Chapter 11 Flashcards
1
Q
What are the main forms of personal taxation?
A
Income Tax
CGT
IHT
2
Q
What is the usual way to establish residency in the UK?
A
the number of days a person spends in the UK in the tax year
3
Q
To establish residency in the UK under the Statutory Residence Test (SRT), a person is subject to which three tests?
A
The Automatic Overseas Test
The Automatic UK Test
The Sufficient Ties Tets
4
Q
How does the automatic overseas test work?
A
how many days a person spends in the UK
5
Q
For the automatic overseas test, how does someone become automatically a non-UK resident? 🗓️👷
A
- spent fewer than 16 days in the tax year
- they work full time abroad (avg at least 35 hours a week) and spent fewer than 91 days in the UK for the tax year
6
Q
What is the automatic UK test? (2)
A
- person spent more than 183 days in the UK for the tax year
- their only home was in the UK
7
Q
When is the sufficient ties test used?
A
when automatic overseas test or automatic UK test did not apply
8
Q
What is included in the sufficient ties test? (5)
A
family tie
accommodation tie
work tie
90-day tie
country tie
9
Q
For the sufficient ties test, what is included in the family tie?
A
spouse, civil partner or minor children
10
Q
For the sufficient ties test, what is included in the accommodation tie? (1)
A
accommodation in the UK
available to use for at least 91 days
spend at least 1 night there
11
Q
For the sufficient ties test, what is included in the work tie? (2)
A
work in the UK for more than 3 hours a day for at least 40 days in total
employed or self employed
12
Q
For the sufficient ties test, what is included in the 90-day tie?
A
more than 90 days in the UK in either of the last two tax years
13
Q
For the sufficient ties test, what is included in the country tie?
A
spend more days in the UK in a tax year than in any other single country
applies to leavers only
14
Q
For the amount of UK tie needed, how many days has a person spent in the UK?
at least four
at least three
at least two
at least one
A
16-45
46-90
91-120
Over 120
15
Q
Under SRT, what is splitting the tax year?
A
a UK part charged UK tax as a UK resident
an overseas part, they are charged UK tax as a non-UK resident
16
Q
What is a domicile country?
A
the country where someone has, or which someone treats as their permanent home, whether they live there or have a substantial connection with it
17
Q
For UK doms, are their global properties liable for IHT?
A
Yes
18
Q
For non UK doms, are their global properties liable for IHT?
A
No, UK properties only
19
Q
What are the four types of domicile that can apply in the UK?
A
domicile of origin
domicile of choice
domicile of dependancy
deemed domicile
20
Q
What is the domicile of origin?
A
acquired at birth
take on that of their father
21
Q
What is the domicile of choice?
A
individual move to a new country with intent of living there permanently
22
Q
What is the domicile of dependency?
A
a child under the age of 16 adopts the same domicile as the parent
23
Q
What is deemed domicile?
A
domiciled outside the UK but
domiciled in the UK during the three years before transfer or resident in the UK for at least 15 of the 20 previous income tax years
24
Q
What is arising basis of taxation?
A
pay UK tax on income as it arises and gains as they accrue
25
Is foreign income/gains that have already been taxed in the country in which they are located subject to tax in the UK?
Yes, but relief is given under the provisions of the relevant double taxation agreements
26
How can someone claim relief under a DTA?
by completing a self-assessment tax return
27
What happens in a remittance basis? 2
UK tax for UK sour income and gains as they arise or accrue
only account for UK on foreign income or gains when they bring (remit) them into the UK
28
If an individual is a resident, but not domiciled in the UK, they can use which remittance basis?
both foreign income and foreign capital gains
29
If an individual is a resident and domiciled in the UK, but not a tax resident, they can use which remittance basis?
can use a remittance basis for foreign income
foreign capital gains will be taxed on the arising basis
30
If an individual has less than £2,000 unremitted foreign income and/or gains which arise or accrue in the relevant tax year, can they use the remittance basis?
Yes without making a claim and retain entitlement to UK personal tax allowances and reliefs
31
Some reliefs are also available, whereby taxpayers can deduct an amount from their tax liability before calculating their final liability. What are these? (3)
personal allowance
contributions to a personal pension plan or a company pension scheme
gift aid donations
32
Non-dividend savings income applies to the UK and overseas savings income from which sources? (5)
* Interest from banks and building societies.
* Interest from gilts and corporate bonds.
* Purchased life annuities (income component).
* Taxable amount on deeply discounted securities (eg, zero-coupon bonds).
* Some distributions from unit trusts (5)
33
How much is the personal allowance reduced if income is over the £100,000 limit?
reduced by £1 for every £2 over the limit until personal allowance is fully exhausted
34
e, if a bond is issued at £80 and redeemed at par of £100, the £20 discount on the issue is treated as...
if it were interest
35
Any receipts under an annuity are divided by HMRC into which two elements?
interest element
capital being returned
36
. The interest element from annuities is included in?
taxable income
37
How is the capital element of an annuity calculated?
estimated by dividing the initial capital sum invested by the investor’s life expectancy
38
For rental income, The tax payable will be based on the investor’s net income profit from the activity, which is:
total rental income less total allowable expenses
39
The Gift Aid scheme applies to what?
any donation made to a registered charity, whether large or small, regular or one-off
40
What are the tax advantages of ISAs?
