Topic 4 Flashcards
1
Q
What is Capital Gains Tax (CGT)?
A
CGT is a tax payable on the profit (gain) made from the disposal of certain assets, such as property, shares, or business assets.
2
Q
What types of assets are subject to CGT?
A
Assets subject to CGT include personal property (worth over a certain amount), real estate (not the main home), shares (not in an ISA), and business assets.
3
Q
What is the annual exempt amount in CGT?
A
The annual exempt amount is the level of gains that can be made in a tax year before CGT becomes payable.
4
Q
Can unused CGT allowance be carried forward to the next year?
A
No, the annual exempt amount cannot be carried forward if it is unused.
5
Q
What deductions can be made from CGT?
A
Allowable capital losses made in the same year or carried forward from previous years can be deducted from the taxable gains.
6
Q
Why might a person’s main home be subject to CGT?
A
If the home has been let out or used for business, it may be subject to CGT upon disposal.
7
Q
How does the annual exempt amount benefit taxpayers?
A
The annual exempt amount allows individuals to make gains up to a certain level without paying CGT, similar to a personal allowance for income tax.
8
Q
Why are certain trusts entitled to the full CGT annual exempt amount?
A
Bare trusts and trusts for vulnerable beneficiaries are granted the full exempt amount to provide additional financial support for beneficiaries.
9
Q
How are trustees of most other trusts treated under CGT?
A
Trustees of most other trusts are entitled to a maximum of half the CGT annual exempt amount.
10
Q
When is CGT payable?
A
CGT is payable when a gain is made on the disposal (sale, gift, or transfer) of certain assets.
11
Q
How are losses handled under CGT?
A
Capital losses from the same year or carried forward from previous years can be deducted from gains before CGT is calculated.
12
Q
Are there any exceptions where CGT does not apply?
A
CGT does not apply to the sale of an individual’s main home (unless it’s been used for business or let out), assets in an ISA, and personal belongings worth less than the exempt amount.
13
Q
How does CGT apply to business assets?
A
CGT applies to the disposal of business assets like land, buildings, machinery, and registered trademarks.
14
Q
Why is the annual exempt amount important for CGT?
A
The annual exempt amount allows individuals to make gains up to a specific limit each tax year without incurring CGT, reducing their overall tax liability.
15
Q
Why are business assets subject to CGT?
A
Business assets are included to ensure that profits from the sale of significant assets, such as land or trademarks, are taxed similarly to personal investments.
16
Q
How does CGT apply differently to trusts?
A
Bare trusts and trusts for vulnerable beneficiaries get the full CGT exempt amount, while other trusts get only half of the exempt amount, reflecting the different tax treatment for various types of trusts.
17
Q
What is the meant by ‘Disposal’?
(CGT context)
A
For CGT purposes, a disposal can be the sale of an asset, transferring ownership to another party, giving it away OR receiving compensation for its loss or destruction.
18
Q
What is ‘bed and breakfasting’ in the context of CGT?
A
‘Bed and breakfasting’ is the practice of selling shares or unit trusts and repurchasing them the next day to realize smaller gains that could be covered by the annual CGT exemption.
19
Q
Why was ‘bed and breakfasting’ used?
A
It was used to minimize the CGT liability by realizing smaller gains each year and taking advantage of the annual exempt amount.
20
Q
How has the tax treatment of ‘bed and breakfasting’ changed?
A
Shares and unit trusts repurchased within 30 days of sale are now treated as if the transactions had not occurred for CGT purposes, closing the loophole.
21
Q
Why is CGT due on the entire gain in the year it is realized?
A
CGT is based on the total profit (gain) from the sale of an asset, and it is payable in the year the asset is sold, regardless of how long the gain was accumulated.
22
Q
How did the 30-day rule render ‘bed and breakfasting’ ineffective?
A
The 30-day rule prevents individuals from using the same shares to repeatedly generate small gains by treating repurchases within 30 days as if no sale occurred, thus avoiding the exploitation of the annual CGT exemption.
23
Q
Why was the ‘bed and breakfasting’ loophole closed?
A
It was closed to prevent individuals from artificially minimizing their CGT liability by repeatedly selling and repurchasing shares or unit trusts solely to take advantage of the annual exemption.
24
Q
Is CGT payable when assets change hands due to death?
A
No
CGT is not payable on assets transferred upon death, though inheritance tax may apply.
25
What happens to assets upon death for CGT purposes?
Assets are deemed to be disposed of at their market value at the time of death to establish the acquisition cost for future CGT calculations.
26
When did CGT apply to non-UK residents on residential property?
Since 6 April 2015, CGT applies to non-UK residents on gains from residential property in the UK.
27
Since when have gains on non-residential property for non-UK residents been taxable?
CGT has applied to non-UK residents on non-residential property since 6 April 2019.
28
Can non-residents claim private residence relief?
Yes
Non-residents can claim private residence relief if they live in the property for at least 90 days during a tax year.
29
Why is CGT not payable on assets transferred after death?
The assets are considered disposed of at market value to establish the acquisition cost, so CGT is only due if the inheritor sells the asset later and makes a gain.
30
How does the 90-day rule benefit non-residents?
Non-residents can claim private residence relief, potentially reducing their CGT liability if they live in the property for at least 90 days during a tax year.
31
Why are gains before 6 April 2015 ignored for non-UK residents on residential property?
The 2015 rule change only applies to gains made after this date, ensuring that previous ownership periods are not subject to CGT for non-residents.
32
List of assets that are exempt from CGT:
1. Main private residence (subject to private residence relief)
2. Property as the result of a death
3. Ordinary private motor vehicles
4. Personal belonging; Antiques, Jewellery and other movable objects below a certain value.
5. Items of national, historic or scientific interest gifted to the nation.
6. Foreign currency for personal expenditure
7. Gilts and qualifying corporate bonds
8. NS&I products
9. Winnings from Premium Bonds or lottery
10. ISAs
11. Gains on life assurance policies disposed of by the original owners
33
What can be done if a loss is made on the disposal of an asset?
The loss can be offset against gains made in the same tax year. Any remaining losses can be carried forward to future years.
34
Can capital losses be carried back to previous years?
No
Capital losses cannot be carried back to previous tax years.
35
How are capital losses treated in relation to the annual exempt amount?
Capital losses are used only to reduce gains to the level of the annual exempt amount.
Any remaining losses are carried forward.
36
Why can't capital losses be carried back to previous years?
The tax rules only allow losses to be used against current or future gains, not past gains, to maintain a forward-looking tax system.
37
What happens to unused capital losses after offsetting them against gains?
