all individuals and trusts resident in the UK and their worldwide income.
Tax year
April 6th to april 5th
Tax free income
NS&I certificates
NS&I certificate childrens bonus bonds
Individual Savings accounts (ISAs)
Child Trust FUnds (CTFs)
Qualifying life assurance policies in the hands of the original owner
save as you earn (SAYE) schemes (interests and gains)
premium bond prizes
Gambling wins such as from the lottery
compensation payments of up to 30K GBP when emplyment ends
life assurance bond withdrawals of up to 5% p.a. of the original premium
Main types of income tax
1. income from emplyment or self employed earnings
2. savings income, including interest and dividends
3. investment income including property income
Order of taxation
1. earnings and proerty income
2. interest
3. dividends
personal allowance
7,475 GBP
Starting rate
Starting rate for savings: 10% £0-£2,560
Basic rate
Basic rate: 20% £0-£35,000
Higher rate
Higher rate: 40% £35,001-£150,000
Additional rate
50% above 150,000 GBP
Starting rate onlyt applies
where savings income falls below the starting rate limit
UK dividends are treated as if recieved
net of deemed (or notional) 10% tax credit so are grossed up by 100/90
dividends fallin into the higher tax rate are
taxed 32.5%
dividends falling into the additional rate are taxed
at 42.5%
Who is allowed to deduct the personal allowance?
every individual (including a child)
personal allowance is deducted from
non savings income first
savings income second
and lastly from dividend income
Do people over 65 have a higher age rated personal allowance?
Damn skippy!
Loan interest payment can be deducted from total income if for one of the following purposes
-loan to buy plant or machinery for partnership use (interest allowed for 3 years)
-l t b p o m f employment use (3 years)
-l t b interest in unquoted employee controlled company
-l t invest in a partnership
-l t invest in a co-operative
Payroll giving scheme
employees can authorise their employer to deduct charitable donations from their gross salary before calculating tax via PAYE
-this gives the employee automatic tax relief at his or her marginal highest rate of tax
Tax reductions do not affect income rather they
reduce the amount of tax calculated on income
Tax reductions are
1. investments in venture capital trusts (VCTs) 30%
2. Investments under the enterprise investment scheme 30%
Tax reductions for VCTs and enterprise investment schemes may qualify of up to the lower of
1. a % of the amount subscribed for qualifying investments and
2. the indivudals tax liability
A tax reduction can only reduce an individuals tax liability to
zero, cannot create repayment
If indiviual is entitled to both tax reductions
the VCT reducer is deducted first
An individual who is UK resident but not UK domiciled may claim to be taxed on overseas income on the
remittance basis, only taxed in overseas income that is brought to the UK
An individual must pay an additional 30K GBP remittance basis charge in order to use the remittance basis if
-claims the remittance basis for the tax year
-is aged 18 or over in the tax year
-has been UK resident for at least 7 of the nine tax years preceding the tax year
NICs
National Insurance contributions
Who pays NICs?
payable by employees and their employers and also by self employeed individuals
The main classes of NICs are
Class 1
-primary, paid by employees
-secondary, paid by employers
Class 2
-Paid by the self employeed
Class 4
-paid by the self employed
Employees pay main primary contributions of
11%, between the earnings threshold of 5,715 GBP and the upper earnings limit of of 43, 875 GBP or the equivalent monthly or weekly limit. They also pay additional primary contributions of 1% on earnings above the upper earnings threshold
Employers pay secondary contributions of
12.8% on earnings above 5,715 GBP or the equivalent month or weekly limit, there is no upper limit
Class 2 NICs
are payable at a flat rate of 2.40 GBP per week
Class 4 NICs
pay a fixed 8% between lower limit of 5,715 GBP and upper limit 43, 875 GBP. Additional raye contributions are 1% of profits above that limit
Who pays CGT?
