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1

HMRC requirements for a holiday home to qualify as a furnished holiday letting.

1. Must be available for letting to the public for periods of at least 210 days in total in a tax year.

2. The property must be let for at least 105 days in any tax year.

3. The property must be let on a commercial basis.

4. The property must be within the UK of EEA

5. The property may be let for continuous periods over 31 days;

6 But not longer than 155 days in any tax year.

2

What are the tax benefits of registering a second property as a furnished holiday let?

1. A Furnished Holiday Let is regarded as a trade and would, therefore qualify for Entrepreneurs Relief on disposal.

2. Earnings from lettings are regarded as qualifying earnings for pension contributions.

3. Rollover relief/holdover relief/loss relief available for CGT.

4. Business Property Relief could be available on death if qualifying period and conditions are met.

5. Income is classed as trading income, not investment income so expenses can be fully deducted from the profits.

6. Capital allowances can be claimed and losses can be used t reduce income tax.

3

State the circumstances in which the loss of Business Property Relief could happen in respect of shareholdings in an unlisted company.

1. Company is wholly or mainly dealing in securities, stocks or shares.

2. Company primarily trades in land or buildings.

3. The business is subject to a binding contract for sale at the time of death/transfer.

4. Assets not used/required for future use in the business at the time of transfer.

5. The company becomes listed.

6. The company ceases to engage in a qualifying trade.

4

State the requirements that must be met for an estate to qualify for the reduced rate of IHT due to a charitable gift and explain briefly how the net estate is calculated.

1. To qualify for the reduced rate if Inheritance Tax of 36%;

At least 10% of the net value of the estate

Must be left to a qualifying/registered charity/sports club association

The net value of the estate is the sum of al the assets after deducting any debts, liabilities;

Reliefs or exemptions;

And any available/transferred nil rate band

5

List 3 components of an estate that will be used to calculate an estates' qualification for the reduced rate of IHT due to a charitable gift.

Survivorship

Settled property/trust

General/remaining estate

6

Describe the requirements for a will to be valid

The will must be in writing/suitable format

Signed by a testator who must have capacity/sound mind

Witnessed be at least two people in the presence of the testator

Witness and their spouses/Civil Partners cannot be beneficiaries

7

What could revoke/invalidate a will

Making a new will

Marriage/Civil Partnership

Unless will has been specifically made in anticipation of Marriage/Civil Partnership

Destruction of the existing will (with the intention to revoke)

8

How could a personal injury trust affect entitlement to state benefits?

The trust fund is disregarded for means testing as long as only capital is withdrawn on an ad-hoc basis

Regular withdrawals could impact eligibility

Only the amount of compensation paid should go into the trust

9

What conditions must be met for a trust to qualify for the special tax regime for trusts for the vulnerable?

The trust property can only be applied for the benefit of the beneficiary

The beneficiary must be entitled to the income.

10

According to section 89(4) of the Inheritance act 1984, what are the definitions of 'disabled'?

Incapable, by reason of mental capacity within the meaning of the mental health act 1983/manging their affairs

Or

In receipt of an attendance allowance/disability living allowance/personal independence payment.

11

What are the main duties of a trustee?

Consider the standard investment criteria and suitability of the investments.

Diversification

Obtain advice of a suitably qualified person (unless one of the other trustees has this expertise).

Investment should be reviewed at leat annually and varied if appropriate.

Manage the money and act in the best interest of the beneficiaries.

Comply with the trustee act 2000

Keep proper accounts

Consider the beneficiaries tax position/complete tax returns

Invest any cash promptly

Have a statutory duty of care when carrying out their duties to invest monies as if they were their own.

Register assets in the trust name/hold trust documents of title/trustee's own assets.

12

What is the difference between capital allowances and allowable expenses?

Capital Allowances;

Items that might be used in business over several years.

Generally, items that will have a useful life of over two years


Allowable Expenses;

Costs paid with the sole purpose of earning business profits.

13

How is Class 2 National Insurance collected and when would this need to be paid

4 weekly by direct debit

Or

Half yearly

Paid on 31st Jan within the tax year and 31st July after the tax year with balancing payment on the following 31st Jan.

14

How is Class 4 National Insurance collected and when would this need to be paid

Paid via self-assessment

Paid on 31st Jan within the tax year and 31st July after the tax year with balancing payment on the following 31st Jan.

15

State Benefits that are dependent on National Insurance contributions

The basic state pension

Additional State Pension/S2P

Jobseeker's Allowance, the contribution based element.

Employment and Support allowance, the contribution based element/Universal credit.

Incapacity Benefit

Maternity Allowance

Bereavement Allowance/Payment

Widowed Parent's Allowance

16

Explain how the chargeable gain on a bond is calculated on surrender

Onshore bonds are already deemed to have paid basic rate tax/subject to corporation tax internally.

The gain will be calculated for the full life of the bond

The gross surrender amount is added to any withdrawals made.

Minus the initial investment amount and any additional top ups.

The gain is divided by the number of whole years of ownership

The slice is added to the owner's income for the relevant tax year.

