Up Keep Flashcards
Income tax brackets
PA - £12,750
Basic - £12,751 to £50,270
Higher - £50,271 to £125,140
Addit. - Over £125,141
Personal savings allowance
Starting - £5,000
Basic - £1,000
Higher - £500
Additional - £0
Dividend allowance
£1k
Will be £500 in 24/25
Dividend income tax rates
Basic - 8.75%
Higher - 33.75%
Additional - 39.35%
When will an individual’s personal allowance of £12,570 reduce?
When I come is above £100k, allowance will reduce by £1 for every £2 of income
When can you transfer personal savings allowance and how much of this?
Providing neither partner is above a basic rate tax payer. Can transfer 10% of PSA (£1,257)
CGT allowance for:
Individuals
Trusts
Indiv. - £3,000
Trusts - £1,500
Corporation tax rate bands
Upto £50k - 19%
£50k to £250k - 26.5%
Over £250k - 25%
ISA & JISA allowance
£20k & £9k
IHT:
- Nil rate band
- Chargeable lifetime transfer rate
- usual rate
- discounted rate (due to charity donations)
- NRB - £325k
- CLT - 20%
- usual - 40%
- discounted - 36%
Residence nil rate band:
Allowance amount
Can this be transferred to spouse on top of spouses own on death?
£175k
Yes
Gift allowances:
Annual exemption from IHT:
- small gift allowance
- gift on marriage - patent, grand, etc.
- gift for charity or political party
- gift for national benefit
- what is the one acception to the above?
Annual exemption - transfers upto £3k per tax yr and can carry forward 1yr (so £6k max)
- small gifts - max. £250 per recipient
- gifts considering marriage - £5k max from parent, £2.5k from grandparent, £1k from anyone else max.
- gifts for education and marriage - unlimited upto age 18
- gift for charity and political parties - unlimited
- gift for national benefit - unlimited
- gift out of normal expenditure - gifts made regularly that do not effect standard of living are exempt
IHT will taper down on gifts over how many years?
7yrs
Pension scheme annual allowance
Max. tax relief on pension contributions
Can this be carried forward? If so, how?
Rule for max contribution tax allowance
£60k
Higher of £3,600 or 100% of annual salary upto £60k
Can carry upto £40k forward for each year upto 3yrs
Can only make personal contribution upto £60k or if have carry forward available then upto 100% of annual salary
Pension Lifetime allowance
Money purchase annual allowance
£1,073,100 (to be abolished in 24/25?)
£10,000 for all sources of contributors
Annuity protection
Protect amount purchased annuity for
E.g.
Purchase annuity for £250k
Die when paid out total of £50k
Family will receive a lump sum of £200k
Widow protection on annuity
If die then widow will receive chosen % of annuity til they die
Temporary annuity
Guaranteed income for a specified term at the end of which the purchaser will be paid a guaranteed amount aka maturity value (client can then decide to purchase a new one or keep funds)
Do you pay IHT on a pension?
Not at the moment but will from April 2027
Unit trusts & OEIC’s for equity and non-equity funds:
Income tax (1), CGT (1) & IHT (1)
IT:
non-equity fund:
- Taxed as savings income with PSA
equity fund:
- Taxed as dividends with dividend allowance
CGT
- Usual CGT rules apply and can offset losses
IHT
Subject to IHT unless written in trust
Pension annual allowance:
- no income
- if earn less than £60k
- if earn over £60k
- no income - £3,600
- if earn less than £60k - you can personally contribute upto gross annual salary but employer can top this up to a max. of £60k
- if earn over £60k - Capped at £60k for current yr but can use carry forward upto current tax yr salary for personal contributions then upto annual allowances and carry forward of employer making contributions
Carry forward amount and how many tax yrs can you go back?
£40k for 3 previous tax yrs
Main rules for carry forward (3)
Must earn atleast amount you are wanting to contribute to pension (unless employer is making this contribution on your behalf)
Must be a member of a UK registered pension scheme
Use earliest yr first after current yr
Tapered annual allowance
Minimum
Starts at what amount of income
Threshold income
Reduces pension annual allowance down to max of £10k
For every £2 over £260k then AA reduced by £1
If threshold income are less than £200k then no matter how high employer pension contributions are then TAA will not apply
Can you use carry forward for money purchase annual allowance?