payable by chargeable persons on the chargeable disposal of a chargeable asset, someone who is resident or ordinarily resident in the UK
Chargeable persons
individuals
companies
trusts
Key exempt chargeable assets are
-private cars
-NS&I certificates and premium bonds
-Investments held in ISAs
-foreign currency for private use e.g. used for holidays or homes abroad
-individuals private primary home
-gilts (treasurey stock)
-qualifying corporate bonds (QCBs) i.e. non convertible debt instruments (debentures) issued by companies and denominated in sterling
-enterprise investment scheme investments held for 3 years
Chargeable assets include
foreign currency, shares and other investments
Disposals to spouses or civil partners are tax neutral for
CGT purposes (there is no gain and no loss)
CGT annual exempt amount is
10, 600 GBP
Trustees are only entitled to half og
the individulas annual exempt amount i.e. 5, 300 GBP
Net capital gains
capital losses are deducted from capital gains arising in the same tax year
A flat tax rate on capital gains
-of 18% applies in excess of the annual exempt amount for basic rate taxpayers
-of 28% for higher rate taxpayers
Entrepreneurs relief
-reduce tax rate on the first 2m GBP of chargeable gains from 18% to 10%
relief applies to
the whole or part of a trading business
assets unsed in a business that has ceased
shares in a trading company where the individual held 5% or more of the voting shares
assets used in a partnership
certain disposals by trustees
actual mechanics of 10% entrepreur tax relief
reduce eligible gains by 4/9 leaving 5/9 chargeable and apply the 18% (5/9 x 18% = 10%)
IHT
is a tax on gifts or transfers of value made by chargeable persons
-primarily a tax on wealth left on death, also applies to gifts within seven years of death and to certain lifetime transger of wealth to trusts
IHT applies to
-lifetime gifts to trusts
-gifts on death (usually in a will)
-lifetime gifts in the person making the gift (the donor) dies within 7 years of making that gift
IHT for individuals who are not domiciled in the UK
only transfers of UK assets are liable to IHT
PET
potentially exempt transfer is a lifetime gift made by an individual to another individual
-a PET is exempt from IHT when made, and will remain so if the donor survives for at least 7 years after making the gift
CLT
Chargeable lifetime transfer, is not covered by an exemption
Exemptions applying to lifetime transfer only (including PETs)
Small Gifts exemption
-outright gift to individuals totalling 250 GBP or less per donee in any one tax year are exempt
-does not apply to gifts to trusts
Annual exemption
the first 3,000 GBP of value transferred in a tax year is exempt from IHT
-used after all exemptions take place
-3K exemption is applied to earlier gifts before later gifts
-any unused portion is carried one year forward only, and only after the following years exemption has been used
IHT is a tax on transfers of capital, not on gifts of income, examples
1. made as part of the donors normal expenditure
2. out of income and
3. leaves the transferor with sufficient income to maintain his usual standard of living
-mainly covers such gifts as paying grandchildrens school fees
Wedding gifts
1. 5000 GBP if from parent of a party to the marriage or civil partnership
2. 2500 GBP if from a grandparent of one of the parties to the marriage or civil partnership
2. 1000 GBP if from any other person
Are gifts to UK charities exempt from IHT?
