4 - tax of investment and investors

Question 1

Fiscal year vs financial year

Answer 1

fiscal = tax year
individuals and trusts
6/4 - 5/4, 31/1 payment deadline

financial - companies subj to corp tax
1/4 - 31/03

Question 2

automatic overseas resident

tax liabilities and qualification

Answer 2

not UK res automatically
- pay income tax on UK income only
no CGT (only paid by UK res

Overseas tests:
1st - present in UK up to 16 in current fiscal year
2nd - up to 45 c.days in current fiscal year AND not pres in UK in last 3 fiscal years
3rd - work full time overseas AND up to 90 c.days in UK AND up to 30 working days

Question 3

automatic UK res

liabilities and how to quali

Answer 3

UK res - pay tax on worldwide income + gains

resident tests:
1st - present in UK over 183 days in fiscal year (over half)
2nd - main home in UK AND available for use for 91+ days AND used for 30+ days
3rd - work full time in UK (no matter how much they are here)

Question 4

Sufficient ties test for residence

Answer 4

tax residency test if u arent covered by either automatic resi or overseas

• family tie (UK res family)
• accommodation tie (UK property)
• work tie (UK work)
• 90 day tie (>90 days)
• country tie (pres in UK more than any other)

Question 5

sufficient ties tests - sliding scale for time spent in UK

Answer 5

Sliding scale - more time spent less ties required

UK res for 1+/last 3 fiscal years
16-45 days = 4+ ties
46-90 = 3+ ties
91-120 = 2+ ties
120+ - 1+ ties

Not UK res is last 3 tax years
46-90 = all 4
91-120 = 3+
120+ - 2+

Question 6

who is entitled to personal allowances

Answer 6

UK residents
EEA and commonwealth, Isle of Man and Channel islands

Question 7

Why is domicile important

Answer 7

tax of foreign income for IT and CGT
can either be of origin (acquired from father if parents married, mother if not) or choice (16+, can leave countru and settly in another - cut UK ties)

Question 8

UK res, non-UK domiciled tax remittance basis

Answer 8

can elect for remittance basis -
overseas income and gains taxed only if remitted to UK
lose IT personal allowance
lose CGT exemption

rules:
unremitted income/gains <£2000 = can use without claiming
unremitted income/gains >£2000 = claim thoru form,

charges for long term UK residents
- 7/9 years -£30k
- 12/14 years- £60k
- 15/20 years - domicile, cant use remittance basis

Question 9

Taxable income order of assessment

Answer 9

non savings - employment, pensions, social sec benefits
- profits from trade/partnerships, profit from property

savings income - bank and bond interest and debentures
- income portion of annuity
- received gross typically

divi income -equity investment income
received gross

Question 10

Personal allowances (tax free income)

Answer 10

IT personal allowance - £12,570
blind persons - £2,520
Savings:
BR - £1000
HR -£500
AR - £0
Divi - £2000

Earners over £100,000
PA reduced by £1 for every £2 over £100k
>£125,140 = no personal allowance`

Question 11

Tax rates

Answer 11

taxable income ——Non-savings Savings Divi
AR >£150,000——————-45————- 45———–39.35
HR £37,701-£150,000——–40—————40———–33.75
Basic up to 37,700————— 20————– 20———–8.75

taxable income is after removal of allowances

Question 12

NI classes

Answer 12

class 1 - employees = primary and employers = secondary - employer responsible for payment of both

class 2 (small profits threshold) and class 4 (variable on profits) - self employed

class 3 - volutnary contributions to pop up state pension

Question 13

state pension eligibity

Answer 13

35 years of NI payments
<35 years recieve pro rated amount for number of years of NI contributions

Question 14

when if CGT suffered
what is exemption

Answer 14

chargeable disposal or chargeable assed by chargeable person
- selling/gifting transferring
-equity of HH
-UK resi on worldwide assets