Any amount into higher rate tax subject to 20% income tax and multiplied by the number of years of ownership.

Any amount into additional rate tax subject to 25% income tax and multiplied by the number of years of ownership.

17

State the criteria a company must meet to qualify as a suitable investment to obtain financing via an Enterprise Investment Scheme

Gross assets of no more than £15,000,000 prior to investment and no more than £16,000,000 after.

Must be permanently based in the UK

Carrying out a genuine qualifying trade

Unlisted on major exchange when Enterprise Investment Scheme shares are issued

Raising no more than £5,000,0000 under EIS

Fewer than 250 employees

18

In the event of bankruptcy, in what order of priority must creditors be paid?

1. Secured Creditors
2. Expenses of Bankruptcy
3. Preferential Creditors
4. Floating Charge Holders
5. Unsecured Creditors
6. Interest due on debts since the bankruptcy order
7. Debts to spouse/civil partner

19

Explain the IHT implications of assigning a term assurance policy into a discretionary trust

The assignment of the term assurance policy into trust is a transfer of value for IHT purposes

The value is deemed to be the market value at the date of transfer.

This would be either of nil or of negligible value if the life assured is in good health.

Health problems experienced by the life assured could impact HMRCs valuation of the transfer

If the life assured dies within 2 years of the transfer the HMRC may deem the value of the transfer as being the sum assured.

The premiums are transfers of value.

They could be claimed as exempt under the normal expenditure out of income exemption or the £3,000, annual exemptions could be used.

20

What actions could an individual take in order to support their application for a new domicile of choice?

Have a purpose for remaining there i.e family/employment/retirement

Sever all links with the UK/existing domicile

Open a bank account in the new country

Write a will in the new country

Arrange to be buried in the new country

Purchase a property in the new country

Register to vote in the new country

Apply for citizenship in the new country

21

State the steps an individual would have taken to report a loss to HM Revenue & Customs (HMRC) during the time he held his UK assets, including timescales and amounts where relevant.

If you completed a self‐assessment tax return for the year in which you made the loss, you must claim the loss within four years from the end of that tax year.

If you did not complete a self‐assessment tax return for the year in which you made the loss, the time limit

All losses:

Loss only needs to be reported if it is more than four times the Annual Exempt Amount;

or taxpayer wishes to offset against chargeable gains.

22

Explain the HMRC criteria surrounding the disposal of company assets in order to qualify for entrepreneurs’ relief.

Business assets must be held for a minimum period of one year.

Must be an employee of the company holding at least 5% of the shares.

The shares must be disposed of either while the company is a qualifying/trading company;

or within three years from the date it ceased to be a trading company.

Business assets include goodwill and business premises.

23

Detail the five sufficient UK ties that HMRC will use to demonstrate residency, if this cannot be proved by the automatic tests.

Spouse, partner, children resident in the UK.

Accommodation in the UK used during the tax year.

Substantive work in the UK of over 40 days in a tax year.

More than 90 days in the UK during either of the two previous years.

More time in the UK than in any other single country

24

Explain how double taxation agreements, usually operate, especially in cases where time is equally spent between countries.

Taxation is based on country of residence.

Residency based on where main home present; if two homes, it is the one lived in most.

Double taxation agreements are put in place to avoid double taxation of the same income.

Tax paid in one country can provide credit in the other country.

It may be that an individual is regarded as resident for tax in more than one country.

If all things are equal, an agreement will be made between the tax authorities as to who should be claiming the tax.

25

Describe the CGT rules on the transfer of assets between a married couple.

If living together in the tax year; transfer between spouses is no gain, no loss/tax‐ free.

26

Describe the CGT rules on the transfer of assets between a married couple who are separated

From tax year after separation, but before divorce (not living together in tax year) gain is taxable.

Treated as non‐commercial transfer between connected parties.

Market value is used as opposed to actual proceeds when calculating.

27

Describe the CGT rules on the transfer of assets between two people who are divorced

Fully taxable, unconnected parties.

Commercial transaction/open market.

28

Explain how shares are identified when they are disposed of and why this is relevant for the calculation of CGT.

Acquisitions made on the same day.

Acquisitions made within the following 30 days

Acquisitions made within the share pool.

To prevent ‘bed and breakfasting’;

crystallising an artificial gain/loss while maintaining beneficial ownership of the asset.

29

Explain the differences in CGT treatment regarding shares acquired as bonus issues, rights issues and scrip dividends.

Bonus: shares in the same class are deemed to have been acquired on the same date as the original holding/all gains subject to Capital Gains Tax.

No extra acquisition cost, as they are issued free.


Rights issue: subscription for further shares as new acquisition with additional costs/Capital Gains Tax levied on excess above acquisition.

Shares will be valued at the actual purchase price.

Scrip dividends/stock dividend: dividends paid as shares and not cash.

Treated as new acquisitions and charged accordingly.

30

State the factors that HM Revenue & Customs would use to distinguish whether an individual is self-employed

Contract to provide services.

Ability to sub‐contract.

If the individual takes on business risk.

Does individual have to correct unsatisfactory work in their own time and at their own expense?

Have to provide the equipment personally.