Yes
Gifts between spouses/civil partners are exempt
if domiciled in the UK
if the donor is UK domiciled, but the donee is not, exemption is limited to 55,000 total. Any lifetime gift over 55,000 will be a PET
-if neither spouse nor civil partner is domiciled in the UK, there is no limit on the exemption
Can a claim be made to transfer any unused nil rate band from spouse/cp to the surviving spouse/cp
YES
After all exemptions have been made the first ______ of a CLT is taxed at 0% or the
325,000 GBP
nil rate band
Nil rate band applies over the past
7 years, anything over is taxable at 20%
Taper relief
the rate of IHT is 40% BUT the longer the transferor lives after giving the gift, the less the tx
3 years or less-40% IHT
between 3 and 4 years-32%
between 4 and 5 years-24%
between 5 and 6 years-16%
-7 years- 8%
IHT on a lifetime transfer on death is payable by the
transferee
2 types of trust
IIP trust and discretionary trust
IIP Trust
-interest income is taxed at 20%
-dividends are taxed at 10%
Discretionary trust
-first 1000 GBP is taxed at 10% for dividends and 20% for interest income
-any remaining income is taxed at the additional rate
interest income is taxed at 50% (the trust rate)
dividends are taxed at 42.5% (the trust dividend rate)
The latest filing date for a self assessment tax return for a tax year
-31 october in the next tax year for non electronic return
-31 january in year 2 for an electronic return
for paper tax returns
the individual may make the calculations or ask the HMRC to do it, only if before 31 october
Self assessed tax payment may be made into 3 payments
1st- 31 January in the tax year
2nd-31 july after the tax year
3rd-31 january after the tax year
the relevant amount
payments on account are usually required where the income tac and class 4 NICs due in the previous year exceeded the amount of income tax deducted at source
Payments on account
each equal to 50% of the relevant amount for the previous year
on account of CGT are never required
not required if falls below 1000 limit
not required for taxpayers who paid 80% or more of their tax liability for the previous year through PAYE or other deduction at source arrangements
the balance of any incometax and class 4 NICs together with all CGT due for a year, is normally payable on or before the 31 january following the year
If tax is paid late
interest is charged from the due date to the date of payment
charges of 5% at 30 days, 6 months and 12 months
Payment of PAYE
employers are required to pay PAYE and NIC deductions made on paydays falling between 5th of calendar month and the 6th of the next calendar month to HMRC within 14 days of the end of th tax month
-if made electronically, date is extended by 3 days
Form P60
PAYE form, employer is required to provide at the end of each tax year, by may 31 of the following tax year
SDLT
Stamp Duty Land Tax applies to land transactions
-generally payable as a % of the consideration paid for the land, payable by the purchaser
UK Residential Stamp tax
0%-0-125,000
1%- 125,001-250K
3%-250,001-500K
4%-500K-1m
5%-1m +
UK Non residential Stamp Tax
0%-o-150K
1%-150K-250K
3%-250K-500K
4%-500K +
Disadvantaged Residential Land Stamp Tax
0%- 0-125K
1%-125K-250K
3%-250K-500K
4%-500K+
Disadvantaged Non-Residential Land Stamp Tax
0%-0-150K
1%-150K-250K
3%-250K-500K
4%-500K +
For first time buyers until march 2012
0%-0-250K
Transactions in residential land in disadvanted areas
0%-0-150K
For non residential buyers, where the transaciton involved a grant of a lease
the zero rate is not available if annual rent exceeds 1000
Net present value of rent Residential leases
0%-0-125K
1%-Over 125K
NPV of rent non residential
0%-0-150K
1%-Over 150K
SDLT on NPV of rent is payable in addition to
SDLT on any lease premium
the rate applies to the amount of NPV in the slice and not
to the whole value
SDRT
Stamp Duty Reserve Tax is a tax on electronic share transactions, also payable on electronic purchases of units in unit trusts or share in open-ended investment companies
SDRT Rate
payable by the purchaser at a flat rate of 0.5% based on the amount paid for the shares
Disallowed corporate expense
certain expenses that are deducted from the profits in the financial accounts cannot be deducted for tax purposes
-client or supplier entertainment expenditure and provisions for uncertain debt (although bad debts are allowed)
Depreciation charged by a company in its financial accounts is not allowable expenditure for tax purposes since the company determines the depreciation rate BUT the company can deduct
capital allowance instead
Companies recieve interest gross, and therefore must
calculate it into overall profits to be taxed
interest paid by a company
such as debentures, is deductible for tax purposes and does not usually have to be adjusted for
Dvividends recived from a company to a company are
tax free
Capital gains made by a company on the disposal of its fixed assets
are chargeable to corporate tax and not to capital gains tax, only individuals pay CGT
Corporate tax rates
are fixed for financial years
a financial year runs from 1 april to 31 march
Corporate Main rate
26%
total profits plus gross dividends 1,500,000 or more
Corporate small profits rate
20%
profits less than 300K
Companies with profits between 300K and 1,500,000
charged marginally 29.5% between these 2 figures
Corporate tax losses
if the company does not make claim to carry the losses back, it can carry them forward indefinitely and offset them against future profits from the same trade
VAT
Value added tax is a tax on turnover not profit
Standard VAT Rate
17.5%
certain supplies, which fall under the standard rate supplies are charged a reduced rate of
5%, example is domestic fuel
Zero rated suppliers are taxable at
0%,
example-supply of books
output is zero rated but inputs are standard rated will obtain repayments of the VAT paiud on purchases
An exempt supply is not chargeable to VAT, example
is the supply of financial services or insurance
A person making exempt supplies is unable to recover VAT on inputs
example-must shoulder the burden of VAT, by increasing prices
A trader becomes liable to register for VAT if
-the value of taxable supplies in any 12 month period exceeds 70K (the historical test)
or
-if there are reasonable grounds for believing that the value of the taxable supplies will exceed 70K in the next 30 days (the future test)
A trader may deregister if
he expects the value of his taxable supplies to fall below 68K
Compulsorily deregistered
a trader who no longer makes taxable supplies
Calculating VAT
if a traders output VAT exceeds his input VAT at the end of a VAT period (usually 3 months) he must pay the difference to the HMRC
if input VAT exceeds output VAT he will recieve a payment
Not all input VAT is deductable
i.e. VAT on motor cars and on business entertainment
The principle UK deposit takers are
banks and building societies
NS&!
