
- the PRR given
- the part of the gain after PRR attributable to the letting period:
gain after PRR × chargeable months due to letting/total
chargeable months. -this part is in OBT
how is mortgage interest for companies treat
deductible in full but at NTLR instead
Remember as sole trader cannot deduct mortgage interest but get a tax reducer which is the lower of the remaining interest, cy propery income less cy properyy losses, taxble NSI (ie less PA)
Instead these only gain relief as a basic rate tax reducer, meaning for higher rate and additional rate taxpayers relief is granted at 20% rather than 40% or 45%. UNLESS FHA in which case interest fully deductable
Remember this is onyl for let properties development properties ie flips are allowable
SDLT on company property purchase
+3% always unless high value then 15% but dont add 3% to this, if high value also subject to ATED
Do companies get rent a room relief? wb property allowance?
nope
Can FHA get relief on white goods
yes unlike normal they can, or full capital allowances if accruals basis
What is RPDT
residential proeprty development tax-companies only
on those over 25m taxed 4% and finance costs not deductibel before calc
Company rental of cars
As you have seen in your previous studies, if a business rents a car for the purposes of its trade a deduction can be made for tax purposes.
If the car has emissions not exceeding 50g / km, the full cost is allowable.
For emissions greater than 50g / km (110g/km prior to April 2021), a flat 15% disallowance is made.
These rules only apply to cars and not other vehicles.
Lesee tax
depreciation and interest allowable expenses
Bankruptcy
Deregister for VAT
Closing year rules for cessation of trade
CGT on gains
Losses: offset against total income (cap) and gains if elect in CY, against PY (cap), TLR but if 20/21 or 21/22 dont claim as can get extended carry abck relief for 3 years
What is a PECL and tax implications
Pre entry capital loss ie loss made before joining loss group-actual realised losses not those that have fallen in value but still owned
joiner can use PECL against assets owned before joining the group or on gains arising on disposal of assets bought since joining group only if bought from outside the group and used only in own business ie not used by other group members
The rest of the group cannot use the PECL
What happens when a capital asset is transferred in a gains group and is then used as inventory by the other company eg transfer of lorry to a company whos trade is then to sell on lorries?
The transfer for the selling company is on NGNL as in gains group
For the purchaser a gain will arise of MV less cost to original company (the indexed cost), inventory treat as purchased for MV and this would then be used in calculation of trading profit
What happens when inventory is transferred to capital asset in a new company
The selling company down as selling for MV eg if cost 10k but sold for 8k seen as selling at a loss of 2k
The 8k lorry is then treat as if its at MV of 8k but is now a NCA and this is transferred on NGNL as in gorup so no gain on the transfer arises, the purchaser is seen as purchasing the asset for 8k going forward.
benefits of a gains group and what are the requirements to join
NGNL transfer
group rollover relief-th
reallocation of gains and losses only on CY! -have to elect within 2 years of chargeable
Have to be 75% direct or 50% indirect
can only be in one CGT group