Unused capital losses are carried forward to be used in future tax years, reducing future taxable gains.
38
Why are capital losses only used up to the annual exempt amount?
Capital losses are only used to the extent necessary to reduce gains to the annual exempt amount because gains below this threshold are not taxed.
39
Can capital losses be used to offset all types of gains?
Yes.
Capital losses can generally be offset against all types of gains in the same tax year, including gains from different types of assets.
40
What happens if the capital losses exceed the gains in the same year?
If capital losses exceed gains in the same tax year, the excess losses are carried forward to offset gains in future years.
41
Why can't the annual exempt amount be carried forward like capital losses?
The annual exempt amount is a yearly allowance and must be used within the tax year, unlike capital losses, which can be carried forward to manage future gains.
42
How do capital losses help manage tax liability in future years?
By carrying forward unused capital losses, individuals can reduce future taxable gains, lowering their CGT liability in subsequent years.
43
Why is it important to use capital losses strategically?
Strategic use of capital losses helps individuals minimize their CGT liability by ensuring that they only use losses to the extent necessary to reduce taxable gains, preserving the unused portion for future tax years.
44
What can be deducted from the sale proceeds when calculating CGT?
1. The acquisition base cost (purchase price)
2. Incidental costs of buying and selling
3. Enhancement costs (improvements) can be deducted from the sale proceeds to reduce the gain.
45
Can maintenance and repair costs be deducted from CGT?
No, only enhancement costs (improvements) are deductible, not maintenance or repair costs.
46
What is the significance of 31 March 1982 in CGT calculations?
Gains made before 31 March 1982 are not taxed, so assets acquired before that date use their value as of 31 March 1982 for CGT calculations instead of the original purchase price.
47
When is CGT charged on gains?
CGT is charged on gains made between 6 April of the current tax year and 5 April of the following tax year.
48
How is CGT on residential property reported and paid?
CGT on non-exempt gains from residential property must be reported via HMRC’s CGT on UK property account and paid within 60 days of completion.
49
When is CGT payable?
CGT is payable by 31 January following the end of the tax year in which the gain is realized.
50
Why are enhancement costs deductible but not maintenance costs?
Enhancement costs increase the asset's value, whereas maintenance and repairs are considered routine expenses that do not add long-term value.
51
How does the CGT exemption date of 31 March 1982 affect older assets?
For assets acquired before 1982, their value on 31 March 1982 is used to calculate gains, ensuring that only gains made after that date are taxed.
52
Why must residential property gains be reported within 60 days?
The 60-day rule ensures timely reporting and payment of CGT on residential property, which is treated differently from other assets due to its higher value and potential for significant gains.
53
How can individuals report their CGT?
CGT can be reported through HMRC’s self-assessment tax return or via HMRC’s real-time CGT service, depending on the type of gain.
53
What are incidental costs in CGT calculations?
Incidental costs include legal fees, agent fees, and any other costs directly associated with buying or selling the asset
54
Can capital losses be used to reduce CGT?
Yes
Capital losses from the same or previous years can be used to offset gains, reducing the taxable amount.
55
When does CGT apply to non-exempt assets?
CGT applies to the disposal of non-exempt assets, such as second homes, shares, or business assets, after deducting any applicable exemptions and allowances
56
Why does CGT on residential property need to be reported separately?
Residential property often incurs significant gains, so HMRC requires reporting within 60 days to ensure timely tax collection and reduce underreporting.
57
How does the self-assessment tax return integrate CGT reporting?
The self-assessment tax return allows individuals to report capital gains along with their income, providing a complete picture of taxable earnings for the year.
58
Why does the payment deadline for CGT differ from other taxes?
The 31 January deadline gives individuals time to calculate gains for the previous tax year, align with their overall tax liabilities, and report via self-assessment.
59
What is the first step in calculating CGT liability?
The first step is calculating the amount of the gain made from the sale of the asset.
60
What deductions are made before calculating taxable gains?
Any offsettable losses and the CGT annual exempt amount are deducted from the gain.
61
How is the taxable gain determined?
The taxable gain is what remains after deducting losses and the annual exempt amount from the total gain.
62
How is the rate of CGT determined?
The rate is determined by adding the taxable gain to the individual's taxable income to see which income tax band the gain falls into.
63
Are there different CGT rates for different types of gains?
Yes
Gains that fall within the basic-rate tax band are taxed at a lower rate than those that fall outside of it, and there may be a surcharge for gains from the sale of property not subject to private residence relief.
64
Why is the CGT annual exempt amount deducted before calculating taxable gains?
The annual exempt amount allows individuals to reduce their taxable gains, similar to a personal allowance for income tax.
65
How do losses reduce CGT liability?
Losses offset against gains reduce the amount of the taxable gain, lowering the total CGT liability.
66
Why might different CGT rates apply to property gains?
Gains from the sale of properties not eligible for private residence relief are subject to a surcharge to account for their typically higher value and investment nature.
67
Why is CGT linked to income tax bands?
Linking CGT to income tax bands ensures that individuals with higher income pay a higher rate of CGT, maintaining progressive taxation principles.
67
What are the steps in calculating CGT liability?
1) Calculate the amount of the gain.
2) Deduct any losses that can be offset against the gain.
3) Deduct the CGT annual exempt amount (if this has not been used against other gains in the same tax year).
4) What remains is the taxable gain.
5) Add taxable gain to taxable income to establish what rate(s) of CGT should be paid.
6) Apply tax at appropriate rates. There may be different rates for taxable gains that fall in the basic‑rate income tax band and those that fall outside it.
There may also be a surcharge
where the gain results from the sale of
property not subject
to private residence relief.
68
What is Private Residence Relief?
Private Residence Relief is a CGT exemption available when someone sells their main or only residence, such as a house, flat, houseboat, or fixed caravan.
69
Can Private Residence Relief be claimed on multiple properties?
No
If someone has more than one property, they must nominate one property as their main residence to claim Private Residence Relief.
70
Can time spent away from the main residence affect eligibility for relief?
Yes
There are rules about how long someone can be away from their main residence and still qualify for full Private Residence Relief, such as living away due to work.
71
Does using part of a property for business affect Private Residence Relief?
Yes
If part of the property is used for business purposes, the portion of the property used for business may not qualify for full Private Residence Relief.
72
Are there limits on the size of the garden eligible for full Private Residence Relief?
Yes
There are rules regarding the size of the garden, and large gardens may not be fully covered by the relief.
73
Why might someone need to nominate a property for Private Residence Relief?
If a person owns multiple properties and splits their time between them, they must choose one property to benefit from Private Residence Relief to avoid tax on any gain from selling the other property.