natoinal savings and investments is a government agency that also takes cash deposits, guaranteed by the government so ae completely secure
NS&I offers 2 dfferent savings accounts
1. teh easy access savings account
2. the investment account
They also offer savings certificates, childrens bonus bonds and cash ISAs
Bank and building society interest is usually paid
net of 20% income tax
-non taxpayers can reclaim the full 20% deducted
-starting rate taxpayers can reclaim a 10% refund
-basic rate taxpayers are neutral
-higher rate pay a further 20%
-additional rate pay a further 30%
Interest on NS&I Easy access savings accounts and Investment accounts is paid
gross, tax liability must be paid through self assessment system
Interest from Savings certificates and childrens bonus bonds is
tax free
Cash on a deposit investment does not grow in value, it simply
produces income, so there is no CGT
Fixed interest or fixed "income" securities
pay a pre-specified return, in the form of capital and income. such securities are also generally called bonds
Examples of bonds
gilts, corporate bonds, loan stock, debentures and loan notes are names given to types of bonds
Bonds are
loans, with the investor as the lender. the holder of the bond, that is, the investor-will recieve any interest payment (the coupon), and normally repayment of capital on maturity of the bond
Fixed interest securities generally have
1. a fixed redemption value which the issuer will repay to the bondholder on maturity
2., a fixed rate of interest (the coupon) expressed as a % of face value, usually paid every 6 months
3. a pre-specified redemption date (maturity date)
Accrued income scheme
Interest payments are made to the holder who was registered 7 business days before the interest payment dat. If the stock is sold before this date it is sold with the interest (cum interest)
-sales after this date are made without interest (ex interest)
Under the accrued income scheme, wheree securities are transferrewd the accrued interest reflected in the value of the securities is taxed
seperately as savings income. The seller is treated as entitled to the proportion of intereest which has accrued since the last interest payment. The buyer is entitled to relief against the interest he recieves. This relief is equal to the maount assessable on the seller
The accrued income scheme does not apply
where the sellers holdings of gilts or coporate bonds did exceed 5000 GBP
-in the tax year in which the next interest due date falls
-the previous tax year
Interest recieved from fixed interest securities is taxed
at the same rates as other (eg bank) interest
Interest from government stocks is paid gross unless
-the investor elects to have 20% tax deducted from it
-the gilt was purchased before 6 april 1998 and investor has not elected for gross payment
interest on corporate bonds (debentures) is generally paid
net of 20% income tax
Individuals pay no CGT on disposals of their holdings of
Gilts
qualifying corporate bonds (most company loan stock and debentures)
-gains on such disposals are exempt and losses are not allowable (ie cannot be set off against other gains)
limited companies are generally
private companies, which may be owner managed and cannot offer their shares to the general public
to offer shares for sale to the public, a company must be a
plc (public limited company) which can either
-seek a full listing on the main market of the LSE or
-join the AIM or
-join Plus Markets, the UKs independent public market dedicated to smaller companies
An investor buys ordinary equity shares for 2 reasons
1. to recieve dividends from the companies earnings stream (income)
2. to gain from the increase in the value of the share (capital gain)
Shareholders recieve dividends which are paid with a
10% tax credit
-the tax credit is 1/9 X the dividend recieved
the tax credit is not real tax so cannot be repaid to the taxpayer, although it can reduce the taxpayers liability
The position for a dividend recieved of 90 GBP for a non tax payer
net dividend 90
tax credit 10
gross dividend 100
additional tax due nil
net income 90
The position for a dividend recieved of 90 GBP for a basic rate taxpayer 10%
net dividend 90
tax credit 10
gross 100
additional tax due nil
net income 90
The position for a dividend recieved of 90 GBP for higher rate taxpayer (32.5%)
net div 90
tax cred 10
gross div 100
