Topic 4 Taxation 2 Flashcards
The sale or gift of the below are examples of ?
- Personal Property (Over a certain amount)
- Land/property not the persons home
- Personal property if large and used commercially
- Business assets
Capital Gain
What is the name of an individuals CGT allowance?
Annual Exempt Amount
What do the below all have in common?
- Bare Trust
- Trustees of trust for vulnerable person
- Legal Personal Representatives
Full AEA applies
How much Annual Exempt Amount do trustees of other trusts receive?
Half
What was Bed & Breakfasting?
Holders of shares/UT’s would sell assets each year and repurchase next day to have a smaller gain for AEA.
How is Bed & Breakfasting stopped?
Any holding sold and repurchased within 30 days are treated as not to have happened
Main residence, ISA’s, personal belongings below £6K, Lottery/premium bond winnings
All exempt for CGT
What happens if a loss is made on asset sale?
- Loss must be offset again that years AEA
- Residual losses can be carried forward to future years
What are the 4 CGT reliefs?
- Personal residence
- Business assets disposal
- Roll-over relief
- Hold over relief
What is Private residence relief?
- when a person sells their only property
- If one than 1 house is owned they can choose which property to claim relief on
- Rules tell how long a person can live away from main residence and still claim full relief
What is Business assets deposit relief?
- Sole trader/Person who has 5% ordinary shares + 5% voting rights in company
- 5% entitlement to distribution profits and net assets of company
- Also for gains from investment in unlisted company
What is Roll-over relief?
- Assets sold and replaced by other assets
- Replacement must be bought within 1-3 years of original asset sale
- Relief can be claimed to either the lower of the gain or reinvented amount
What is Hold Over Relief?
- When assets gifted to a recipient CGT can be deferred until receipt disposes of assets.
- Gift can be wholly or partly passed to recipient
- Assets used by donor in their trade
- Shares in transfer of personal company
- Agricultural property that would attract IHT
- Assets with immediate charge to IHT
Examples of Hold-over gain
What is inheritance tax?
Tax on the estates of deceased people
What is the estate?
Is not just the property but also other assets and money
What is the Nil Rate Band?
Is rate above which IHT charged on the property. The Nil rate band is £325,000
What happens to the NRB when a person dies?
- The unused portion of the NRB can be to the surviving partner
- Exempt from IHT
What is the Residential Nil Rate Band?
If estate is being left to children an additional band worth £175,000 is applied
What happens if the RNRB is larger than the estate?
The RNRB is reduced to the estate’s value
How are the NRB & RNRB similar?
The unused portions can both be transferred to the surviving spouse
What happens to the RNRB if an estate is worth more than 2 Million?
It is tapered away at the value of £1 for every £2 over 2 million
What happens if the property is less than the RNRB?
An unused portion can not be used again other assets in the estate
What is a Potentially Exempt Transfer?
- When a person transfers assets from their estate during there lifetime
- Subject to IHT when transferred
What happens if the donor survives for 7 years after making the gift?
Transaction is exempt from IHT
What happens is a donor dies in less than 7 years?
The value of the gift and estate is subject to IHT
How is IHT taken against gifts & and an estate?
Gifts are offset again the NRB first then the estate
What how does Taper Relief work in the 7 years after a gift is made?
- First 3 years 100% IHT is due
- Every following year IHT due is reduced by 20%
What is a chargeable Lifetime transfer?
A gift to a company, other organisations and certain trusts
When is IHT due on a Chargeable lifetime transfer?
- Immediately at a reduced rate of 20%
- Tax is only due if the value of the CLT combined with other CLT’s is larger than the NRB
How are PET’ and CLT’s similar?
They both are subject to taper relief
- Transfers to spouse during lifetime and on death (UK Dom only)
- Gifts of up to £250 cash per tax year
- Charitable donations
- Wedding gifts up to £1,000
- Gifts on regular basis out of income
- Gifts of up to £3,000 per tax year
All exempt for IHT
Can parts of the gift amount of £3,000 be carried forward into the next tax year?
Yes but only for one tax year
What is VAT?
Tax on goods and services in the UK
What do the below items have in common?
- Loans, Insurance
- Health and Education Services
- Books (hard copy & electronic)
They are all exempt form VAT
What are Zero Rated Goods?
Items that could be subject to VAT but are not currently
What is the advantage of a business not subject to VAT to register for it?
They can claim back VAT on business expencpes
What is Stamp Duty?
Is a tax on the documents relating to land and securities purchase?
What is Stamp Duty Reserve Tax?
Tax charged on documents completed electronically
All these are what?
- Stock Exchange Transfers
- High Growth Segment
- Property Authorised Investment Fund (PAIF)
Are all exempt for either Stamp duty or SDRT
What is Stamp Duty Land Tax?
Is a tax charged to the purchaser of property
How is SDLT charged?
- Only parts above a certain threshold will be subject to SDLT.
- This does increase with the value of the purchase price
What happens to SDLT if the purchaser owns more than 1 residential property?
Supplementary rates are applied
What are the equivalents to SDLT in Scotland & Wales?
Scotland: (LBTT)
Land & Buildings Transaction Tax
Wales: (LTT)
Land Transaction Tax
How is SDLT different for first time buyers?
- They are entitled to a tapered relief depending on the purchase price
- Properties below a certain price no SDLT is chargeable
- Above a certain amount no relief is available
What is Corporation Tax?
A tax charged to LTD companies on their net profits
LTD companies, Clubs, Societies + associates, trade & Housing associations, Co-operatives
Are all what?
Liable to Corporation Tax
Do the below have to pay corporation tax?
Business partnerships, LLP & Sole traders
No they are subject to income tax
Companies resident in the UK have to do what?
Pay corporation tax on worldwide profit
Do companies resident outside of the UK need to pay corporation tax on worldwide profits?
No only on their UK- based businesses
How do companies pay tax if their profits are up to and below a set threshold?
9 months after the end of their accounting period
When is corporation tax due if profits are over the threshold?
In quarterly amounts halfway through the accounting year
What is Withholding Tax?
Tax charged in a particular country to a non-resident for income received in that country. So income does not leave that country without being taxed
When is CGT charged?
On the 31st January the following tax year
How much wedding gifts can a parent gift to their child?
£5,000
How much wedding gift can a grandparent gift to their grandchild?
£2,500
How can the RNRB be used?
In the same way as the NRB any unused percentage can be used by the children on the survival spouse’s death
Can the AEA be used for future years?
No it must be used in that tax year
What is CGT?
Tax that is payable on the net gain of an asset/property the following tax year
Is someone able to claim property maintenance & property improvements as a CGT deduction?
Property improvements is allowed but property maintenance is not
For a basic rate tax payer what is the percentage gain they pay on the disposal of assets?
10%
For a basic rate tax payer what is the percentage gain they pay on the disposal of property?
18%
For a higher rate & additional tax payer what is the percentage gain they pay on the disposal of assets?
20%
For a higher rate & additional tax payer what is the percentage gain they pay on the disposal of property?
28%
When must CGT be paid on non-exempt gains on a residential property?
Within 60 days of completion
How is CGT calculated?
- Amount of gain
- Deduction of AEA
- Deduct any losses
- Left is taxable gain
- Add to income
- Tax at appropriate rate
Are these are what?
- Food
- Children’s clothes
- Domestic Water Supplies
- Medicines
Zero rated VAT items
What percentage is IHT charged at?
40%
Capital losses cannot be carried forward
True or False
False they can