No
When is MPAA triggered? (Explain 6 ways)
When flexibly accessing pension so essentially when taking an income from pension past 25% tax free lump sum:
- Capped drawdown
- UFPLS - take a mix of tax free cash and income
- Take an income from flexi access drawdown
- Flexible drawdown - take an income they choose as and when
- Flexible annuity
- Occupational pension scheme taken
Basic state pension
New state pension
Reach SPA before 6th April 2016
Reach SPA from 6th April 2016
Voluntary contributions for state pension can be made when and how far back can they apply?
Can be made upto tax yr before SPA and restricted to last 6yrs records
Are pensions apart of your estate on death?
Not currently but will be from April 2027
If a director earns salary and dividends what are their personal contributions limited to?
How to overcome this?
What does this save?
Salary only
Company make pension contributions directly as part of remuneration package and then limited to £60k annual allowance of tax free contributions
Saves:
- directors pension increases
- saving on corporation tax for company
- saving on NI contributions
Can personal pensions be used abroad?
Can State pension be used abroad?
Yes, may be extra fees if use an abroad bank account
Yes, but all means tested pension credit will stop and increases to SP may stop depending on the country
If contributing to a UK pension abroad what are the 2 limitations?
Contributions limited to £3,600 tax free
To receive tax relief must have been resident in 1 of last 5 yrs and be a member of a UK registered pension scheme
What is tax rate if exceed pension annual allowances and carry forward?
How do you pay this?
Taxable at marginal rate
Self assessment or if meet the requirements then can pay from the pension pot
Who must confirm MPAA is triggered? Who to? Have how many days?
Pension member must tell scheme within 91 days
What doesn’t trigger MPAA? (4)
Take tax free cash alone
Taking DB income
Small pots rule/DB triviality payments
Death benefits
What is main limitation to carry forward and making contributions to a pension?
Must earn the amount you are contributing to pension personally (unless employer is making this contribution
E.g. if looking to contribute £100k within a tax yr then must earns atleast £100k
If MPAA has been triggered can you use carry forward?
No
Current lifetime allowance
£1,073,000
(Excludes state pension & inherited pensions)
What if access funds above lifetime allowance?
Tax rate:
- take as lump sum
- designated as income
Subject to tax charge
Lump sum - 55%
Designated as income - 25% but also both subject to tax at marginal rate when funds taken
What happens at age 75 with regards to lifetime allowance?
Benefit crystallisation event - Uncrystalised pensions tested against LTA and any excess suffers from 25% charge
Second test on drawdown funds on amount of funds that went into drawdown (not including tax free cash payment) - value at age 75 = amount tested against LTA
Primary protection of LTA (3)
Pension rights of over £1.5mil on 5th April 2006. Amount over can then use as % to increase current LTA by.
Underpin of 1.8mil.
Can continue to contribute to pension
Enhanced protection of LTA (4)
No min. value
No further contributions allowed to keep this protection
No LTA tax charge to make ever
Keep % of PCLS if over 25%
Fixed protection of LTA (2)
Keep LTA at the time of either £1.8m, £1.5m, 1.25m dependent upon the protection
No further contributions allowed to keep this
Invididual protection
Keep LTA at the time of between £1.25m to £1m dependent upon the protection
Further contributions allowed to keep this
Protected tax free cash
Value of tax free cash on April 2006 is more than 25% then keep this as tax free cash protection
Lost if transfer funds to another scheme
Types of annuity and their tax implications:
- purchased life annuity
- purchased annuities certain
- pension annuity
- deferred annuity
- annuities for beneficiaries
- immediate needs annuity
- purchased life annuity - paid from lump sum til death and pays capital and interest element - taxed only on interest received and can use PSA to reduce tax liability
- purchased annuities certain - paid for a set term regardless of death - same tax as PLA (above)
- pension annuity - paid as a result of a pension scheme - taxable in full as earned income
- deferred annuity - capital is handed over but annuity does not begin for set period - same tax as PLA (above)
- annuities for beneficiaries - paid as per trust or will - taxable in full as savings income
- immediate needs annuity - often used to fund care home fees and pay larger annuity payments as shorter life expectancy - if paid directly to care home then no tax liability
Annuity add-ons:
Guarantee period
Widows, dependent or survivors pension
Annuity protection
With-profit annuity
Unit-linked annuity
GP - a guarantee the annuity will pay for a period of time even in the event of death will be paid to beneficiaries but if live past this GP then this will continue to be paid til death
Widows, dependent or survivors pension - pay a percentage of original income until beneficiaries death
AP - beneficiaries receive a lump sum of original annuity cost - income received. So if annuity is £250k - £50k income then beneficiaries would receive £200k
WP - income is based on anticipated bonus rates and income will reduce or increase in line with this. Usually has a cap and collar
UL - income based on fund performance. Usually has a cap and collar.