74
How do the rules regarding time away from the main residence protect eligibility for relief?
These rules ensure that individuals who are temporarily away due to work or other circumstances can still claim relief on their main residence without losing the tax exemption.
75
Why are business use and garden size factors in calculating Private Residence Relief?
Business use and large gardens are considered outside the primary residential purpose of the property, so these factors may reduce the amount of relief available.
76
What happens if a property was used partly as a residence and partly for business?
The portion of the property used for business may not qualify for Private Residence Relief, and CGT may be payable on that portion when the property is sold.
77
How long must someone live in a property to qualify for Private Residence Relief?
The property must be the individual’s main or only residence, and certain periods of absence are allowed under specific circumstances, such as work-related absences.
78
Can relief be claimed if someone rents out their main residence?
Full Private Residence Relief may not apply if the property was rented out, though some relief might still be available for the time the property was used as the main residence.
79
Why is the size of the garden a factor in claiming Private Residence Relief?
The relief applies to the residential property and its garden, but only to a reasonable size. Excessively large gardens may be treated as separate assets for tax purposes.
80
How does using a property for business affect eligibility for full relief?
Using part of the property for business alters its primary residential use, which can reduce the relief available, as the business portion may be subject to CGT.
81
Why is it important to nominate a main residence if someone owns multiple properties?
Nominating a main residence ensures that the individual can claim Private Residence Relief on the property with the most potential for a taxable gain, reducing their overall tax liability.
82
What is Business Asset Disposal Relief?
Business Asset Disposal Relief (formerly Entrepreneurs’ Relief) allows business owners to pay a lower rate of CGT on qualifying gains from selling trading businesses or assets.
83
Who is eligible for Business Asset Disposal Relief?
Sole traders and owners of limited companies may qualify, but specific conditions must be met, such as owning at least 5% of the ordinary share capital and voting rights in a company.
84
What are the shareholding requirements for Business Asset Disposal Relief for limited company owners?
Owners must hold at least 5% of the ordinary share capital, voting rights, and be entitled to at least 5% of the distributable profits and net assets of the company.
85
Do property letting businesses qualify for Business Asset Disposal Relief?
No
Most property letting businesses do not qualify for this relief.
86
Can gains from investments in unlisted companies qualify for Business Asset Disposal Relief?
Yes
Gains from investments in unlisted companies can qualify for Business Asset Disposal Relief under certain conditions.
87
Why was Business Asset Disposal Relief introduced?
It was introduced to encourage entrepreneurship and provide a lower CGT rate for business owners when they sell their businesses or business assets.
88
How does Business Asset Disposal Relief benefit business owners?
It allows business owners to pay a reduced CGT rate on gains from selling their businesses or assets, lowering their tax liability.
89
Why do property letting businesses generally not qualify for this relief?
Property letting is considered more of a passive investment activity rather than an active trading business, which is why it does not qualify for the relief.
90
What conditions must be met for Business Asset Disposal Relief on unlisted companies?
The investor must hold at least 5% of the shares and voting rights in the unlisted company to qualify for Business Asset Disposal Relief.
91
How long must the business assets or shares be held to qualify for Business Asset Disposal Relief?
The assets or shares must generally be held for at least two years to qualify for Business Asset Disposal Relief.
92
How does Business Asset Disposal Relief apply to sole traders?
Sole traders can apply for the relief when selling their entire business or assets used in the business, provided they meet the qualifying conditions.
93
Why must business owners hold at least 5% of the shares to qualify for Business Asset Disposal Relief?
The 5% ownership requirement ensures that only significant shareholders who are actively involved in the business are eligible for the relief, promoting long-term investment in businesses.
94
What types of disposals qualify for Business Asset Disposal Relief?
Disposals of trading businesses or assets used in trading businesses, and certain disposals of shares in trading companies, qualify for the relief.
95
What is Business Asset Rollover Relief?
Business Asset Rollover Relief allows business owners to defer CGT when they dispose of business assets and reinvest the proceeds in new business assets.
96
When must the replacement asset be purchased to qualify for Rollover Relief?
The replacement asset must be bought within one year before or three years after the sale of the original asset.
97
How long is CGT deferred under Business Asset Rollover Relief?
CGT is deferred until the final disposal of the replacement asset.
98
How much relief can be claimed under Business Asset Rollover Relief?
Relief can be claimed up to the lower of the gain made on the original disposal or the amount reinvested in the replacement asset.
99
Why does Rollover Relief defer CGT instead of eliminating it?
Rollover Relief encourages business reinvestment by deferring CGT until a final disposal is made, but it ensures that tax is eventually paid when the assets are no longer used for business purposes.
100
What happens if the amount reinvested is less than the gain from the original disposal?
If the reinvested amount is less than the gain, only the portion of the gain equal to the amount reinvested is deferred, and the remainder may be subject to CGT.
101
How does Rollover Relief benefit business owners?
It allows business owners to reinvest in new business assets without facing an immediate CGT liability, improving cash flow for business expansion.
102
Why is there a specific time frame for purchasing the replacement asset?
The time frame ensures that the reinvestment is directly related to the disposal of the original asset, supporting business continuity and growth.
103
How does Rollover Relief impact future CGT liability?
By deferring CGT to the disposal of the replacement asset, future CGT liability may be higher when the replacement asset is eventually sold, as the gain is carried over.
104
What happens if the replacement asset is sold without further reinvestment?
If the replacement asset is sold without reinvestment, the deferred CGT becomes payable at that point.
105
Why is there a three-year window for reinvestment after selling the original asset?
The three-year window allows flexibility for business owners to find and purchase suitable replacement assets while still benefiting from the relief.
106
What happens if the replacement asset is sold without further reinvestment?
If the replacement asset is sold and no further reinvestment is made, CGT becomes due on the deferred gain from the original asset plus any gain from the replacement asset.
107
What is Gift Hold-Over Relief?
Gift Hold-Over Relief allows the CGT on certain gifted assets to be deferred until the recipient disposes of the asset.
108
Which assets qualify for Gift Hold-Over Relief?
Qualifying assets include:
1. Assets used in the donor’s trade
2. Shares in the donor’s personal company or unlisted trading company
3. Agricultural property eligible for inheritance tax relief
4. Assets subject to an immediate inheritance tax charge.
109
When is the CGT liability transferred to the recipient of the gift?
The CGT liability is deferred and transferred to the recipient when they eventually dispose of the asset.
110
Can Gift Hold-Over Relief apply to gifts made below market value?
Yes
Gift Hold-Over Relief can apply to gifts or sales made at below market value.
111
What happens if the recipient never disposes of the gifted asset?
