Topic 4 (UK taxation 2)

Question 1

What is Capital Gains Tax?

Answer 1

CGT is payable on the gains arising on the disposal of certain assets

Question 2

What is ‘Disposal’ in terms of CGT?

Answer 2

A disposal can be the sale of an asset, transferring ownership to another party, giving it away or receiving compensation for its loss

Question 3

What are ‘allowable deductions’?

Answer 3

Costs incurred in acquiring,enhancing and disposing of an asset

Question 4

The tax is payable on …. gains, deducting any………… made in that year

Answer 4

Net

Capital losses

Question 5

What is the CGT allowance for each individual?

Answer 5

£12,000

Question 6

What part of CGT can’t be carried forward?

Answer 6

The annual allowance of CGT can’t be carried forward

Question 7

Give examples of Assets exempt from CGT

Answer 7

• personal belongings valued less than £6,000
• premium bonds/lottery wins
• private residence
• ISA’s
• British Government stocks

Question 8

What happens if a loss is made on a disposal of an asset?

Answer 8

• can be offset against gains made elsewhere
• must be offset agains gains made in the year when loss is made
• capital loss can’t be carried back to previous year
• capital loss can be carried forward but annual exemption cannot

Question 9

What are the rates for calculating CGT?

Answer 9

Basic taxpayer = 10%

Higher taxpayer = 20%

Question 10

How do you calculate CGT?

Answer 10

1. Calculate amount of the gain
2. Deduct annual CGT allowance
3. Deduct any losses
4. What remains is taxable gains
5. Add taxable gain to taxable income
6. Apply the appropriate rate of tax

Question 11

What is Private Residence Relief?

Answer 11

Available when someone sells a property they have lived in as their main/only residence

Question 12

What is Entrepreneur’s relief?

Answer 12

• A rate of 10% applies to a lifetime limit of £10 million of cumulative gains arising from the disposal of trading businesses
• to claim, an individual must own 5% of the ordinary share capital of business

Question 13

What is doll over relief?

Answer 13

Can be claimed if the assets disposed of are replaced by other business assets (assets must be replaced within 3 years after date of disposal)

Question 14

What is hold over relief?

Answer 14

Where gains of certain assets can be deferred until the recipient disposes it

Question 15

What does IHT involve?

Answer 15

It involves the estate of the deceased and transfers made throughout ones life

Question 16

How is tax charged for IHT?

Answer 16

It is charge at 40% of the amount the value exceeds the ‘nil rate band’ (2019/20 = £325,000)

Question 17

What is a Residence Nil Rate Band?

Answer 17

If the estate includes a residence an additional nil rate can be applied

RNRB is phased over 4 years and increases by 25,000 each year (2019/20 = 150,000)

Question 18

What is a potential exempt transfer PETS?

Answer 18

Where inheritance tax is also payable when assets are transferred (normally as gifts)

Question 19

When making a gift, the tax payable depends on how many years the donor lives after making the gift….

Answer 19

1 year = 100%
2 years = 100%
3 years = 100%
3-4 years = 80%
4-5 years = 60%
5-6 years = 40% 
6-7 years = 20%

Question 20

How is tax charged on a chargeable lifetime transfer?

Answer 20

• Tax is due immediately at 20% if the transfer amount exceeds the nil rate band at the time the transfer is made
• if the donor dies within the 7 years after a gift is made and the value of the estate exceeds the nil rate band it is then 40%

Question 21

What gifts and transfers are exempt from IHT?

Answer 21

• transfers between spouses
• small gifts up to £250 per recipient
• donations
• wedding gifts (£1,000 from friends, £5,000 from parents, 2,500 from G.parents)
• gifts from income that don’t effect standard of living
• 3,000 per tax year for gifts not covered elsewhere

Question 22

What is VAT?

Answer 22

Indirect tax on business transactions in the UK

Question 23

What are 2 exemptions from VAT?

Answer 23

1. Certain loans and insurance

2. Health and education services

Question 24

What are the 3 rates of VAT?

Answer 24

Goods and services 20%
Domestic heating 5%
Food,books,medicine,water 0%

Question 25

What is stamp duty?

Answer 25

It is a tax payable by the purchaser on certain transactions such as purchases of shares or land

Question 26

When is stamp duty reserve tax payable?

Answer 26

It is payable on documents that transfer ownership of financial assets like stocks, shares and unit trusts

Question 27

What are the exemptions from stamp duty reserve tax?

Answer 27

• Securities on London stock exchange
• Shares in a property authorised investment fund
• Surrenders of units

Question 28

Who pays stamp duty land tax?

Answer 28

Paid by purchasers of residential property

Question 29

Who pays Corporation tax?

Answer 29

It is paid by limited companies on their profits

Question 30

What is withholding tax?

Answer 30

A tax of 20% is withheld for earnings of non-resident entertainers and sports people