Temporary/fixed term annuity
Guaranteed income for a set term. Purchaser will then receive a guaranteed amount at the end of the term aka maturity value.
Are personal contributions to pension pot topped-up? If so, how?
Yes
Personal contribution automatically topped up 20% by gov.
Then if higher or additional rate tax payer, than do self assessment to reclaim additional 20% or 25% also.
How is carry forward reduced from previous contributions?
Any contributions made are taken off the £40k e.g. if personal contributions of £10k then have £30k carry forward for that year
What happens if have no will and have wife and kids?
Wife gets £322k, all chattels and half of remaining amount above this, remaining half goes to children
What happens if have no will and no wife but kids?
Kids get whole estate
What happens if have no will and have no wife or kids?
Goes in order of:
1. Parents
2. Brothers/Sisters
3. Uncles/Aunties
What happens if have no will and have nobody?
Estate goes to the crown
What rights do grandchildren have if someone does without a will?
Treated the same as children if the grandchild out lives their parent (child of deceased)
What if someone dies and part of their estate not mentioned in will?
Those assets then have usual intestacy rules applied e.g. spouse £322k…
Discretionary fund management (DFM)
Advisory fund management (AFM)
DFM - Act within a remit for client so do not ask for permission per transaction
AFM - Cannot make a transaction without clients permission
What happens if have no POA and lose mental capacity?
Is this expensive?
What is POA similar to?
Effectively finances are frozen until under go a very lengthy process and a court give power for someone to look after your finances. This may not be who you would have chosen.
Legal fees to this process and more expensive than POA.
Almost like an insurance product on yourself and must do before lose capacity or it’s too late.
For most part when is MPAA triggered?
When accessing pension above tax free amount i.e 25% tax free amount.
Or taking an income
pension income options
- Pension commencement lump sum (PCLS)
- Taxable?
- Trigger MPAA?
Tax free lump sum taken only
Not taxed
- No
pension income options
- Uncrystalised funds pension lump sum (UFPLS)
- Taxable?
- Trigger MPAA?
Taking 25% tax free lump sum amount and income from remaining 75%
Remaining 75% taxable as income
Yes
pension income options
- Flexi-Access Drawdown (FAD)
- Taxable?
- Trigger MPAA?
Take an income from pension (as much or as little needed)
All income taxable as income
Yes, any income received will trigger this
pension income options
- Annuity
- Taxable?
- Trigger MPAA?
Guaranteed income paid from an insurance company
Taxable as income
Standard annuities (e.g. level or increasing) will not but can if the annuity is flexible meaning have the option to reduce or increase income amount received
pension income options
- Small pots (personal pension& occupational pension)
- Trigger MPAA?
Personal pension:
3x pots each valued at £10k or less
Occupational pension:
Unlimited amount of pots valued at £10k or less
Taxable as income
No
At what age is pension taxable?
Subject to IHT
&
If die from age 75 subject to income tax also
Is DB scheme income taxable and how?
Yes, always taxable as income
If someone dies, what options does the beneficiary have with regards to payment?
Depends on the pension scheme but SJP retirement account have option of lump sum, annuity, FAD, mix and match
Why is it important to ensure everyone client wants to leave money to is named on pension expression of wishes?
If beneficiary does not want the money and another beneficiary is assigned they can only take this as a lump sum and this will be tested against LSA so could be taxable for them
Why is expression of wishes not legally binding?
If it was then it would be subject to IHT
What happens if on death benefits are not designated to beneficiaries within 2yrs?
Taxable in hands of recipient
Is pension taxable if die before age 75?
Subject to IHT
But
Not subject to income tax upto lump sum death benefit allowance of £1,073,100
Is pension taxable if die over age 75?
If so, how is this taxed?
