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SQE1: FLK2 > Tax > Flashcards

Tax Flashcards

1
Q

Tax: Maximum penalty for errors in tax

A

30% of the lost tax revenue (can be reduced for genuine mistakes)

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2
Q

Tax: Who can take advantage of the residence nil rate band?

A

Lineal descendants

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3
Q

Tax: What is the basic tax point?

A
  1. usually the delivery date of goods/services or the ship date
  2. but if VAT invoice issued within 14 days after that date, then the date of the invoice.
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4
Q

Tax: When does personal allowance get tapered? (1 per every 2 of income over this amount)

A

$100,000

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5
Q

Tax: Marriage allowance criteria

A
  1. both basic rate taxpayers
  2. married or partners
  3. transferring partner’s income is less than personal allowance

Once that’s established, they get basically the marriage allowance as a tax reduction

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6
Q

Tax: Allowance for savings income

A

Basic rate TP - $1000
Higher rate TP - $500
Additional rate TP - none

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7
Q

Tax: Allowance for dividend income

A

$2000 for ALL TP

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8
Q

Tax: 4 options for taking trading losses as a sole trader or partnership (not company tax)

A
  1. use in current year and/or prior year and use leftover losses to offset CGT
  2. carry it forward to offset trading income (not any other sort of income)
  3. carry forward to offset profit income when business is incorporated
  4. when person stops operating company, then can offset profit income from the last 3 years
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9
Q

Tax: Standard to see if someone is tax dodging

A

if HMRC can prove that the arrangement cannot reasonably be regarded as a reasonable course of action

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10
Q

Tax: Generally there’s no gift tax in the UK, but if you die within 7 years, then that gift is treated as if you were trying to avoid inheritance tax. But what gifts made during lifetime are always tax-free?

A
  1. gifts to spouse (except if the gift is to a non-UK domiciled spouse)
  2. gifts to charities
  3. the entire gift is under $250 each
  4. gifts on marriage (parent 5000, grandparent 2500, bride/groom 2500, everyone else 1000)
  5. regular or habitual gifts
  6. the first $3000 of any gift (can be carried forward one year too)
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11
Q

Tax: Tax rate for property transferred to a trust if paid by:

  1. the trust
  2. the settlor
A
  1. 20%
  2. 25%
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12
Q

Tax: Procedure for calculating lifetime tax

A
  1. identify the value transferred using the loss to donor rule
  2. deduct annual exemptions (up to $6000)
  3. identify the nil rate band and subtract any transfers that we made within the last 7 years from the nil rate band
  4. multiply the amount over the nil rate band by 20% or 25%
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13
Q

Tax: Business tax relief for inheritance tax

A
  1. Have you held the property for over 2 years?
  2. Is the business trading and not just an investment company?
  3. Is it a sole trader/partnership interest or private company? Then 100% relief.
  4. Is it shares in a quoted trading company that you have voting control of or land/buildings/plant and machinery of a company you control? Then 50% relief.
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14
Q

Tax: I am transferring land and buildings that I used to rent out to a farmer, is that eligible for relief from inheritance tax?

A

100% relief if held for 7 years (or 2 years if I were the actual farmer gifting land instead)

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15
Q

Tax: Inheritance tax rate

A

40%, unless at least 10% of the estate was left to charity, then it’s 36%

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16
Q

Tax: Unused percentage of nil rate band can be transferred to spouses, but what if I have 3 ex-husbands?

A

You can only transfer nil rate band from 2 spouses and only up to 100% total (so total nil rate band can only ever be 2x current nil rate band).

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17
Q

Tax: What is the residence relief with respect to inheritance tax?

A

If family home is willed to lineal descendants or spouses of such descendants, then can add up to $175,000 to the nil rate band for the house. Tapers for estates exceeding $2M. Can be transferred to spouses (same rules for other transfer of nil rate band apply)

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18
Q

Tax: A died 5 years before B and he left B a nice house. B paid 40% inheritance tax on it and then sells the house for $1M. B dies and leaves an estate worth $1M to C. Does C have to pay inheritance tax on this $1M?

A

Maybe not because B died within 5 years of the gift from A. There’s no requirement that the gift remain within the estate.

19
Q

Tax: Typically tax is calculated on the value of the gift at death, but what if the executors sell the gift for a much lower value?
1. stocks
2. land and buildings
3. woodland

A
  1. you can get tax refund if stocks go down in aggregate over 12-month period after death
  2. yes if land or building reduce in value within 3 years of death
  3. yes if within 5 years of death
20
Q

Tax: When inheritance tax is due:
1. for chargeable life transfer
2. at death

A
  1. the later of (i) 6 months from the end of the month in which the transfer was made and (ii) April 30 after the tax year in which it was made
  2. 6 months from end of the month of death.

Note that for potentially exempt transfers, the tax is paid by the recipient and not the giftor.