If the recipient never disposes of the asset, the CGT liability remains deferred indefinitely.
112
Can Gift Hold-Over Relief apply to gifts between family members?
Yes.
As long as the asset's qualify under the relief's conditions, gifts between family members can benefit from Gift Hold-Over Relief.
112
Is there a specific form that must be filled out to claim Gift Hold-Over Relief?
Yes.
The donor and recipient must jointly sign and submit a hold-over relief form - Form HS295 - to HMRC.
113
Why does Gift Hold-Over Relief transfer the CGT liability to the recipient?
The deferral transfers the CGT liability to the recipient to promote asset transfers without an immediate tax burden, helping business succession or property inheritance.
114
How does Gift Hold-Over Relief affect the recipient's CGT base cost?
The recipient inherits the donor’s original base cost, meaning when they eventually sell the asset, the CGT is calculated based on the original acquisition value, not the market value at the time of the gift.
115
What is inheritance tax (IHT)?
IHT is a tax on the estate of a deceased person, charged on the value exceeding the nil-rate band.
116
When is IHT charged?
It is charged after death on the part of the estate that exceeds the nil-rate band
117
Can surviving spouse increase their nil-rate band?
Yes.
They can increase it by the unused nil-rate band of their late spouse.
118
Why is IHT charged on estates?
It ensures a portion of large estates is taxed when passed down.
119
How does the nil-rate band reduce IHT?
The nil-rate band allows part of the estate to be exempt from tax.
120
Can spouses transfer the nil-rate band, and why?
Yes.
Because it eases the tax burden on surviving spouses by allowing them to use their partner's unused exemption.
121
What is the current nil-rate band for IHT?
The nil-rate band is currently:
£325,000
122
What happens if the estate is below the nil-rate band?
No inheritance tax is payable
123
Can IHT be reduced by gifting during one's lifetime?
Yes.
Gifts made more than 7 years BEFORE death are typically exempt from IHT.
124
Why is the nil-rate band important in IHT?
It allows a portion - The first £325k at 0% IHT - to be passed on without being taxed, reducing the total tax liability.
125
How do lifetime gifts help reduce IHT?
Lifetime gifts made 7 years or more BEFORE DEATH can reduce the size of the taxable estate, potentially lowering or eliminating IHT.
126
What is meant by Nil-Rate Band?
The amount on which a nil rate of IHT applies.
In other words, the amount is liable to tax but the rate that applies is 0%.
127
What is the 7-year rule for IHT?
Any gifts made WITHIN the 7 years before death are subject to IHT.
128
What is the Residence Nil-Rate Band (RNRB)?
The RNRB is an additional IHT allowance applied when a residence is left to children or other direct decendents.
129
Since when has the RNRB been available?
Since 2017/18
130
How is the RNRB calculated if the residence is worth less than the maximum available RNRB?
The RNRB is limited to the value of residence if it is LESS THAN the maximum RNRB for the tax year.
131
Can usused RNRB be carried forward?
Yes.
The unused RNRB can be carried forward to a surviving spouse or civil partner.
132
What happens to the RNRB if the estate exceeds £2m?
The RNRB is tapered away by £1 for ever £2 above the £2m estate value.
133
Can the unused percentage of the RNRB be used for other assets in the estate?
No.
The RNRB can only be applied to the value of the residence and cannot be used against other assets.
134
Why was the RNRB introduced?
To help families pass on their main residence to direct descendants without incurring a large IHT burden.
135
How does the RNRB affect married couples or civil partners?
The unused RNRB can be carried forward to the surviving spouse or civil partners.
Effectively, double the IHT exemption for married couples or civil partners.
136
Why is the RNRB tapered for estates over £2m?
To ensure that the RNRB benefits smaller estates more.
137
Why can't unused RNRB be applied to other assets in the estate?
The RNRB is specifically designed to exempt the family home, not other assets, from IHT.
Hence, this is why it cannot be used against non-residential assets.
138
What happens if the residence was never occupied by the deceased?
The RNRB can only be used IF the deceased occupied the property as a residence at some point, even if not immediately before death.
139
Can the RNRB apply if the residence is left to someone other than a direct descendant?
No.
The RNRB only applies if the residence is left to direct descendants, such as children or grandchildren.
140
What is the maximum RNRB available in the current tax year?
Max. RNRB available is currently:
£175k
141
How does the RNRB help reduce the IHT burden for families?
By allowing families to pass on their main residence to direct descendants with a tax-free allowance, the RNRB significantly reduces the IHT liability on estates that include a family home.
142
Why is the unusued percentage of the RNRB carried forward instead of the unused value?
Carrying forward the unusued percentage ensure fairness, allowing surviving spouses or civil partners to benefit from the same proportional relief their partner had available, regardless of future changes in the RNRB value.
143
What happens if the total estate is valued at exactly £2m?
If the estate is valued at exactly £2m, the full RNRB can still be applied.
The tapering only begins once the estate exceeds £2m.
144
Can the RNRB be used if the property was sold before death?
Yes.
The RNRB can still apply if the property was sold BEFORE death, provided the proceeds are passed on to direct descendants, under the "downsizing addition" rule.
145
What happens to the RNRB if the estate contains more than one property?
The executor can nominate which property will qualify for the RNRB, provided it was used as a residence.
146
Does RNRB apply to overseas properties?
No.
The RNRB only applies to properties located within the UK.
147
Is the RNRB automatic, or must it be claimed?
The RNRB is NOT automatic.
It must be claimed by the executor when submitting the inheritance tax return.
148
What if the deceased co-owned the property?
RNRB is applied to the deceased's by share of the property value, and the relief will be proportional to that ownership share.
149
How does the downsizing addition work for RNRB?
The downsizing addition allows individuals who sold their home, or downsized, before death to still qualify for RNRB if other assets or cash from the sale are passed to direct descendants.
150
Tom owns a residence overseas worth £300,000, which he leaves to his children when he dies. His estate includes a UK-based house worth £200,000.
Can Tom’s estate benefit from the RNRB on the overseas property?
No, the RNRB only applies to UK-based properties.
Tom’s UK residence would qualify for the RNRB, but the overseas property would not be eligible for this relief.
151
Sarah sold her family home worth £300,000 and moved into a smaller property worth £150,000. When she passed away, she left the smaller home to her children and the remaining sale proceeds to them.
Can her estate still benefit from the RNRB?
Yes, Sarah’s estate can still benefit from the RNRB under the downsizing addition rule.
The £150,000 value of the smaller home will qualify for the RNRB, and any proceeds from the sale of the original home left to her children will also be eligible, up to the total RNRB amount.