Yes
Taxable on recipients income tax at marginal rate
Lump sum allowance
Lump sum and death benefit allowance
LSA - £268,275 - Tax free amount allowed during lifetime
LSDBA - £1,073,100 - Tax free amount allowed on death
Difference between Enduring and Lasting POA
EPOA - Can deal with finances but not personal welfare. Can deal with this immediately if donor chooses attorney to do so. (Can no longer arrange)
LPOA - Can deal with both finances and personal welfare. But if donor chooses then attorney can deal with finances whether mentally capable or not and only deal with personal welfare once mentally incapable
Types of care plans:
- Pre-Funded (No longer sold)
- Immediate care plans
Pre-funded - Arranged when in good health for if needed - No longer sold
Immediate care plans (aka immediate needs annuity) - Lump sum made to insurer payment in exchange for income that covers shortfall in current income and care costs. Paid directly to home.
Home equity release
Release equity and lender doesn’t expect return of funds until die, go into permenant care or move home
Business loan protection
- tax treatment
Protection covering debts on the death of a key person. Key for directors loans also as if director dies their estate will then ask to recall loan.
- benefits not taxable but premiums not tax deductible
Directors loan
Loan from director to the business over a set term
Key person protection (3)
- tax treatment
Cover death or illness of key people (e.g. board, directors, specialists) who losing would have financial impact
Can be set-up as life cover, IP or CIC
Can arrange as multiple of profit, salary or loss to business
- Tax relief - Will either receive tax relief on premiums paid or sum assured. Will definitely meet tax relief on one of two but depends on which of the 2 complex rules are met
Shareholder protection (2)
- tax treatment
Ensuring shareholder A can afford to purchase shares from person who inherits shares on death of shareholder B. So shareholder A would receive payment directly from life company.
Can calculate by multiple of profits, business valuation, net asset value, etc.
- if company pays premiums are tax deductible but shareholder will pay income tax and NI but if shareholder pays then not tax deductible. Benefits not taxable
Relevant life cover
- tax treatment
Single person DIS policy but more tax efficient
- allowable expense so save corporation tax, employees income tax and NI contrib.
- trust can be used
- no lifetime allowance charge
How are pension contributions given a tax relief for an employer?
Pension contributions are deducted from company profits which corporation tax is based on
Trust
- Do you have to have trustees?
-what assets can a trust be set-up on?
Gives property to another person without full immediate rights to property.
- No, can have beneficiaries only so person is then settlor and trustee
- practically any asset
Critical yield
Critical Yield is the estimated investment return, after charges, that must be achieved in order to receive retirement benefits at least as good as those offered by another scheme
what happens to your pension if you die with no will or expression of wishes
the pension scheme provider will decide who will receive any lump sum and survivor pension. This is usually decided after the next of kin has completed a claim form providing details of the deceased’s family and any dependents they had.
What can you do as a beneficiary of a pension when the holder has died?
When will this be taxable?
Withdraw the entire pension as a lump sum
OR
Continue with flexi-access drawdown
Taxable at beneficiaries marginal rate when holder dies over age 75
Can you withdraw pension before retirement age?
If so, upto what tax rate?
If you’d like to retire early, under certain circumstances, it is possible to withdraw your private pension before the age of 55.
However, this can end up being costly. It isn’t against the law to withdraw from your pot before your retirement age but you may pay up to 55% tax on your withdrawals.
Marriage tax allowance and 4 rules
Can transfer fixed amount of £1,260 personal allowance to spouse or civil partner
Rules:
- neither can be above basic rate band
- amount transferable is fixed at £252 tax saving
-cannot take with married couples allowance
- can be back dates upto 4yrs and once taken will auto continue in future
Why is the only investment product that can cause a CGT liability?
Unit Trust
How does CGT work practically with a unit trust?
Tax on gain only. But can cash in investments funds with little to no gain only if possible to cause no CGT liability. Can also cause scewed ATR if you do this
What options do you have to deal with an IHT liability? (5)
Spend money (40% discount)
Trusts
Gifts
WOL policy (especially if property heavy)
Put into pension
Legacy preservation trust
If client dies, pension will go into trust rather than beneficiaries bank account. Avoids IHT liability if beneficiary then dies and have same access to account. Can also choose several beneficiaries, whilst also choosing to appoint someone who has full control over trustees
Do you pay IHT if married and exceeds tax exemption on property only?
