Module 7: Investments and Pensions

Question 1

ISAs can be in (3)

Answer 1

Cash
Stocks
Shares

Question 2

Interest, dividends and capital gains through ISAs are

Answer 2

Tax free

Question 3

Annual limits for ISAs

Answer 3

£20,000
16-17 years old = £20,000 but only in cash ISAs
<16 years old = £4260, no withdrawals before 18th birthday

Question 4

Help to buy ISA saving

Answer 4

£200 per month

Question 5

Bonus on help to buy ISA

Answer 5

25% on purchase of first residential property (limited to max bonus of £3000)

Question 6

Bonus on help to buy ISA only payable when

Answer 6

Property being purchased costs < £450,000 in London and < £250,000 elsewhere

Question 7

Help to buy ISA only available until

Answer 7

November 2019

Question 8

LISA can be opened by UK resident individuals aged

Answer 8

18-39

Question 9

LISA - annual saving

Answer 9

Up to £4000 pa until aged 50

Question 10

Savings in LISA count towards

Answer 10

Annual ISA limit of £20,000

Question 11

Bonus paid

Answer 11

25% paid by government on total amount paid into LISA excluding interest/ growth

Question 12

Withdrawal of LISA

Answer 12

From 60th birthday or after 1 year if being used to purchase first residential property < £450,000 anywhere

Question 13

Enterprise investment scheme cannot

Answer 13

Reduce IT liability to a negative number

Question 14

If shares sold within 3 years EIS

Answer 14

IT reducer is clawed back - increases tax due

Question 15

Amount of EIS clawed back

Answer 15

Sale proceeds x initial rate of relief received

Question 16

If the shares in EIS/ VCT are given away (other than to spouse/ partner or on death)

Answer 16

Full tax reducer is clawed back

Question 17

Capital loss on disposal of shares EIS

Answer 17

Can be set off against gains OR set against net income in year of disposal or PY

Question 18

When calculating loss on disposal of shares

Answer 18

(Proceeds less cost) Cost is reduced by amount of any EIS tax reducer claimed on investment

Question 19

Venture capital trust

Answer 19

Quoted company approved by HMRC which invests in unquoted shares

Question 20

Venture capital trusts (VCTs) IT clawback

Answer 20

If shares sold within 5 years
Clawback same as EIS:
Sale proceeds x initial rate of relief received

Question 21

VCT income tax relief fully withdrawn if

Answer 21

VCT loses its approved status within 5 years after issuing eligible shares to the investor

Question 22

Capital gains arising from disposal of VCT shares

Answer 22

Exempt from tax regardless of length of period of ownership

Question 23

Dividends received by an individual in respect of ordinary shares in a VCT are exempt from income tax provided (3):

Answer 23

• company was a VCT when the individual acquired their shares
• dividend paid out of profits which accrued to the company in an accounting period after its approval as a VCT
• shares in respect of which the dividend is paid were acquired by the investor within permitted max of £200k

Question 24

Maximum investment qualifying for tax reducer VCT

Answer 24

£200,000 pa

Question 25

Maximum investment qualifying for tax reducer EIS

Answer 25

£1m pa

Question 26

Relief on dividends and CGT relief VCT given on

Answer 26

First £200,000 ordinary shares acquired in each tax year (doesn’t have to be VCT)

Question 27

30% income tax reducer on investment VCT given

Answer 27

First £200,000 NEW VCT ordinary shares subscribed for each tax year

Question 28

Occupational (employers) pension schemes (2)

Answer 28

- final salary | - defined contribution

Question 29

Final salary =

Answer 29

Eventual pension income is determined by final salary rather than the amounts paid in

Question 30

Defined contribution

Answer 30

Eventual pension income is determined by how much has been paid in

Question 31

Maximum gross contribution individual can make which will attract tax relief is

Answer 31

Higher of £3,600 or 100% of UK earnings

Question 32

UK earnings = (3)

Answer 32

- employment income - trading income - income from furnished holiday lettings

Question 33

Occupational schemes relief

Answer 33

Employer deducts gross pension contributions from individual’s employment income before operating PAYE. Appropriate rate of relief (20%/40%/45%) given at source, reducing PAYE paid.

Question 34

Personal pension schemes relief

Answer 34

Individual makes contribution net of basic rate tax. Remaining 20% paid by HMRC direct to pension provider.

Question 35

Personal pension scheme if higher/ additional rate band

Answer 35

Extend the basic rate (and higher if applicable) by the gross pension contribution

Question 36

Employer contributions (3)

Answer 36

- exempt benefits and not limited - tax deductible as a trading expense - count towards the annual allowance

Question 37

Limit on amount that can be paid into approved pension scheme

Answer 37

No limit

Question 38

Annual allowance pensions purpose

Answer 38

Limits the tax relief available on total gross contributions

Question 39

Annual allowance pensions =

Answer 39

£40,000 Reduced by £1 for every £2 net income >£150,000 to minimum annual allowance of £10,000 Individual with net income >£210,000 has min allowance of £10,000

Question 40

Unused annual allowance

Answer 40

Can be carried forward for three years under FIFO basis

Question 41

Excess pension contributions

Answer 41

When individual’s contributions in a tax year exceed their annual allowance

Question 42

Excess pension contributions treatment

Answer 42

Excess is charged to tax as if it is the taxpayers top slice of income (could be 20%/40%/45%). No NIC and not considered to be earnings.

Question 43

Withdrawal from pension fund (% tax free)

Answer 43

25%

Question 44

Regular pension income treated as

Answer 44

Non savings income

Question 45

Remaining value of withdrawal taxable at

Answer 45

Marginal rate of income tax

Question 46

Once money is withdrawn income tax on excess in pension fund above the lifetime allowance - lump sum

Answer 46

55% income tax

Question 47

Once money is withdrawn income tax on excess in pension fund above the lifetime allowance - used to purchase pension/ paid as cash withdrawal

Answer 47

25% income tax

Question 48

Personal pension / money purchase pension valued by

Answer 48

Totalling the market value of the assets

Question 49

Valuing final salary pension

Answer 49

20 x annual pension benefit payable + tax free lump sum payable

Question 50

Enterprise investment scheme qualifying shares

Answer 50

In Unquoted trading companies