152
John owned two properties: a flat he lived in valued at £200,000 and a cottage worth £100,000 that he rented out. Upon his death, both properties were left to his children.
Which property qualifies for the RNRB?
The flat where John lived qualifies for the RNRB, as it was his main residence.
The cottage does not qualify, as it was a rental property. The RNRB can be applied to the value of the flat, reducing the taxable estate.
153
James leaves his main home, valued at £120,000, to his daughter when he dies. The maximum RNRB at the time of his death is £175,000.
Can the remaining RNRB balance be used on other parts of his estate?
No, the RNRB can only be applied to the value of the residence being passed to direct descendants.
Since James's home is worth less than the maximum RNRB, only £120,000 of the RNRB will be used, and the unused portion cannot be applied to other assets.
154
Maria passed away and left her share of a property worth £100,000 to her children. Her husband, John, is still alive and inherits the rest of the estate.
How much of Maria’s RNRB can be carried forward for John’s estate?
Maria’s RNRB used was £100,000 out of the £175,000 available, which is 57.14%.
The remaining 42.86% of Maria’s RNRB can be carried forward and added to John’s RNRB when he passes away, giving him an increased allowance.
155
Tom’s estate is valued at £2.4 million, and he leaves his house worth £600,000 to his children.
How will the RNRB be affected due to the estate's size?
Since Tom’s estate exceeds £2 million, the RNRB will be tapered. The RNRB reduces by £1 for every £2 above £2 million.
His estate exceeds the threshold by £400,000, so his RNRB will be reduced by £200,000, effectively eliminating the RNRB, as the total reduction exceeds the available RNRB of £175,000.
156
Emily, a single parent, dies with an estate worth £1 million. She leaves her house worth £400,000 to her children and the rest of the estate to her relatives.
How much IHT will be due?
Emily’s estate will benefit from the £175,000 RNRB and the £325,000 standard nil-rate band, totaling £500,000 of IHT-free allowance.
Her remaining estate of £500,000 will be subject to IHT at 40%, resulting in a tax bill of £200,000.
157
What is a Potentially Exempt Transfer (PET)?
A PET is a lifetime gift that is initially exempt from IHT but may become taxable if the donor dies WITHIN 7 years of making the gift.
158
When does a PET become fully exempt from IHT?
A PET become fully exempt if the donor survives for 7 years AFTER making the gift.
159
What happens if the donor dies within 7 years of making a PET?
If the donor dies WITHIN 7 years, IHT may become payable on the gift, depending on the value of the estate and the nil-rate band.
160
When does IHT become due on a PET?
IHT becomes due if the donor dies within 7 years of making the gift and the total value of the estate (including gifts) exceeds the nil-rate band.
161
How does taper relief affect the IHT and PETs?
Taper relief reduces the amount of IHT on gifts made more than 3 years before the donor's death, with the tax reducing each year from the 4th to the 7th year as follows:
3-4 years: 80% of the IHT due
4-5 years: 60%
4-6 years: 40%
6-7 years: 20%
7+ years: No IHT due
162
If the donor dies 5 years after making a gift, how much IHT is due on that gift?
40% of the calculated IHT on the gift is due, as per the taper relief.
163
What happens if the total value of the gifts exceeds the nil-rate band?
If the value of the gifts exceeds the nil-rate band, the portion of the gifts exceeding the threshold will be subject to IHT
AND
Taper relief will apply if the donor dies between 3 and 7 years after the gift.
164
Why are PETs offset against the nil-rate band first?
PETs are offset against the nil-rate band first to reduce the tax burden on lifetime gifts before calculating IHT on the remaining estate
165
What happens if a donor survives more than 7 years after making a PET?
If the donor survives for more than 7 years after making a PET, no IHT is due on the gift, and it is fully exempt from tax, regardless of the estate’s value.
166
What happens if the donor makes multiple PETs within 7 years?
The gifts are aggregated. The oldest gifts are applied against the nil-rate band first, and any excess is subject to IHT.
167
Joan made a gift to her daughter valued at £350,000 net of her annual exemptions. She had made no other gifts in her lifetime. Joan died between four and five years after making the gift, leaving a total estate worth £420,000. Let’s say the full rate of IHT is 40 percent on estates over the nil-rate band of £325,000.
How much IHT is due on the gift?
a) £5,000
b) £6,000
c) £8,000
d) £10,000
Solution Breakdown:
Gift amount: £350,000
Nil-rate band: £325,000
Excess of the gift over the nil-rate band:
£350,000 (gift) – £325,000 (nil-rate band) = £25,000 (taxable)
Taper relief (since Joan died between 4 and 5 years after the gift):
Taper relief reduces the IHT by 40% (as per the taper relief table).
The tax due without taper relief would be:
£25,000 × 40% = £10,000
Applying taper relief:
40% of the IHT is reduced, so only 60% of the £10,000 tax is payable:
£10,000 × 60% = £6,000
Correct Answer:
b) £6,000
168
What is a Chargeable Lifetime Transfer (CLT)?
A CLT is a lifetime gift, often made to companies, certain trust or organisation, that is subject to immediate IHT at a reduced rate.
169
When is IHT due on a CLT?
IHT is due immediately if the value of the CLT, when added to other chargeable transfers made in the past 7 years, exceeds the nil-rate band at the time of the transfer.
170
What is the reduced rate of IHT on CLTs?
The reduced rate of IHT applies only to the portion of the transfer that exceeds the nil-rate band, and the rate is lower than the full 40% IHT rate charged on death.
171
Does taper relief apply to CLTs?
Yes.
If the doner dies within 7 years of making the CLT, taper relief can reduce the IHT liability.
172
Why is IHT due immediately on CLTs but not on PETs?
CLTs are considered less personal than PETs, often involving gifts to organisations or trusts, so the government applies immediate taxation to prevent avoidance of tax through non-family transfers.
173
How does the nil-rate band affect CLTs?
The nil-rate band is applied to the total of CLTs made over the PRIOR 7 years.
IHT is only charged on the portion of the transfer that exceeds the nil-rate band.
174
What happens if the donor survives more than 7 years after making a CLT?
No further IHT is due on the CLT, and any IHT already paid is final.
175
What types of gifts are considered CLTs?
Gifts made to companies, certain organisation and discretionary trusts are typically considered CLTs
176
What is the IHT rate on CLTs made at the time of transfer?
20% IHT due on the portion that exceeds the nil-rate band.
177
Why are transfers to certain trusts considered CLTs instead of PETs?
Transfers to discretionary trusts and companies are considered CLTs because they are less personal than gifts to individuals.
Therefore, subject to more immediate tax scrutiny to avoid potential tax avoid strategies.