additional tax due 22.50
net income 67.50
The position for a dividend recieved of 90 GBP for additional rate taxpayer (42.5%)
90
10
100
additional tax due 32.50
net income 57.50
the effective rate of tax on the net dividend for
1. a higher rate taxpayer
2. an addiotnal rate taxpayer
1. (22.5/90 X 100)25%
2. 32.5/90 X 100) 36%
Profit for CGT=
proceeds (less expenses of the sale) less costs of investing in the shares
-expenses of sale include brokers commission
-original cost of purchasing shares includes
purchase cost, brokers commission, SDRT (0.5% on electroni purchases in the UK equities)
Individuals (if not for owning own home) can invest in property in the following 2 ways
1. 'buy to let' ownership of residential property
2. commercial property
Profits from renting out property are taxed the same way as earnings, ie they are taxed as
non savings income at 20%, 40% or 50%
Mortgage interest on the let property is
a deductable expense when calculating the letting profit
Other costs that are deductable
-maintanence costs
-10% (x the rental income) 'wear and tear' allowance or, alternatively, the cost of replacing (but not the original purchase price of) furniture, fixtures and fittings
-estate agents commission
-management expenses
improvement expenditure (ie adding an extension to the property) is
not deductable
if the landlord is non-UK resident
the tenant or letting agent must deduct basic rate tax from the property income before paying the rent to the non-resident landlord. The landlord may apply to the HMRC to be allowed to recieve gross payments of rent if he completes the self assessment tax return and keeps his tax affairs up to date
PPR
if the property being let has ever been the investors principal private residence, the gain on the sale of the property may be fully or partly exempt from capital gains tax, depending on how long he has owned the property and how long he actually lived in it before renting it out
If the property has never been the investors PPR
the gain will be taxable in full
Expenses of sale and purchase that can be deducted include
legal fees
purchase cost
SDLT (% based on the original value of the property)
-property will not usually qualify for entrepreneurs relief
Indirect investments
instead of directly buying the property or shares, invests in a product that invests
Why are pension schemes encouraged by the government?
they want individuals to make financial provisions to cover his needs when he reaches a certain age
-there are state pension arrangements which provide some financial support, but the government prefers the individual to make his own pension provision
In order for tax relief for pensions schemes
the scheme must be registered with HMRC
Income from investments within a pension
are tax free, as is any growth of the fund when the pension fund disposes
tax free wrapper
pension fund is a tax free wrapper around the investments within it
An individual can make tax relievable contributions to his pension arrangements up to the higher of
-his earnings (employment and self employment income) in the tax year and
-3,600
Contributions to personal pensions are paid net of bsic rate tax, which gives imnmediate releif to all taxpayers, further tax releif is given if
the individual is a higher or additional rate taxpayer
-the relief is given by increasing the basic rate limite for the year by the gross amount of contributions for which he is entitled to relief
Pension annual allowance
50K
limit of total pension that can be put into a pension for each tax year
If the amount put into the pension exceeds the annual allowance
there is an income tax charge on the individual of 40%
From April 6 2011, income tax relief on pension contributions will be restricted for individuals with over
150K
Age limit to begin pension payments is
55 or if incapacitated by ill health
At 55, member can take
-an income pension and/or
-a lump sum (up to 25% can be taken as tax free lump some)
from the pension scheme
Pension income is taxable as
non savings income
Lifetime allowance for pension fund
the maximum value for a pension fund is 1.8m
if pension fund exceeds lifetime allowance
income tax charge on the excess value of the fund
-lump sum-charge of 55%
-pension income-25%
ISA
individual savings accounts are tax free savings accounts
2 types of ISAs
1. cash
2. stocks and shares
Can trustees invest in ISAs?