- no tax payable on income
- no tax payable on capital gains
- can move many any time
- does not have to report to HMRC
41
What are the different type of ISAs? (7)
- Cash ISAs
- S&S ISAs
- Flexible ISAs
- Help to buy ISAs
- Lifetime ISAs
- Innovative Finanace ISAs
- Junior ISAs
42
whats included in cash ISAs?
cash and NS&I products
43
what is a flexible ISA?
if withdraw from the account you can make the subscription back in the same tax year
44
How much can you subscribe in a help to buy ISA?
£200 a month and you get £50 from government
45
What is the annual subscription limit for a LISA?
£4000
46
When can you withdraw from a LISA without being charged? (3)
buyng a house
over 60
become mentally ill
47
What are the qualifying investments in innovative finance ISAs?
peer to peer loans and cash
48
What is the subscription limit of a JISA?
£9000
49
What is the enterprise investment scheme (EIS) designed for? (2)
help smaller companies raise finance
offer tax relief to investors who purchase new shares in those companies
50
True or false
An investor receives tax advantages when investing in EIS companies, providing that they invest in fully paid ordinary shares that carry the full risk of ordinary shares and carry no preferential rights that protect the investor from the normal risks of investing in shares
True
51
What are the set criteria for companies to provide shares that qualify as EIS shares? (4)
- unlisted when shares are issued
- carrying out a 'qualifying trade' wholly or main in the UK
- company gross assets not exceeding £15 million
- less than 250 full time employees
52
For EIS, what is a qualifying trade?
Most trades qualify, but those that are specifically excluded include property development, hotels, nursing homes, farming and companies providing financial, legal and accountancy services.
53
For EIS, what are eligible shares?
new ordinary shares that are not redeemable for at least three years
54
For EIS, what are qualifying individuals?
someone who is not connected with the company when subscribing, although they can subsequently become a paid director of the company
55
For EIS, what is the income tax relief on contributions?
30% up to a maximum contributions of £2 million per tax year
56
Can a contribution to an EIS scheme be carried back to previous tax years?
Yes
57
What happens to income tax relief when EIS shares are disposed of within three years?
income tax relief is withdrawn
58
For EIS shares, what is the CGT relief?
gains made are free of CGT if shares held for more than 3 years
59
What are VCTs designed for?
invest in range of small higher-risk trading companies
not listed on a recognised stock exchange
60
What is the income tax relief on contributions for VCTs? (3)
rate of 30%, up to a maximum contribution of £200,000 oer tax year
can't be carried back to previous tax years
income tax relief withdrawn if shares sold within five years
61
What is the CGT relief for VCTs?
no CGT on any gain
62
what are the conditions for CGT relief of VCTs (4)
acquisitions not exceeding £200,000 worth of VCT shares
individual must be over 18
the company was an approved VCT when the share was bought and sold
shares bought for commercial reasons and not as part of a tax avoidance scheme
63
Why can VCTs be very rewarding opportunities for invested?
start-up and developmental/growth companies can produce significant growth
gains and income are not subject to same tax drag as less favourably treated investments
64
What are the risks involved in investing in VCTs? (4)
- companies are not listed, hard to sell
- smaller companies more vulnerable to market downturns
- in some cases, young and inexperienced management teams
- assumed invested for full investment life cycle - returns not planned until sometime into the life of the investment
65
What kind of companies do seed enterprise investment schemes (SEISs) apply to?
smaller companies
under 2 yrs old
25 or fewer employees
assets of up to £200,000
66
To qualify for SEIS status a company must?
U25
2S150
200C
- based in UK
- fewer than 25 employees
- no more than 2 years old
- not raise more than £150,000 in total via SEIS investment
- less than £200,000 of gross assets
- not be controlled by any investor receiving their capital
67
For SEISs, how much stake can an investor have in the company they are investing in?
no more than 30^%
68
For SEISs, what is the income tax relief on contributions?
50% up to a maximum contribution of £100,000 p/a
cannot be carried back to previous tax years
- income tax relief withdrawn if shares disposed within 3 years
69
What is the CGT relief for SEISs?
The same as EIS
70
Which assets are chargeable to CGT? (5)
* shares in a company
* units in a unit trust
* land and buildings
* higher-value jewellery, paintings, antiques, and other personal effects, and
* assets used in a business, such as goodwill
71
Which assets are exempt from CGT? (10)
* a UK-domiciled individual’s nominated main or principal private residence (PPR)
* gilts and qualifying corporate bonds
* jewellery, paintings, antiques, and other personal effects that are individually worth £6,000 or less
* wasting chattels with a useful life of less than 50 years (eg, racehorses and fine wine)
* savings certificates and premium bonds
* assets held in an ISA, JISA, or CTF
* assets held in approved pension arrangements
* EIS, SEIS, and VCT investments subject to being held for a qualifying period
* betting, lottery or pools winnings, and
* personal injury compensation
72
a disposal is not potentially chargeable to CGT, or allowable as a capital loss if? (2)
made between spouses or civil partner
if asset is exempt
73
How much does business asset deposit relief (BADR) reduce CGT?