178
Are CLTs taxed again if the donor dies within 7 years?
Yes.
If the donor dies within 7 years, the CLT is taxed again at the full IHT rate (40%), less any tax already paid.
This ensures that substantial lifetime gifts are treated similarly to estate transfers made on death.
179
David transfers £400,000 into a discretionary trust in 2023. He has made no other chargeable lifetime transfers in the previous seven years. The nil-rate band is £325,000.
How much IHT is immediately due on the transfer?
Since David's transfer exceeds the nil-rate band of £325,000 by £75,000, IHT is payable on the excess. The IHT rate for CLTs during the donor's lifetime is 20%.
IHT payable = £75,000 × 20% = £15,000.
180
Sarah made a gift of £200,000 to a company, which was a CLT, and paid 20% IHT on the excess over the nil-rate band at the time. Sarah dies five years later.
How is the CLT treated for IHT purposes on her death?
Because Sarah died within 7 years of making the CLT, IHT must be recalculated at the full 40% rate.
Taper relief applies since she died between 5 and 6 years after making the transfer, reducing the IHT by 40%.
The IHT already paid (at 20%) is deducted from the final amount due.
181
Tom made a chargeable lifetime transfer of £250,000 to a discretionary trust three years ago. This year, he makes another transfer of £200,000. The nil-rate band is £325,000.
What is Tom's IHT liability on the second transfer?
The cumulative total of chargeable lifetime transfers is £450,000 (£250,000 + £200,000).
Since the nil-rate band is £325,000, the excess is £125,000. The IHT due on the excess is 20%.
IHT payable = £125,000 × 20% = £25,000.
182
Emma makes a gift of £500,000 to a company. She has made no other CLTs in the past seven years.
How much IHT is payable immediately, assuming the nil-rate band is £325,000?
The gift exceeds the nil-rate band by £175,000.
IHT is payable immediately at the lifetime rate of 20% on the excess.
IHT payable = £175,000 × 20% = £35,000.
183
John made a CLT of £300,000 into a discretionary trust. He paid no IHT as the transfer was within the nil-rate band. Seven years later, John passes away.
Is any further IHT due on this transfer?
No, since John survived more than seven years after making the CLT, the transfer is no longer subject to IHT.
It is treated as exempt.
183
If Kate made a CLT of £200,000 and has not made any other chargeable transfers in the last seven years, would she have to pay IHT at the time of the transfer?
No, because Kate's gift is below the nil-rate band (£325,000), no IHT is payable at the time of the transfer.
184
Paul made two chargeable lifetime transfers: £100,000 four years ago and £300,000 this year. The nil-rate band is £325,000.
How much IHT will Paul need to pay on the second transfer?
Paul's total CLTs over the last seven years add up to £400,000 (£100,000 + £300,000).
Since this exceeds the nil-rate band of £325,000, the excess is £75,000. IHT is payable on the excess at 20%.
IHT payable = £75,000 × 20% = £15,000.
185
What is VAT?
VAT is an indirect tax on most goods and services
186
What goods are exempt from VAT?
Financial transactions, health services, education, and books are exempt.
187
What are zero-rated goods?
Zero-rated goods are taxed at 0%, such as food and children’s clothes.
188
When must a business register for VAT?
When its annual turnover exceeds the VAT registration threshold.
189
What are the disadvantages of VAT registration?
Higher prices for customers and more administrative work.
190
Why are some goods zero-rated instead of exempt?
Zero-rating allows VAT refunds while charging 0% tax.
191
How can VAT registration benefit a business?
It allows the business to reclaim VAT on expenses.
192
Why register for VAT if below the threshold?
To reclaim VAT and appear more established.
193
What happens if turnover falls below the VAT threshold?
The business can apply to deregister for VAT.
194
What is the reduced VAT rate for certain goods or services?
A reduced VAT rate (currently 5%) applies to certain goods, such as domestic heating.
195
What is the VAT registration threshold?
The VAT registration threshold is set by HMRC and can change annually. Businesses must register if their turnover exceeds this amount
196
Can businesses voluntarily deregister for VAT?
Yes, if their turnover falls below the deregistration threshold, they can apply to HMRC for deregistration.
197
Why might some businesses avoid VAT registration even if they qualify?
Some businesses may avoid VAT registration to keep prices lower for customers and avoid the administrative burden.
197
What is the difference between exempt and zero-rated goods?
Exempt goods do not attract VAT, and businesses cannot reclaim VAT on related expenses, while zero-rated goods attract a 0% rate, but VAT can be reclaimed.
198
What is the VAT registration threshold?
The VAT registration threshold is £85,000 in taxable turnover.
199
What is the VAT deregistration threshold?
The VAT deregistration threshold is £83,000 in turnover.
200
What is the Flat Rate VAT Scheme?
A scheme for small businesses to simplify VAT payments by charging a fixed percentage of turnover.
201
What is stamp duty?
Stamp duty is a tax imposed on paper documents that transfer ownership of financial assets like shares or property.
202
What is Stamp Duty Reserve Tax (SDRT)?
SDRT is a tax on electronic transfers of financial assets, such as shares, and is automatically deducted when transactions are completed electronically through CREST.
203
What transactions are exempt from stamp duty and SDRT?
Transactions involving eligible securities on the London Stock Exchange’s AIM and High Growth Segment are exempt from stamp duty and SDRT.
204
What is the difference between stamp duty and SDRT?
Stamp duty applies to paper-based transactions, while SDRT is charged on electronic transfers of financial assets.
205
Why is stamp duty charged on paper documents?
Stamp duty ensures that tax is collected when legal ownership of financial assets is transferred via physical documents, such as stock transfer forms.
206
How does SDRT simplify the process of paying stamp duty on electronic transactions?
SDRT is automatically deducted and passed to HMRC through systems like CREST, reducing administrative tasks for the buyer and ensuring timely payment.
207
Why are certain transactions, like those on AIM, exempt from stamp duty?
Exemptions on transactions in AIM securities and other eligible investments are designed to promote growth and encourage investment in smaller or high-growth companies.
208
How does stamp duty apply to Real Estate Investment Trusts (REITs)?
REITs are subject to stamp duty or SDRT at the standard rates when transferring shares or property, unlike certain exempt transactions.
209
When must stamp duty be paid?
Stamp duty must be paid within 30 days of the transaction being completed.
210
How is stamp duty on property purchases calculated?
Stamp duty on property is calculated as a percentage of the purchase price, with different rates applying based on property value thresholds.
211
What is CREST in the context of SDRT?
CREST is an electronic settlement and registration system through which SDRT is automatically deducted when financial assets, such as shares, are transferred electronically.