21
Q

Tax: Would CGT be paid for the following:
1. gilts (government bonds)
2. shares held in an ISA
3. cars
4. Rolex watch
5. home pizza machine
6. business pizza making machine
7. an antique worth $6000

A
  1. no
  2. no
  3. no
  4. no
  5. no
  6. yes
  7. yes ($6000 is the threshold)
22
Q

Tax: When is CGT due?

A

By 1/31 the year following the year it was made (ex. Sold shares in May 2021. CGT due on 1/31/2023)

Unless it’s UK property, then it’s within 30 days of completion.

23
Q

Tax: If I sell my home that I’ve lived in, can I get a discount for the time that I’ve lived there and not used the home as an investment?

A

Yes, you can reduce the tax due by the percentage of how long you’ve been there (ex: lived in the home for last 3 years, bought it 10 years ago, you can multiply the gain by 3/10)

24
Q

Tax: For purposes of the private residence relief for capital gains tax, what is the period of deemed occupation?

A
  1. the last 9 months, always
  2. up to 3 years for any reason
  3. any time that owner was abroad working
  4. up to 4 years that owner was working elsewhere in the UK
25
Q

Tax: What if I sell my business? Is that subject to CGT?

A

Yes, but you can pay only 10% tax if you’ve owned the business/assets for at least 2 years or held 5% of the shares and was an officer/director for 2 years.

26
Q

Tax: Replacement of business asset relief for CGT or Enterprise Investment Scheme (EIS), when reinvestment must be made

A

Within 1 year before or 3 years after the original asset is sold

27
Q

Tax: Rate of CGT

A

10% for whatever is leftover in basic rate band after salary, then 20% after that.

But if it’s a sale of residential property, then it’s 18% and 28%

28
Q

Tax: Can capital losses be carried forward?

A

Yes, for an individual, capital losses are automatically offset against capital gains in the same year, but any excess can be carried forward to offset capital gains in the future.

29
Q

Tax: Corporate tax rate

A

19%

30
Q

Tax: What if my company had trading losses in one year, can I use it to offset trading income or CGT? How does this interact with the fact that companies can deduct all charitable donations from their income?

A

Yes, can offset against total profits (including trading income and CGT) in the same tax year (before charitable donations), the previous tax year (before charitable donations) or any future tax year (after charitable donations).

31
Q

Tax: Loan to shareholder/director in a close company

A
  1. if litle to no interest, then the difference in interest payments from the official rate will be deemed income and recipient of loan pays as if it were income.
  2. company needs to pay tax equal to 32.5% of the loan (like a dividend). Company can get the payment back when loan is paid off or written off (in which case, the recipient pays the dividend tax)
32
Q

Tax: What is exempt from VAT?

A

supply of land, insurance, financial services, education, health services, postal services and selling shares or business.

33
Q

Tax: VAT rate, plus reduced rate

A

20%, but reduced rate of 5% applies to child seats, fuel, installation of energy-saving materials

34
Q

Tax: VAT threshold that triggers registration

A

85000 in taxable sales either over a rolling 12 months or in the next 30 days.

35
Q

Tax: Companies can voluntarily register for VAT, but who can not?

A

Person who supplies only exempt items or services (aka supply of land, insurance, financial services, education, health services, postal services and selling shares or business).

36
Q

Tax: What is the time the VAT tax is incurred for purposes of accounting for VAT to HMRC?

A

It’s generally the time the goods are delivers/makes goods available for customer or time when services are performed. But if a VAT invoice is issued with 14 days of the delivery/services, then the VAT invoice date governs.

37
Q

Tax: Stamp Duty Land Tax: What if property is sold in exchange for shares or for work performed on a different property?

A

For shares, stamp duty is based on the fair market value of the land. For work performed, it’s the value of the work performed.

38
Q

Tax: What is exempt from stamp duty?

A

Property transferred:
1. as a gift
2. to a spouse
3. to a former spouse upon divorce
4. as part of a variation of a will

39
Q

Tax: Penalty for failing to file stamp duty on time

A

<3 months late = $100
>3 months late = $200
>1 year late = varies but based up to the amount of the tax

40
Q

Tax: What is the stamp duty land tax for a second home?

A

it’s an additional 3% on each tier.

41
Q

Tax: In what instance is there relief from stamp duty in purchase of a house?

A

relief for purchase of first residence - for purchase of up to $500,000 - 0% paid on first $300,000 and 5% on anything from $300k-$500k.

42
Q

Tax: Is there any discount to stamp duty if I’m buying multiple residences?

A

If you’re buying more than one property via linked transactions, you can pay the average stamp tax instead of the sum of the aggregate. Or you can apply non-residential property rates.

43
Q

Tax: what is the threshold for the charity tax break? What is the tax rate then?

A

For inheritance tax, if you give 10% of the estate to charity

Then the tax rate is 36%

SQE1: FLK2 (5 decks)

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