Build Up A Portfollio Of Objectives To Assit With Retirement Objectives Flashcards

Question

How would investing in a property authorised investment fund work for Zofia, and why might it be suitable for her retirement

Answer 1

OIEC invests mainly in property (UT does not qualify) Taxation directly on investor (as if invested directly in property) Ring-fenced rental property income exempt from tax in fund Other taxable income subject to corporation tax 3 distributions -property income paid net of 20% unless held in ISA/pension Conditions- 60% net income from exempt property investment business, assets in business must be at least 60% of total and shares must be widely spread More liquid way to invest Diversified over a number of properties spreading the risk Enables use of savings allowance, dividend, and CGT annual allowance Suits adventurous ATR

Answer 2

A single company or group that owns and manages commercial or residential property on behalf of shareholders Company must be UK resident, closed-ended, and quoted on a recognised stick exchange 75% total gross profits from letting 125% of interest on borrowing covered by rental profits Makes rental part of company corporate tax free Gains on sale of property developed are 30% CGT unless held for 3 years 90% of rental profits paid out within 12 months of end of accounting period Pays in 2 elements Property income element from corporation tax-free. Income tax charged at 20% gross (I'd not in ISA) higher andaditional must pay more. Non tax payers can reclaim. A dividend from the investment element Capital gains taxed in normal way Can use dividend and cgt allowance Liquid way to invest in property Diversified over a number of properties

Answer 3

Lifefunds can have direct holdings of commercial property Regular and single premium unit-linked contracts Value of units directly linked to value of property Fund cannot borrow Liquidity higher than direct property Investment though fund may be gated in bad market conditions Fund taxed at upto 20% on income and gains Diversified over a number of properties Enables use of personal savings allowance and top-slicing on encashment

Answer 4

Can be illiquid or gated Pricing issues Lack of asset class diversification Lack of geographical diversification High ongoing charges Forced sales reduce vslue of fund Cash holding dilute returns Property value is subjective Tax rules may change May not match ATR

Answer 5

Foundation amount calculated as of 5 April 2016 Higher of old multi-tier scheme or new flat state pension Aditional amount granted if more than new foe If less brought on to state pension Contracted out pension equivalent deducted from new state pension 35 years NIC for full entitlement Qualifying years accrued both pre and post April 2016 Minimum of 10 years for part state pension Can complete BR19 form Call the future pension centre Or apply for forecast online Forecast in today's money, but assume future years will be added to pension

Answer 6

30% income tax relief on contributions Limited to total income tax paid in the year Can carry back to previous tax year Must hold for 3 years Otherwise, tax relief clawed back Loses on encashment can be set against income tax and CGT CGT deferal avialable via reinvestment relief Reinvest one year before to 3 years after disposal EIS CGT free if held for 3 years 100% business relief is available on death if held for 2 years Saves 40% IHT High risk investment suits ATR Although may not have the capacity for loss Diversification and growth potential

Answer 7

Income relief 50% to a maximum of the income tax spent that financial year And a maximum of £200,000 Can be carried back one year to maximise relief Must be held for 3 years or is clawed back CGT reinvestment is 50% tax-free, 50% deffered Reinvest one year before to 3 years after disposal Losses on encashment can be offset for CGT. Otherwise, CGT free after 3 years 100% IHT relief if held for 2 years Saves estate 40% on amount invested High risk ATR Although capacity for loss may be too much Diversification and growth potential added

Answer 8

Very high risk- new, small companies Lacks liquidity -secondhand shares do not benefit from income tax May not have sufficient capacity for loss No income tax relief if the tax relief exceeds tax bill CGT relief wasted if no CGT liability

Answer 9

Income tax relief at 30% of amount invested up to total income tax paid that tax year Up to £200,000 can be invested No carry back Must be held 5 years or clawed back No tax on dividends No CGT on share gains/on death No minimum hold period for CGT No CGT deferal or reinvestment relief No IHT relief Very high risk May not have capacity for loss Adds diversification and potential for growth

Answer 10

Uses ISA allowances AIM ISA offers IHT benefit IHT free after 2 years Matches ATR Possible higher growth/increased diversification Possible dividends/income Retain control of assets/no need to gift Relatively liquid/accessible Cost-effective IHT planning Can choose specialist companies Tax-free/maintains ISA status

Answer 11

Lack of Liquidity Lacks diversification as small companies Specific risk as companies may fail or perform poorly Event risk as value may be affected by specific risk Regulatory risk as less reporting Tax and legislation such as BR being reduced

Answer 12

Perform cahflow analysis To determine surplus income and discover where discretionary expenditure can be cut back Continue to contribute to their lifetime ISAs to benefit from bonus and tax-free income and growth Once an emergency fund and ATR is established, move funds out of cash ISA into S&S ISA So funds are better aligned to their risk Subject to affordability both to increase regular pension contributions and Bartek to request bonus sacrifice To benefit from PCA Contribution matching from employers And tax relief Maximising potential for growth, which will be income tax and CGT free Leading to larger income in retirement for the couple Pension also currently IHT free And will lower Barteks adjustable net income to eliminate high income child benefit charge Subject to affordability Zofia to select property Fund In line with her objective to invest in property and her ATR Subject to risk profiling assessment, Bartek to switch pension funds To something in line with his ATR And Subject to affordability and cash flow consider investing small amount of funds into EIS/SEIS To reduce tax And increase potential for growth Both to obtain state pension forecast To confirm how much they will recieve and from when Any gaps to be plugged with NIC3 if possible To maximise state pension that can be recieved

Answer 13

C Changes in objectives Changes in health Changes in lifestyle and expenditure Changes in their financial position Changes in ATR and capacity for loss Have they used thier allowances L Any legislation or tax changes that affect thier pensions or their ability to fund and draw from thier pensions I Thier pension fund Performance Is it on track C Changes to pension cost Investment costs within the pension Any better products/funds or pensions they could be using R Do their investments need reblancing

Build Up A Portfollio Of Objectives To Assit With Retirement Objectives Flashcards

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