212
Are there any penalties for late payment of stamp duty or SDRT?
Yes, late payment of stamp duty or SDRT can result in interest charges and potential penalties.
213
Why is stamp duty charged on land purchases?
Stamp duty on land and property transactions is a form of tax revenue for the government and helps regulate property transactions by applying a tax to the transfer of ownership.
214
How does the exemption for AIM-listed securities promote investment?
The exemption from stamp duty and SDRT for AIM-listed securities encourages investment in smaller and high-growth companies, supporting innovation and market diversity.
215
Why is SDRT deducted automatically in electronic transactions?
Automatic deduction of SDRT through systems like CREST ensures quick and accurate collection of taxes, reducing the risk of late payments or errors.
216
What is the SDLT threshold for residential properties in 2024/2025?
The SDLT threshold is 0% on the first £250,000 of a residential property purchase
217
How much SDLT is paid on a residential property valued at £1 million in 2024/2025?
SDLT is 0% on the first £250,000, 5% on the portion between £250,001 and £925,000, and 10% on the amount between £925,001 and £1 million
218
What is the SDLT rate for first-time buyers in 2024/2025?
First-time buyers pay 0% on the first £425,000 for properties up to £625,000, and 5% on the portion between £425,001 and £625,000
219
What is the SDLT threshold for non-residential properties in 2024/2025?
For non-residential properties, SDLT is 0% on the first £150,000, 2% on the portion between £150,001 and £250,000, and 5% on anything above £250,000
220
Why is there a higher SDLT threshold for first-time buyers?
The higher SDLT threshold for first-time buyers aims to make property purchases more affordable, encouraging more people to get on the property ladder
221
How does SDLT change for properties valued above £925,000?
For properties above £925,000, the SDLT rate increases to 10% on the portion between £925,001 and £1.5 million, and 12% for any amount above £1.5 million
222
What happens if a first-time buyer purchases a property over £625,000?
If a first-time buyer purchases a property over £625,000, they must pay the standard SDLT rates, without the first-time buyer relief
223
Why is the SDLT threshold temporarily raised until 2025?
The SDLT thresholds were raised in September 2022 to stimulate the property market and help more buyers, with the changes set to last until March 2025
224
What is Stamp Duty Land Tax (SDLT)?
SDLT is a tax paid by the purchaser of property in England and Northern Ireland, applied to portions of the property price above certain thresholds.
225
How is SDLT calculated?
SDLT is calculated in bands, with no tax paid on the portion below a set threshold. Different rates are applied to the portions of the property price that fall between specific bands.
226
What is the supplementary SDLT rate for additional residential properties?
A 3% surcharge applies to the purchase of additional residential properties if the buyer already owns another property.
227
Does SDLT apply in Scotland and Wales?
No.
SDLT does not apply in Scotland and Wales, where Land and Buildings Transaction Tax (LBTT) and Land Transaction Tax (LTT) apply instead.
228
What SDLT relief is available for first-time buyers?
First-time buyers can claim SDLT relief, meaning no SDLT is payable on the first £425,000 for properties up to £625,000.
229
Why is SDLT charged in bands rather than a flat rate?
The band system ensures that buyers only pay SDLT on the portion of the property price that exceeds the threshold, making the tax more proportional to the property’s value.
230
How does the 3% surcharge for additional properties affect investors?
The 3% surcharge increases the tax burden for investors or individuals buying second homes, which may deter property speculation and stabilize the housing market.
231
Why is there SDLT relief for first-time buyers?
SDLT relief for first-time buyers is intended to make it easier for them to enter the housing market by reducing the upfront costs associated with purchasing a home.
232
What happens if a first-time buyer purchases a property above £625,000?
First-time buyers purchasing properties above £625,000 do not qualify for SDLT relief and must pay the standard rates on the entire purchase price.
233
How is SDLT paid?
SDLT is paid by submitting a return to HMRC and paying the tax due within 14 days of the completion of the property purchase.
233
What happens if the purchase price is exactly at the SDLT threshold?
If the purchase price is exactly at the SDLT threshold (e.g., £250,000 for residential properties), no SDLT is charged on the portion up to the threshold. SDLT is only charged on the amount above the threshold.
234
What is SDLT on shared ownership properties?
SDLT on shared ownership properties can be paid upfront on the full market value or in stages as more shares are purchased.
235
Is there a surcharge for non-UK residents purchasing property?
Yes.
Non-UK residents face an additional 2% SDLT surcharge when buying residential properties in England and Northern Ireland.
236
Why is there a 2% SDLT surcharge for non-UK residents?
The 2% surcharge for non-UK residents aims to deter foreign investors from driving up house prices, helping to keep properties more affordable for UK residents.
237
How does SDLT affect buy-to-let investors?
Buy-to-let investors face the 3% additional SDLT surcharge, increasing the upfront costs of purchasing investment properties, which could impact profitability.
238
Why might some purchasers prefer to pay SDLT on shared ownership properties upfront rather than in stages?
Paying SDLT upfront on the full market value can reduce long-term tax liabilities if the property value increases, avoiding potentially higher SDLT charges when more shares are purchased.
239
How does SDLT impact commercial property transactions?
Commercial property transactions are subject to different SDLT rates, which are generally lower than residential rates, making it more affordable for businesses to acquire property.
240
What are 'profits' in the context of corporate tax?
For corporation tax purposes, profits include:
1. Trading profits (less allowable expenses such as labour and raw materials)
2. Capital gains
3. Income from letting
4. Interest on deposit
241
Who is exempt from paying corporation tax?
Sole traders, conventional business partnerships, and limited liability partnerships (LLPs) are exempt from corporation tax and instead pay income tax on their profits.
242
When is corporation tax due for companies with profits up to the set threshold?
Corporation tax is due 9 months after the end of the relevant accounting period for companies with profits below the set threshold.
243
Do UK-resident companies pay corporation tax on worldwide profits?
Yes
UK-resident companies pay corporation tax on their worldwide profits, while non-UK companies only pay tax on profits from their UK operations.
244
How does corporation tax differ for UK and non-UK companies?
UK companies are taxed on their global profits, whereas non-UK companies are taxed only on profits earned from UK-based business activities.
245
Why must companies with higher profits pay corporation tax in quarterly instalments?
Quarterly instalments ensure that companies with significant profits contribute to tax revenue throughout the year, rather than making a large lump-sum payment after the accounting period.
246
What is the current corporation tax rate in the UK?
The corporation tax rate for most companies in the UK is 25% as of the 2023/2024 tax year.
Companies with profits under £50,000 pay a reduced rate of 19%.
