Unit 1 Topic 4 - UK taxation II Flashcards
What is a chargeable lifetime transfer?
Some lifetime gifts - notably those to companies, other organisations and certain trusts - are not PETs but chargeable lifetime transfers, on which tax at a reduced rate of 20% is immediately due. This ‘lifetime’ tax is only payable if the value of the chargeable lifetime transfer, when added to the cumulative total of chargeable lifetime transfers over the previous seven years, exceeds the nil-rate band at the time the transfer is made. The 20% tax is only applied to the excess over the nil-rate band. As with PETs, the full tax is due if the donor dies within seven years (subject to the same taper relief) and any excess over the 20% already paid then becomes payable.
What are the tax rates for calculating capital gains tax liability in the 2019/2020 tax year?
- 10% for taxable gains falling in the basic-rate income tax band
- 20% otherwise.
- Additional 8% supplement where the gain results from the sale of property not subject to private residence relief
Define Disposal with respect to taxation.
For CGT purposes, a disposal can be the sale of an asset, transferring ownership to another party, giving it away, or receiving compensation for its loss or destruction.
What is the CGT allowance for the 2019/20 tax year?
The annual exempt amount is £12,000.
How is CGT treated for gains made by those that are not UK residents?
CGT applies to gains made since 6 April 2015 by individuals or trustees who are not UK resident on residential property located in the UK. Gains made during ownership prior to this date are ignored.
What is Private residence relief?
Private residence relief is available when someone sells the property they have lived in as their main or only residence.
What is Entrepreneur’ relief
A lower rate of 10% is applied to a lifetime limit of £10m of cumulative gains arising from the disposal of trading businesses and from certain disposals of shares in trading companies.
The individual must generally own at least 5% of the ordinary share capital of the business.
In addition they must be entitled to at least 5% of the distributable profits and net assets of the company.
What is Roll-over relief
Business assets are chargeable to CGT. However, roll-over relief may be claimed if the assets disposed of are replaced by other business assets. This means that, instead of CGT falling due on the original disposal, it is deferred until a final disposal is made.
What is Hold-over relief?
CGT on any gain arising on the gift of certain assets can normally be deferred until the recipient disposes of it.
What is the Nil-rate band?
The amount on which a nil rate of inheritance tax applies; in other words, the amount is liable to tax but the rate that applies is 0%.
What is inheritance tax?
Inheritance tax (IHT) as its name suggests, is levied mainly on the estates of deceased persons and is charged following an individuals’ death. The tax is charged on the amount by which the value of the estate exceds the available nil-rate band at the date of death.
What are the levels of Residence nil-rate band (RNRB)?
IHT £650,000
If part of the estate includes a residence that is being left to a direct descendant, then since 2017/18 an additional residence nil-rate band has been applied.
£175,000 in 2020/21
What is a potentially exempt transfer?
Most gifts made during a person’s lifetime are potentially exempt transfers (PETs) and are not subject to tax at the time of the transfer.
If the donor survives for seven years after making the gift, these transactions become fully exempt and no tax is payable.
1 - 3 years of gift - 100% of tax 3 - 4 years of gift - 80% of tax 4 - 5 years of gift - 60% of tax 5 - 6 years of gift - 40% of tax 6 - 7 years of gift - 20% of tax 7+ years - no tax
What gifts and transfers are exempt from inheritance tax?
- Transfers between spouses and between civil partners both during their lifetime and on death, provided that the receiving spouse/civil partner is UK domiciled
- Small gifts of up to £250 (cash or in value) per recipient in each tax year
- Donations to charity, to political parties and to the nation
- Wedding gifts of up to £1,000 (increased to £5,000 for gifts from parents or £2,500 from grandparents).
- Gifts that are made on a regular basis out of income and which do not affect the donor’s standard of living
- Up to £3,000 per tax year for gifts not covered by other exemptions. Any part part of this £3,000 that is not used in a given tax year can be carried forward for one tax year, but no further.
Define Profits for corporation tax purposes.
For corporation tax purposes, profits include: trading profits (less allowable expenses such as labour and raw materials); capital gains; income from letting; interest on deposits.