The most common scenario is a married couple owning the family home as ‘joint tenants’. When the first spouse dies, the jointly owned property passes automatically to the other spouse. There would be no Inheritance Tax to pay on the family home because of the ‘spouse exemption’ (this means gifts to spouses are exempt from Inheritance Tax). However, this often means their nil rate band is not used. A house in London is particularly prone to being over the Inheritance Tax threshold.
When the second spouse dies, they would often leave the family home to their children. But they then only have one nil rate band to use. From a tax perspective all is not lost, as in this situation the nil rate band from the first spouse can also be used.
Does ISA contribute to IHT liability if married and die?
No, married partner ISA allowance increases by amount in ISA for that year but interest earned in-between transition is taxable
How do you pass on a pension when you inherit a pension and then for to keep passing on on death?
Complete a nomination of beneficiaries again when inherit
Can you inherit an ISA allowance if your not the spouse but your a family member?
No, spouse only
Does transferring your ISA from one account to another effect your annual ISA allowance?
Transfers do not affect your annual ISA allowance: when you transfer funds from one ISA to another, it does not count towards your annual ISA subscription limit.
You can still contribute up to the annual ISA allowance for the tax year to which the contributions apply.
Do you pay IHT on a standard gift?
Inheritance Tax may have to be paid after your death on some gifts you’ve given. Gifts given less than 7 years before you die may be taxed depending on: who you give the gift to and their relationship to you. the value of the gift.
When can the child access their JISA?
Can control investment from 16 and access funds at 18
Average premium bond returns?
Around 4.5%
Can you have more than one JISA?
You can only have 1 S&S and 1 cash ISA
Who can open a JISA?
Only parents and legal guardians can open Junior ISAs for children under 16. Children aged 16 and 17 can open a Junior ISA for themselves.
Can open a child’s pension?
To open a child’s pension account, you have to be the child’s parent or guardian but, once it has been opened, anyone can pay into it.
How is a payment into someone else’s pension considered for IHT?
Any money you pay into someone else’s pension is normally considered a gift for Inheritance Tax (IHT) purposes. So usual 7yr rule applies.
How do you claim additional 40/45% tax back on pension contributions?
Self assessment gives you a rebate or changes tax code?
Who can contribute to JISA?
As long as the total contributions fall within the annual allowance (£9,000 for the current tax year) anyone, including doting grandparents, aunts, uncles and friends, can contribute.
Can you pay into someone else’s ISA?
contributions to an ISA must be made with your own cash. Transfer from a bank account in your name - or a joint account you own.
This means that someone else can’t directly add cash to your ISA. If you are looking to pay cash into someone else’s ISA, you can send them the cash first to their bank account, and they can then make the contribution using their bank account.
The exception to this rule is a Junior ISA which can accept cash from anyone. Provided there is enough Junior ISA allowance remaining.
How many ISA’s can you have?
Investors are allowed to open and pay into multiple ISAs of the same type in the same tax year (except for lifetime ISAs).
Can you transfer one S&S ISA to another S&S ISA?
You can have multiple ISA’s of the same type, provided they were each opened in differen tax years.
You would be able to open a new stocks and shares ISA and transfer the funds from the old ISA. If you want to transfer money you’ve invested in an ISA during the current year, you must transfer all of it.
Spouse exemption for IHT
There is no IHT to pay on gifts from husband to wife and vice versa, or from one civil partner to the other
Do assets going to spouse on death use NRB?
Where most or all of an estate passes to someone’s surviving spouse or civil partner, those assets are generally exempt from Inheritance Tax. This means that most or all of the nil rate band available on the first death is not used.
What is a trust?
A trust is a legal arrangement where you give an asset to someone else so they can look after it for the benefit of a third person.
4 main types of trusts:
- bare trust
- interest in possession trust
- discretionary trust
- disabled trust
Bare trust - Has immediate right to assets income & capital and beneficiary cannot be changed
Interest in possession trust - immediate right to assets income but not capital
Discretionary trust - trustee has full discretion on how to use the trust as have number of beneficiaries
Disabled trust - trust for a vulnerable person
Can you transfer a cash ISA to a S&S ISA or vice versa?