247
What happens if a company misses the corporation tax payment deadline?
If a company misses the corporation tax payment deadline, it may face interest charges on the overdue amount, and further penalties may be applied if tax returns are late.
248
Are there any tax reliefs or deductions available for companies?
Yes
Companies can claim various deductions for qualifying expenses like research and development (R&D), capital allowances, and losses carried forward.
249
How does the taxation of companies differ from that of individuals?
Companies pay corporation tax on their profits, while individuals, including sole traders and partnerships, pay income tax on their earnings.
250
What is withholding tax?
Withholding tax is a tax levied at the source of income before the recipient receives it, often applied to non-residents earning income in a country.
250
How does withholding tax apply to non-residents?
Non-residents earning income in a country, such as entertainers or investors, are subject to withholding tax to ensure the income is taxed before it leaves the country.
251
What types of income are commonly subject to withholding tax?
Income such as earned income (e.g., for entertainers or sportspeople) and investment income (e.g., dividends, interest) are commonly subject to withholding tax for non-residents.
252
What prevents income from being taxed twice under withholding tax rules?
Double taxation agreements (DTAs) between countries prevent income from being taxed both in the country of origin and the recipient's home country.
253
Why is withholding tax important for countries?
Withholding tax ensures that non-residents pay taxes on income earned in a country before the income is transferred abroad, securing tax revenue for the source country.
254
Explain how Capital Gains Tax is calculated?
1. Determine the Gain: The gain is calculated as the difference between the sale price and the purchase price, including any incidental costs (e.g., legal fees, commissions) involved in the buying and selling.
2. Apply reliefs: Deduct any applicable reliefs, such as Private Residence Relief (if applicable) or Entrepreneurs' Relief.
3. Offset losses: If losses were made in the same tax year, or carried forward from previous years, they can be used to reduce the total gain.
4. Deduct the Annual Exempt amount: Every individual has a tax-free annual exempt amount (£6,000 for 2024/2025). This is deducted from the total gain.
5. Taxable gain: The remaining amount after reliefs, losses, and exemptions is the taxable gain.
6. Apply CGT rates
255
Describe what is meant by 'Private Residence Relief'?
Private Residence Relief exempts a homeowner from CGT when selling their MAIN RESIDENCE.
The relief ensure that, provided the property has been the owner's principal home throughout the entire period of ownership, no CGT is payable.
Key points:
1. It ONLY applies to the main residence. NOT second homes or investment properties.
2. Even if the owner has been absent for periods up to 18 months, they may still qualify for full relief
3. If a part of the home is used exclusively for business, or the property has substantial grounds (over 0.5 hectares), PRR may be restricted.
256
Explain the difference between a potentially exempt transfer and a chargeable lifetime transfer
Potentially Exempt Transfer:
A PET is a gift made during the donor's lifetime, which will be exempt from IHT if the donor survives for 7 years after making the gift.
If the donor dies within 7 years, the gift becomes subject to IHT, but taper relief may reduce the tax due if the death occurs more than three years after the gift.
Chargeable Lifetime Transfer (CLT):
A CLT applies primarily to transfers into certain types of trusts or to companies. Unlike PETs, CLTs are IMMEDIATELY chargeable to IHT if the value exceeds the nil-rate band (£325k as of 2024).
If the donor dies within 7 years, the gift may be subject to additional IHT, with taper relief potentially reducing the tax payable over time.
257
Explain the difference between stamp duty, stamp duty reserve tax, and stamp duty land tax
Stamp Duty:
Stamp duty is a tax levied on paper-based documents that transfer ownership of financial assets like shares and securities. It applies to physical stock transfer forms and other documents.
Stamp Duty Reserve Tax (SDRT):
SDRT applies to the electronic transfer of securities, such as shares. It is typically charged at 0.5% of the purchase price and is automatically deducted in systems like CREST.
Stamp Duty Land Tax (SDLT):
SDLT is a tax on the purchase of land or property in England and Northern Ireland. The rates are progressive, meaning different portions of the property’s price are taxed at different rates, depending on value bands. First-time buyers can claim relief up to £425,000 for properties worth up to £625,000. Scotland and Wales have their own systems, Land and Buildings Transaction Tax (LBTT) and Land Transaction Tax (LTT), respectively.
258
Melanie bought a painting in a charity shop for £40. It turned out to be by a well-known artist, and she sold it 3 years later for £2,000. She had to pay CGT on the gain she made.
TRUE or FALSE?
False.
Melanie would not need to pay Capital Gains Tax (CGT) on the sale of the painting because chattels (personal possessions) are exempt from CGT if their value is less than £6,000. Since the painting was sold for £2,000, it falls below this threshold and is not subject to CGT.
259
For how many years can the annual exempt amount for CGT be carried forward?
The annual exempt amount for Capital Gains Tax (CGT) cannot be carried forward to future tax years.
If the exemption is not used in the current tax year, it is lost.
260
To qualify for business rollover relief, a business must replace an asset not more than five years from the date of disposal.
TRUE or FALSE?
False.
Assets must be replaced WITHIN 3 years after the date of disposal.
261
Inheritance tax would be charged on which of the following?
a) The total value of the deceased’s estate.
b) The total value of the estate above the available nil‑rate band.
c) The value of the estate less any gifts that have been made in the previous seven years.
Answer: B
Explanation:
Inheritance Tax (IHT) is charged only on the portion of the estate's value that exceeds the nil-rate band, which is currently £325,000 (as of 2024). Any part of the estate below the nil-rate band is not subject to IHT.
Additionally, any gifts made in the seven years before death might affect the IHT calculation, but the tax is not charged directly on the total value of the estate or on the value less gifts without considering the nil-rate band.
262
Tax on chargeable lifetime transfer in excess of the available nil-rate band is payable:
a) Immediately, at the full rate
b) Only if the transferor dies within 7 years of the transfer
c) Immediately, at a reduced rate
Answer: C
Explanation: A Chargeable Lifetime Transfer (CLT), such as a gift to a discretionary trust, is subject to Inheritance Tax (IHT) immediately if it exceeds the available nil-rate band (£325,000). The tax is charged at a reduced rate of 20%, which is half of the usual 40% IHT rate applied upon death.
If the transferor dies within seven years, additional IHT may be due, potentially at the full rate, subject to taper relief depending on how many years have passed since the transfer.
263
What kind of tax is payable when shares are purchased electronically?
When shares are purchased electronically, Stamp Duty Reserve Tax (SDRT) is payable.
264
A company makes an annual profit of £1.2m.
When would the company’s corporation tax normally be payable?
9 months after the end of the relevant accounting period.