12300 exemption
Charities and most funds do not pay tax on capital gains

Question 15

CGT rates

Answer 15

basic = 10%
Higher/additional = 20%

can claim entrepreneurs relief to lifetime limit of 1 mili - taxed @10%

Property:
basic = 18%
higher/additional = 28%

12300 exemption

Question 16

GCT exempt assets

Answer 16

Exempt assets:
- Main home
- Gilts and non convertible corp bronds bonds
- Venture capital trusts (VCTs)
- Enterprise investment schemes (EISs) if held for three years
- Assets in an individual savings account (ISA)

Question 17

CGT deductions

Answer 17

cost of asset
incidental costs of purchase and sale
cap expenditurer

Question 18

ISA info packet

Answer 18

tax efficient wrappers
must be UK res
tax free up to 20k/tax year (Across all4 ISA types)

4 types; LISA, cash, stocks and shares, innovative finance

Question 19

LISA info packet

Answer 19

gov contributes 1 for every 4 contributed by investor
pays @ year end
max 1k/year gov contribution
max gov lifetime bonus 32k

can be used to:
- buy first home up to max 450k
- plan for retirement, can withdraw at 60 or when terminally ill
- gov contributions lost if withdrawn before 60

Question 20

Who is IHT
what is NRB
what is rate

Answer 20

IHT = tax on wealth transfer paid by receiver
applicable on death and certain lifetime transfers
UK domi - worldwide assets
non UK domi - UK assets

NRB = 325k personal allowance
property NRB = +175k up to property value where receiver is direct descendent and is main res of deceased
unused percentage can be transferred to surviving spouse

remainder taxed @40%
20% if already subject to 20% lifeitme transfer charge

NRB frozen til FY 25-26 then will resume index linking

Question 21

Chargeable and potentially exempt lifetime transfers

Answer 21

Transfer to discretionary trust is CLT - taxed @20%
inherited tax free if donor dies >7 years
0-3 years = +20%
3-7 years = + sliding scale

potentially exempt transfers (PET)
- most gifts before death except via truts
- exempt if transferer survives >7 years
0-3 years = +20%
3-7 years = + sliding scale

Question 22

IHT exempt transfers

Answer 22

exempt lifetime transfers:

annual exemption first 3k/year - carried forward 1 year (not with 250)
small gifts <250/donee
normal expenditure of disposable income (not liquidated assets)
wedding/civil partnership gifts = 5k/parent, 2.5k/grandparent, 1k/other

totally exempt transfers
- between spouses if recipient is UK domi
- political party (2+ MPs elected or MP >150k votes)
- charities and national benefit (over 105 of estate left to chairty then IHT reduced to 36%)

Question 23

Gifts with reservation taxation

Answer 23

e.g. giving house to daughter but living in it rent free
- added back to estate on death

POAT - preowned asset tax (on gifts with res >5k) - choice between POAT and IHT
if donee dies within 7 years IHT paid pro rata for amount of POAT paid

Question 24

valuations used in IHT

Answer 24

quoted securities = lower of
- value on quarter up basis of bid/offer spread
- avg of highest and lowest intraday prices

unit trusts - bid price
life policies - includes proceeds of policy (if no trust is used, with trust IHT is avoided)

Question 25

difference between administrator and executor

Answer 25

administrator - legator died intestate - no valid will - write letters of administration executor - died testate - will receive a grant of probate calculates IHT and liquidates assets to pay

Question 26

Death intestate

Answer 26

either no will or invalid if no will - distribution of assets according to intestacy rules if invalid will then attached to letters of administration

Question 27

intestacy rules

Answer 27

is there a surviving spouse/civil partner or issue (kids)? yes - they inherit estate spouse gets first 270k remainder split between spouse and issues no - are there distant relatives? if yes they inherit if no - estate passed to bona vacantia division of gov unmarried partners, friends etc cannot inherit via intestacy rules - NEED WILL