Yes
Property investment disadvantages
CGT surcharge 4% on sale
Income tax on rent
Difficult tenants
Gov. rules getting stricter
Cash fixed interest investment disadvantages
Returns v SJP
£85k FSCS protection
Self invested investments disadvantages
SJP team dedicated to investing in best funds globally - Give that time back to you - Similar to fixing a leak at home can DIY and may do an ok job, may not or get an expert in to do it properly.
Recent study carried out by Vanguard found that investors with a financial adviser on average earned about 3% per year more than DIY investors.
SIPP main disadvantage
£85k FSCS protection
UFPLS pension (2)
One major benefit of UFPLS? (1)
a way of taking pension benefits from money purchase pensions without going into drawdown or buying a lifetime annuity.
Under the UFPLS option, an individual can take their uncrystallised pension funds in one go, or as a series of lump sums.
Benefit - Can change amount of tax free cash taken on each withdrawal to ensure pay as little tax as possible when considering income tax also.
Drawdown pension
you leave your money invested and take a regular income direct from the fund.
Current delay on property sale or rebalance within SJP funds?
6 months
Deed of variation
1 drawback
2 rules
When someone dies, you choose to amend will/intestacy and pass down your share to another beneficiary.
1 drawback is that you then do not have access to funds
2 rules:
- all those negatively affected must agree
- Have 2yrs to finish deed of variation or lose tax benefits
When are contribution levels considered recycling after taking tax free cash and subject to a higher rate of tax and what is this rate?
If contribution levels increase by 30% (Assessed over 5yrs) of what they usually would expected to be. (Assessed on 2yrs before, yr cash taken and following 2yrs).
70% tax
What is earliest can access a pension pot?
From age 55 but depends on the pension pot
What is the earliest age you can access a private pension?
Scheme can choose from age 55 (rising to 57 from 2028)
What he can you access SJP pension
55 (rising to 57 from 2028)
How does VCT & EIS tax relief work practically?
If have £10k income tax bill for that tax year. Then invest £30k into VCT and get £10k back from HMRC as tax relief. Cannot invest and get relief on any more than IT bill for that year.
How can I help if someone has S&S investment?
Can do a whole of market review and compare this with SJP stockbroking team (Roman Dartington). Just need statement showing value and where funds are invested for team to then show a comparison with what SJP would offer and performance comparison (discretionary fund management)
How can I help if someone has S&S investment?
(£50k minimum)
Can do a whole of market review and compare this with SJP stockbroking team (Roman Dartington). Just need statement showing value and where funds are invested for team to then show a comparison with what SJP would offer and performance comparison (discretionary fund management)
Who qualifies for pension credit?
To get Pension Credit as a single person, your income must not be more than £173.75 a week.
To get Pension Credit as a couple, your total income must not be over £265.20 a week.
Savings - For both of above, if you have over £10k saved then there is a calculation for reducing amount received.
Average claim is £3,900.
Lump sum allowance (LSA)
Usually 25%
Maximum amount of tax free lump sum which you can receive during lifetime
The lump sum death benefit allowance
£1,073,100
Amount tax free before age 75 or on death. Thereafter pay income tax
Can a pension be covered in a will?
Yes, although pension savings aren’t usually covered in a Will because they normally fall outside of a person’s estate, meaning there’s usually no inheritance tax to pay on them.
You can mention your pension in your will if you want to eliminate any doubt over your wishes, but it’s recommended that you still complete an EOW
Can you have access to £5k starter rate personal savings allowance if earn over £12,570?
Yes you still have access to £5k starter rate personal savings allowance. However, for every £1 of income you earn as earned income you then lose £1 of your starter rate.
E.g. if you earn £13k then you would have £4,430 starter rate on top of your basic rate allowance of £1k.
So effectively lose starter rate at £18,570.
What happens to an ISA on death? (2 steps)
1
On death, ISA would become what’s known as a ‘continuing ISA’. This means no new payments can be made into it, but it’ll keep its tax benefits.
The account will continue like this until the first of the following events happens:
- It’s closed by your executor
- Your estate administration is completed
- Three years and one day pass after death
2
Two rules:
- Rule 1 - If ISA passed to spouse/civil partner can get APS to increase ISA allowance for that year to keep ISA status & no IHT due to spousal exemption
- Rule 2 - If passed to anyone else it loses its ISA status and passed to beneficiary but loses tax wrapper. Also may be subject to IHT
How does an annual permitted subscription (APS) work? (3)
- Your APS allowance will be the value of your spouse or civil partner’s ISA(s) on the date of their death, or the date it’s closed – whichever is higher.
