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chapter 5 Flashcards

1
Q 
pension fund young vs mature:
liquidity
time horizon
tax status
risk profile
asset allocation
other
A 
young vs mature:
low vs higher liquidity
long time vs shorter time horizon
both income and gains tax free
high risk vs low risk
high % equity vs less equity more lower risk (+naturally shorter term) bonds and bills
DB min funding, LDI approach
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2
Q 
life assurance fund vs general insurance fund:
liquidity
time horizon
tax status
risk profile
asset allocation
other
A

low vs very high liquidity
long term vs short term
both income and gains taxed
can take high risk vs v low risk
high % equity and long term bonds vs shorter term bonds and bills
life assurance = cashflow matching, both highly regulated and solvency margins

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3
Q

Life policies

A

term assurance
whole of life
endowment

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4
Q

life policies: term assurance

A

cheap, pays out if death within term

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5
Q

life policies: whole of life

A

pays out when you die

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6
Q

life policies: endowment

A

savings product with life insurance attached

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7
Q

fiscal tax year

A

aka income tax year: 6 April - 5 April

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8
Q

financial year

A

for company 1 april - 31 march

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9
Q

taxes an individual pays

A

income tax
national insurance contributions
capital gains tax

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10
Q

taxes companies pay

A

corporation tax

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11
Q

tax avoidance

A

not illegal - being efficient to minimise tax.

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12
Q

tax evasion

A

illegal - not paying tax where should be. tax fraud. e.g. not declaring property income from abroad

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13
Q

3 main categories of income

A 
salary - employment, self employment, rent earned
interest - bank, bond, gilts
dividends 
(taxed in that order)
then add capital gains after income tax
(sidcup)
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14
Q

income tax bands

A

basic 0-£37,500, salary 20%, interest 20%, dividends 7.5%
higher £37,501-£150k, 40%, 40%, 32.5%
additional 150k, 45%, 45%, 38.1%

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15
Q

income tax personal allowances (PA)

A

personal - earn less than 12,500
personal savings allowance - 1k if basic taxpayer, 500 if higher, 0 if additional
dividend savings allowance - 2k for everyone

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16
Q

personal allowance high earners catch

A

after 100k it reduces (see google doc)

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17
Q

pension contributions tax relief

A

tax relief at highest rate being paid by taxpayer up to a max of annual earnings capped at 40k or 3,600k if not earning

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18
Q

pension contribution allowance decreases by

A

1£ for every £2 earned above 240k until a minimum of 4k

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19
Q

NI contributions classes

A 
class 1 - payable by employee on their earnings
class 1a, 1b - payable by employers. 1a: on certain types of non-monetary benefits given to employees e.g. company car. 1b: on employees earnings if an exceptional settlement agreement with hmrc
class 2, 4: self employed. 2: if earnings are below small earnings exception, then now NICs are payable. 4: if profits exceed a threshold
class 3: voluntary: for 35 years to get full state pension
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20
Q

taxation of trust income

A

1st 1000£ of income (standard rate band): 20% ‘basic rate’ on rent, savings, business income . 7.5% ‘dividend ordinary rate’ on dividends
income over 1000: 45% ‘trust rate’, 38.1% ‘dividend trust rate’

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21
Q

standard rate band applied to what first

A

non dividend income then dividend income

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22
Q

who may claim back tax charged on income received from trust

A

beneficiary

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23
Q

if settlor has more than one trust

A

standard rate band split between them to min of £200

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24
Q

capital gains tax charged on

A

chargeable disposal e.g. sale/gift/transfer of a chargeable asset e.g. shares or 2nd home by a chargeable person i.e. UK resident
1. shares 2. land and buildings 3. unit trusts/oeics 4. high value personal items >6k