No
Annual subscription limit of ISAs
10,680 of which no more than 5,340 (50%) can be in cash
-once max limit is hit, no more can be added in that year, even if withdrawals are made
Is there a statutory lock period, lifetime limit or minimum subscription limit on ISAs?
No
If between the ages of 16-18, can an individual invest in an ISA?
yes, but only up to 5,340 into cash only ISA
All income and gains in an ISA are
completely exempt from tax
if ISA holder ceases to qualify by becmoing a non-resident
tax relief holds but no further subcriptions can be made unless UK residence is regained
CTF
Child trust funds are available for children born after august 31 2002
-initially funded by a government voucher of 250 or 500 for lower income families
-a further sum is paid into the account by the government on the childs 7th birthday as long as they remain eligible
It is possible for anyone to contribute up to
1200 a year into the account
CTF is held until the child reaches
18
Types of CTFs
cash accounts, unit trusts and life products
Is there income tax or CGT on CTFs?
No
Types of collective investment schemes
Unit trusts
Investment trusts
open ended investment companies
Unit trusts are
open ended
Investment trusts are
closed ended, i.e. fixed number of shares and they can leverage unlike unit trusts and OEICs
OEICs
hybrids of unit and investment trusts, open ended and marketed throughout europe
If the unit trust of OEIC is an equity fund
it recieves dividends net of 10% tax credit and has no further tax to pay
If unit trust or OEIC is a non equity fund
it has to pay corporate tax at 20% equivalent to basic rate tax
Investment trusts are taxed in the same way as
other companies, dividends are exempt while other income is taxed at a rate up to 26%
in regards to CGT, unit trusts and OEICs are
always exempt
Investment trusts are also usually exempt from CGT as long as the company is
HMRC approved
Taxation of the investor for CISs
-taxation of unit trusts and OEICs are idential
-if fund is an equity fund, income distributions to investors are dividends and taxed in the normal way
-if non equity (such as cash or bonds) are treated as interest rather than dividends and are subject to 20% tax deduction at source unless the funds are held in an ISA
-an investment trust shareholder will only ever recieve dividends which are taxed as nomal
CGT applies to all CISs
YES
Offshore funds are either
distributor funds (distribute at least 85% of their income) or
roll up funds, which accumulates income in the fund
-do not pay UK Tax
-recieved gross to the investor
for distributor funds
income for the investoris treated as taxable income in the UK, and gain is treated as capital gain
for roll up funds
all income distributions ad profits on encashment (gains) are treated as taxable income, there is no CGT exempt amount
defferal of tax payment
tax benefit is limited resulting from income being paid in gross
Life assurance fund
is not a tax free vehicle, suffers corporate tax on its income and gains at a rate of 20%
-since fund suffers tax, payout is generally tax free if it is a qualifying policy
a qualifying policy is one where premiums have been paid for a minimum of one of the following
1. life of the life assured
2. 10 years
3. three quarters of the term
If it is a non qualifying life assurance policy
income tax charge on encashment
a non qualifying policy is a
single premium bond, where a lump sum is invested in a life fund a small part of which buys cover in the event of death with the balance being invested
AKA investment bonds, property bonds
For such life assurance bonds, up to ____ of the original premium for each year of the bonds life (including the year of the chargeable event) may be withdrawn from the bond with no immediate tax implications until 100% is reach
5%, if over 5%, excess will be taxable
offshore bond
an offshore life assurance bond is the same as a non qualifying policy in the UK, the advantage si that the underlying life funds suffer little or no tax (gross roll up) compared with UK life funds which are taxed 20%
Offshore bonds
5% may be taken each year for 20 years, rollover applies to the next year i 5% is not taken
-taxation on encashment is subject to basic, higher and additional tax rates
-when dividing to find the slice of gain, we use the number of years since the beginning of the bond not the years since the last chargeable event as with an onshore bond
if the investor of an offshore bond had been non uk resident for part of the time when holding the bond
then relief for the time that he was non resident is given
true or false
if the investor is non UK resident when the offshore bond is encashed, there are no UK tax consequences?