Question 28

who is responsible for trust tax

Answer 28

CGT and income tax calculated by trustee unless beneficiaries include - settlor - settlor's spouse/civil partner - settlors minor children/step children then settlor is responsible

Question 29

trust tax rates

Answer 29

can liquidate trust assets to pay tax 20% CGT, 28% property CGT £6150 exemption (half individual exemption)

Question 30

interest in possession trust tax

Answer 30

life tenant - income remainderman - receives capital when life interest dies trustee = income tax @ basic rate 20% life interest = income taxed whether paid out or reinvested (cannot liquidate trust assets or capital - only entitled to income) life interest = income received net of basic rate - entitles to credit based on trustee payment, can claim back if BRT

Question 31

discretionary trust tax

Answer 31

trustee has powers of appointment over trust assets and absolute discretion to distribute income to beneficiaries trustees = first £1,00@ basic rate (20% savings and rental income, 8.75% divi) >£1,000 = @AR (45% rental/savings, 39.35% divi) beneficiaries= only liable if income paid out not if it is reinvested received net of tax

Question 32

bare trust tax

Answer 32

beneficiary has full access to income and capital, trustee obeys beneficiary tax falls on beneficiary at their own rates

Question 33

Trusts for the vulnerable

Answer 33

type of discretionary trust either disabled or minor predeceased by a parent can elect to be taxed on beneficiary rate to utilise allowances CGT exemptions exists for trusts where beneficiary is disabled

Question 34

Trusts for the vulnerable

Answer 34

type of discretionary trust either disabled or minor predeceased by a parent can elect to be taxed on beneficiary rate to utilise allowances CGT exemptions exists for trusts where beneficiary is disabled

Question 35

personal rep of a deceased person

Answer 35

between period of death and execution of wills liable for settlement of outstandimng tax liabilities of deceased (@ original rate charge) and liabilities that arise during administration (@basic rate)

Question 36

different between stamp duty and SDRT

Answer 36

tax on purchase of certain UK securities stamp duty = paper transfer 0.5% rounded UP to £5 for transactions over £1,000 SDRT = electronic 0.5% rounded up or down to nearest 1p

Question 37

residential SDLT

Answer 37

paid by buyer on purchase of UK land/property up to 125k = 0% next 125k (to 250k) = 2% next 675k (to 925k) = 5% next 575k (to 1.5m) = 10% remainder >1,5m = 15% 2nd home = +3% overseas buyers = +2% 500k and above = 15% when purchase by corp bodies

Question 38

Non residential SDLT

Answer 38

first 150k = 0% 150,001 - 250k = 2% over 250k = 5%

Question 39

1st time buyer SDLT

Answer 39

up to 300k = 0% 300k-500k = 5% >500k = normal rates 5% to 925k 10% next 575k to 1.5m 15% remainder over 1.5m

Question 40

who pays VAT what is it

Answer 40

sales tax businesses add to price of taxable goods/services firms with turnover over 85k/12 months

Question 41

goods /services exempt from VAT

Answer 41

essential expenditure, healthcare prods/services, charity fundraising

Question 42

charging and reclaiming VAT

Answer 42

standard :20% reduced: 5% (e.g. energy, smoking cessation) 0%: e.g. baby clothes firms can offset VAT they pay for goods and services

Question 43

corp tax rates and who pays

Answer 43

19% 20% of unit trusts and open ended investment companies charge profits taxed = pre tax profit - franked income - cap allowance tax on companies- not sole traders/partnerships (non savings IT on profits 2x a year - payments on account)

Question 44

international tax compliance

Answer 44

CDOT - crown dependencies and overseas territorites fin insititutions must collect tax residences of investors for AMLR Qualified intermediaries regime - Non US fin. institutions report annually to IRS on US assets (US persons reported separately and non US collectively) FATCA - foreign account tax compliance - non US fin. instit collect info on US persons with offshore assets and must disclose CRS - common reporting standard - fin. instit in over 90 jurisdictions. OCED backed multilateral info xc