- On death the ISA will become a ‘continuing ISA’. It will keep this status until the earliest of:
- The completion of the administration of the estate
- The 3rd anniversary of the date of death
- The closure of the ISA due to all the funds being withdrawn
In this case, the APS is equal to the higher of the value of the ISA on the date of the investor’s death or the value of the ISA on the date it stops being a ‘continuing ISA’.
- Where an investor held ISAs with several companies, a separate APS will be available for each.
How is payment made/transfer processed for APS transfer?
Cash:
investors can make a cash contribution using their own cash or cash inherited from the deceased.
Investments:
investments held in the deceased’s ISA can also be transferred into the surviving spouse or civil partner’s ISA directly without needing to be sold.
Where the value of any inherited ISA investments is less than the APS (i.e. the value of investments have gone down since the date of death), a top up payment can also be made with cash.
With an APS can you use APS allowance of one provider with another provider?
No, investments can only be transferred into an ISA with the same company with which the deceased held their ISA.
If wanted to do this then may be able to proceed with APS with same provider then once in your name, transfer to other provider.
Practicalities of top slicing and how it applies with maximising tax bands on encashment
- Calculate topslicing gain by dividing gain by number of years held (use calc)
- Topslicing gain is for each segment so can multiply as many times as possible to fit within each tax band
E.g
£50,270 - £12,570 = £37,700 BRB
Topslicing gain is £4,795
Non-Saving Income of £14,130
£14,130 - £12,570PA = £1,560
£37,700BRB - £1,560 = £36,140
£36,140 / £4,795 = 7.53
Can encash 7 segments to maximise BRB
So 0% tax for onshore and 20% for off
Can you make additional voluntary contributions to a DB pension scheme?
Most likely not, may be able to purchase additional years but most cases this is not possible. Therefore can set up a DC pension pot to build contributions
Are bonds generally exempt from care fees, if go into care?
Are SJP investment bonds exempt?
What is exception?
Investment bonds which include a small element of life cover (potentially as little as 0.1%) are disregarded from the capital means test. Capital redemption bonds have no life assurance element so are included.
SJP investment bonds include life insurance so will not be considered
However, regular withdrawals taken from a bond will be included within in the income assessment.
Simplified onshore investment bond tax rules
Basic rate taxpayers are not subject to further tax on the gain
Higher rate taxpayers are subject to 20% tax on the gain
Additional rate taxpayers are subject to 25% tax on the gain
The amount subject to tax is not ‘grossed up’
Must also consider topslicing
Simplified offshore investment bond tax rules
Basic rate taxpayers are not subject to 20% tax on the gain
Higher rate taxpayers are subject to 40% tax on the gain
Additional rate taxpayers are subject to 45% tax on the gain
The amount subject to tax is not ‘grossed up’
Must also consider topslicing
Do you have to do a tax return if dividends or savings income less than annual allowance?
No!!!
What contributions count towards hitting pension annual allowance limit of £60k?
All pension contributions - employee, employer or 3rd party
Does LISA contributions count towards £20k ISA allowance?
Yes
Is there a pension lifetime allowance?
No. Now, the lifetime allowance is being completely abolished. This doesn’t mean you can enjoy a bigger tax-free lump sum. Previously, you could take up to 25% of your pension as tax-free cash, but this has been capped at £268,275 across all your pensions.
After you have accessed pension fund through drawdown, with element of cash that is not in drawdown, if the funds increase in value does that mean you can still take 25% of increased value or 25% of original pot value when accessed originally?
25% of increased value
Does LISA & HTB ISA contributions count towards annual ISA allowance of £20k?
Yes
Are there any restrictions on what a beneficiary can take from a pension on death of holder?
Yes, your beneficiaries may be able to take a tax-free lump sum of up to £1,073,100 and it is taxable at their marginal rate beyond this.
Annual gift allowance from IHT?
Is this per person?
Can you carry forward any unused gift allowance?
£3k total
not per person, £3k total but can be split between people
Can carry forward 1yrs unused annual gift allowance