TRUE
REITs
Real Estate investment trust is a listed company that ownes, manages and earns rental income from commercial and residential property
REIT income tax
can elect for their property income (and gains) to be exempt from corp tax and must withhold basic rate 20% tax from sidtributions paid to shareholders (who cannot own more than 10% of a REITs shares)
-these distributions are taxed as property income on the investor, not dividends
Distributions by REITs our of other income (not property income or gains)
are taxed as dividendsin the normal way
CGT on REIT disposal
YES
EISs
Enterprise Investment Schemes, helps high risk, unlisted companies raise finance
Only shares in certain companies qualify for the EIS
must be unquoted trading company that carries on qualifying business activity for at least 3 years, shares in AIM can qualify
Non qualifying business activites includeq
banking, dealing in commodities, property development
Companys EIS invest in must
not have assets exceeding 7m before and 8m after
must have less than 50 full time employees
must have raised less than 2m in venture capital in last year
Amount subscribed in an EIS is a tax reduction, saving income tax at
30%
Max total investment that can qualify for this income tax relief is 500K each year
Tax relief may be withrawn if
certain events such as the sale of the shares, occur within 3 years
Are dividends of EIS shares taxable?
yes, under normal rules
Can trustees obtain income tax relief?
NO
EIS capital gains relief
after three years, if sold, no CGT, less than three years, normal CGT
loss is allowable, set against both capital gains and investors income
EIS CGT deferral relief
if sold between 1 and 3 years
-does not depend on income tax relief being available and is also available to trustees
VCTs
Venture capial trusts are listed companies that invest in unquoted trading companies and meet certain conditions
Income tax benefits for VCT investments
on maximum 200K per year
-tax reduction of 30% if held over 5 years
-where VCT and EIS relief is available in the same year, deduct VCT first
-dividends recieved are tax free income
-no relief for trustees
Is CGT exempt on VCT sales?
Yes and losses are allowable
no minimum holding time for tax free CGT and Dividends, only for 30% of income tax benefits toi be held for 5 years
When spouses/cp jointly own income generating property
it is assumed they are entitled to equal shares of the income
-if not, they may make a joint decleration to HMRC specifying the proportion of ownership
A child is a
seperate taxable person entitled to a personal allowance in his own right
income transferred to the child directly is taxable
to the parent, this rule only applies to parents though, not granparents etc.
childs personal allowance and starting and basic rate bands can be used
if child is employeed in the parents trade
Tax efficient investments
investing in a pension
employer contributions to a pension
an ISA account
a CTF account
investing in EIS company
invest in VCT company shares
Invest in a single premium bond
NS&I certificates
Strategies to reduce CGT liabilities
-transfer ownership of assets to a spouse or cp
-phase asset disposals over more than a tax year
-realise gains with the annual exempt amount
-dispose EIS shares (after 3 years) or VCT shares (after 5 years)
-dispose of other exempt assets (cars, treasury stocks, qualify corp bonds)
-dispose of assets standing at a loss
Transfers between spouses and cp are xempt of
IHT
Is the nil rate band transferrable on death to the spouse.cp?
yes
GWR
gifts with reservation of benefit
-occurs when an individual gifts property and continues to enjoy the benefit of the asset, either rent free or at a reduced cost
-but if donor dies still using the gift, then it is officialy in their estate not the person they gave it to
Other IHT planning
-make full use of all availbale exemptions
-use the normal expenditure out of income expenses
-make lifetime gifts
-make CLTs beore making PETs in a tax year
-write life assurance benefits into trust
-use life assruance policies (written into trust) to cover future IHT liabilities