10% CGT on all gains on qualifying assets up to a maximum asset value of £1.000,000 over lifetime
74
How does a person qualify for BADR?
has to be a sole trader or business partner of a company which they have owned for at least two years
75
Which assets qualify for BADR? (4)
a disposal of the whole or part of a business run as a sole trader
* the disposal of a share in a partnership by a partner
* the disposal of shares in a trading company, where the individual has at least a 5% shareholding and
is also an employee of the company
* assets that an owner has loaned to their own business, and
* shares bought through an Enterprise Management Incentive Scheme (although there are special
rules for such schemes)
76
How are capital gains charged within an open-ended investment company (OEIC), unit trust or ETF?
exempt from CGT
77
UK real estate investment trusts (REITs) are not subject to CGT on gains made on the disposal of property, providing that?
they distribute at least 90% of their profits each year to shareholders as dividends
78
IHT is a tax on gifts or transfers of value. There are two main chargeable occasions:
1. Gifts made during the lifetime of the donor (lifetime transfers).
2. Gifts or transfers on the death of the donor, for example, when property is left to someone in a will (the death estate)
79
What kind of transactions are included in stamp duty reserve tax (SDRT)? (5)
* shares in a UK company
* shares in a foreign company with a share register in the UK
* an option to buy shares
* rights arising from shares already owned, and
* an interest in shares, like an interest in the money made from selling them.
80
How does SDRT work for unit trusts and OIECs? (2)
fund manager is charged SDRT
pass this cost to investor through management charges
81
How much is an SDRT charge?
flat rate of 0.5%
82
Paperless transfers of stocks, shares and other securities are exempt from SDRT (there is no tax to pay) if they are one of the following (6)
* Shares that are received as a gift and where no payment is made (either cash or other consideration).
* Shares that are bequeathed in a will.
* Shares that a spouse or partner transfers as a result of a marriage or entering into a civil partnership.
* Shares that are transferred as part of a divorce civil partnership dissolution.
* Shares held in trust that are transferred from one trustee to another.
* Transfers that a liquidator makes as a settlement to shareholders when a business is wound up
83
There are some transactions that qualify for relief. As with exemptions, this means there is no SDRT due. The following are the most common reliefs which can be claimed: (4)
- transfers of loan capital
- sale to recognised intermediaries
- repurchases and stock lending
- transfers to charities
84
Some paperless transactions do not qualify for SDRT relief but may instead qualify for stamp duty relief. In some cases, SDRT relief cannot be claimed directly, but there will need to be a claim for stamp duty relief instead. This applies to:
intra-group relief
acquisition relief
85
what is intra-group relief?
for transfers of shares between companies in the same group, if certain conditions are met
86
what is acquisition relief?
when one company acquires all the shares in another company, but the same people own both companies, and the share structure of both companies is identical
87
which securities are exempt from stamp duty? (2)
Gilts and bonds are not liable to stamp duty unless they are equity related; for example, convertible into equity
Gifts are not liable to stamp duty since there is no consideration paid on the transactions
88
Which securities are exempt from SDRT?
gilts and non-convertible bonds
89
When is stamp duty land tax payable?
on the purchase or transfer of property or land in England, Wales and Northern Ireland where the amount paid is above a certain threshold
90
What are non-residential properties? (6)
* commercial property, for example shops or offices
* property that is not suitable to be lived in
* forests
* agricultural land that is part of a working farm or used for agricultural purposes
* any other land or property that is not part of a dwelling’s garden or grounds, and
* six or more residential properties bought in a single transaction
91
Which transactions are exempt and do not request an SDLT return? (7)
Property transactions where no money or other consideration changes hands (ie, no
‘chargeable consideration’)
Property left in a will
Divorce or dissolution of a civil partnership
property purchases where the value of the transaction is less than £40,000
Leasehold transactions and SDLT notification
short leases granted by registered social landlords for people in need of housing
alternative property finance i.e. Islamic mortgages
92
What value is SDLT charged on?
the total value of 'the chargeable consideration'
includes everything of economic value
includes:
- payment of money
- release from a debt
- transfer of existing mortgage
- provision of other services
93
What is the chargeable consideration from the perspective of SDLT liability?
the purchase price
excluding the value of any extras
e.g. carpets or funiture
94
For SDLT what are linked transactions?
The values of each transaction are combined to find the total chargeable consideration
For example, if a purchaser buys two apartments for £100,000 each from the same developer at the same time, then SDLT is calculated on the total of £200,000
95
What is standard VAT?
20% (charged on most goods and services)
96
What is reduced VAT?
– 5% (some goods and services – eg, children’s car seats and home energy)
97
What is zero VAT?
0% (zero-rated goods and services – eg, most food and children’s clothes)
98
For a business, if the goods or services they provide count as what are known as taxable supplies, the business will have to register for VAT if either (2)
* their turnover for the previous 12 months has exceeded the VAT threshold of £85,00026, or
* they expect that turnover will soon exceed this limit