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25
capital gains tax annual exemption
12,300£
26
2 bands of CGT
basic rate: tax rate = 10%, residential property = 18% | higher+additional rate: tax rate=20%, residential property = 28%
27
CGT entrepreneurs benefit
10% up to 10£m lifetime allowance
28
items exempt from cgt
main private residence, private car, gilts and bonds, ISAs/pensions, gambling, NS+I savings certificates and premium bonds, foreign currency for personal use,
29
inheritance tax
tax on your estate at death and on any gifts 'potentially exempt transfer' (outside of trust) within the last 7 years. 40%. Does not apply when wealth passes to spouse or civil partner.
30
inheritance nil rate band
0% 'nil rate band' on the first 325,000£ plus 175,000 up to property value 'residence nil rate band' where residence is passed to a direct descendant Nil rate band can be transferred to a surviving spouse on % basis
31
are transfers into a discretionary trust a potentially exempt transfer?
No, they're a chargeable lifetime transfer (CLT). subject to a 20% tax charge on transfer. further tax is due if donor dies within 7 years.
32
inheritance tax exemptions
- wedding gift up to 5k from parent, 2500k from grandparents, 1k from others - spouses/civil partners - charity - annual exemption 3k
33
gift with reservation
incomplete gifts where donor continues to enjoy gifted asset
34
example of gift with reservation
home to the donor's children but donor living rent free | income producing assets to someone else, with the income continuing to be received by the donor
35
residence
where you are considered to have lived for tax purposes during the year
36
residence categorisations
- automatically non resident: work overseas full time - pay UK income tax on income arising in the UK. - automatically resident: 183 days+ in the UK in a tax year, work full time in UK or main/only home in UK: pay UK income tax on all income whether arising in UK or overseas
37
sufficient ties test
if individual doesn't satisfy resident or non-resident tests then further series of test based on: family connections, work, accommodation, days spent in UK
38
domicile
your "home" country. by default domicile of father. can elect a domicile of choice once 16 if intend to make another country your permanent home
39
if individual has >2,000 remitted from overseas a charge (RBC) may have to be paid how
30,000/yr if resident for at least 7/9 years 60,000/yr if resident for at least 12 of last 14 years personal allowance is lost if remittance basis is claimed
40
remittance basis
pays tax on UK income and only remitted overseas income and/or capital gains
41
SDLT on residential property
0-500k = 0% 500,001-925,000 = 5% 925000-1500000 = 10% 1,500,000 = 12% extra tax when own >1 residential property 3% 500,000 + purchased by corporate body = 15%
42
SDLT on non-residential property
0-150 = 0 150-250 = 2 250k+ = 5% in increments so for 750, first 150 at 0, then etc etc
43
stamp duty reserve tax SDRT
0.5% rate to nearest 1p on amount paid to purchase shares. payable in a paperless transaction by purchaser of: -shares in UK company -shares in foreign company ...and more?
44
stamp duty + stamp duty reserve tax only paid when
when buying
45
pension contribution limit
40k subject to tapering
46
tax relief on pensions
if aged under 75 at the marginal rate on contributions
47
tax free pension commencement lump sum
25% of accumulated funds can be taken at retirement. remainder used to produce an income subject to income tax
48
flexi access pension
gives access to individuals with defined contribution schemes at age 55. amoounts taken in excess of PCLS (lump sum) subject to income tax with future annual allowance for contributions capped at 4k
49
lifetime limit pension
1,073,100, if fund exceeds this, excess taxed at 25 if taken as income or 55 as lump sum
50
ISA
wrapper which adds a tax shield. investments exempt from income tax and CGT. Cash and stocks and shares annual limit: 20k. can be split as desired between 2 types
51
different ISA types
junior ISA (limit 9k/annum), innovative finance isa, help to buy isa (closed to new applicants), lifetime isa (retirement or house - make 4k annual with 25% from govt/yr), child trust funds (closed to new applicants)
52
collective investment schemes: tax on uk funds
no CGT income taxed: open end - 20% within fund (unless dividend income), investment trusts: income taxed at corporate tax rate tax on investor: CGT on gains, dividend tax on dividend distributions. if fund holds >60% interest bearing securities e.g. gilts, bonds etc, dividend is taxed as income not dividend
53
offshore CIS
tax on offshore funds - no tax payable tax on investor: reporting fund (income paid/reported) CGT on gains and dividend tax on dividend distributions non reporting fund (may accumulate income in fund) CGT on gains income tax on dividend distributions
54
real estate investment trusts
rental income and capital gains exempt within fund. required to distribute most rental income as dividends dividends paid to investors subject to 20% basic rate tax investors subject to income tax on distributions + capital gains tax if on a higher rate than basic rate
55
EIS
company with an EIS wrapper, offers tax incentives to individuals to invest in new and growing businesses. investors tax liability reduced by 30% of invested amount. max qualifying investment 1mil per year Must hold shares for 3 years No CGT for investor if held for > 3 years CGT deferral by reinvesting gains in more EIS share Losses on EIS may be offset against investors income
56
Seed EIS
start up company - 50% tax reduction
57
venture capital trust
company investing in multiple small EIS companies. tax liabilities reduced by 30% of invested amount. max qualifying investment - 200k have to hold shares for 5 years dividend income tax free no CGT
58
business property relief
``` Free of IHT if held for >2 years Available for investments in businesses that carry on trade inc -unquoted -aim companies -partnerships ```
59
social investment tax relief
- investors tax liability is reduce dby 30% of the invested amount - max qualifying investment 1mil per year held for >3 years
60
capital gains tax planning
- spreading ownership of assets amongst family members - phased encashments - realise capital losses to offset gains - bed and breakfasting: 30 day rule workarounds - use tax free wrappers e.g. isas
61
income tax planning
- tax free wrappers e.g. isas - tax free investment e.g. ns+I savings certificates - use 5% withdrawal on single premium life bons - transfer assets to lower tax rate spouse - max tax allowance between married couples - use pension conributions to qualify for tax relief - make investments into EIS or VCTs to qualify for tax releif

IMC (9 decks)

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