IMC 1 11-13

all individuals and trusts resident in the UK and their worldwide income.

April 6th to april 5th

• 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

• 1. income from emplyment or self employed earnings
• 2. savings income, including interest and dividends
• 3. investment income including property income

• 1. earnings and proerty income
• 2. interest
• 3. dividends

7,475 GBP

Starting rate for savings: 10% £0-£2,560

Basic rate: 20% £0-£35,000

Higher rate: 40% £35,001-£150,000

50% above 150,000 GBP

where savings income falls below the starting rate limit

net of deemed (or notional) 10% tax credit so are grossed up by 100/90

taxed 32.5%

at 42.5%

every individual (including a child)

• non savings income first
• savings income second
• and lastly from dividend income

Damn skippy!

• -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

• 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

reduce the amount of tax calculated on income

• 1. investments in venture capital trusts (VCTs) 30%
• 2. Investments under the enterprise investment scheme 30%

• 1. a % of the amount subscribed for qualifying investments and
• 2. the indivudals tax liability

zero, cannot create repayment

the VCT reducer is deducted first

remittance basis, only taxed in overseas income that is brought to the UK

• -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

National Insurance contributions

payable by employees and their employers and also by self employeed individuals

• Class 1
• -primary, paid by employees
• -secondary, paid by employers
• Class 2
• -Paid by the self employeed
• Class 4
• -paid by the self employed

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

12.8% on earnings above 5,715 GBP or the equivalent month or weekly limit, there is no upper limit

are payable at a flat rate of 2.40 GBP per week

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

payable by chargeable persons on the chargeable disposal of a chargeable asset, someone who is resident or ordinarily resident in the UK

• individuals
• companies
• trusts

• -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

foreign currency, shares and other investments

CGT purposes (there is no gain and no loss)

10, 600 GBP

the individulas annual exempt amount i.e. 5, 300 GBP

capital losses are deducted from capital gains arising in the same tax year

• -of 18% applies in excess of the annual exempt amount for basic rate taxpayers
• -of 28% for higher rate taxpayers

• -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

reduce eligible gains by 4/9 leaving 5/9 chargeable and apply the 18% (5/9 x 18% = 10%)

• 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

• -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

only transfers of UK assets are liable to IHT

• 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

Chargeable lifetime transfer, is not covered by an exemption

• 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

• 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

• 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

• 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

Yes

• 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

YES

• 325,000 GBP
• nil rate band

7 years, anything over is taxable at 20%

• 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%

transferee

IIP trust and discretionary trust

• -interest income is taxed at 20%
• -dividends are taxed at 10%

• -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)

• -31 october in the next tax year for non electronic return
• -31 january in year 2 for an electronic return

the individual may make the calculations or ask the HMRC to do it, only if before 31 october

• 1st- 31 January in the tax year
• 2nd-31 july after the tax year
• 3rd-31 january after the tax year

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

• 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

• interest is charged from the due date to the date of payment
• charges of 5% at 30 days, 6 months and 12 months

• 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

PAYE form, employer is required to provide at the end of each tax year, by may 31 of the following tax year

• Stamp Duty Land Tax applies to land transactions
• -generally payable as a % of the consideration paid for the land, payable by the purchaser

• 0%-0-125,000
• 1%- 125,001-250K
• 3%-250,001-500K
• 4%-500K-1m
• 5%-1m +

• 0%-o-150K
• 1%-150K-250K
• 3%-250K-500K
• 4%-500K +

• 0%- 0-125K
• 1%-125K-250K
• 3%-250K-500K
• 4%-500K+

• 0%-0-150K
• 1%-150K-250K
• 3%-250K-500K
• 4%-500K +

0%-0-250K

0%-0-150K

the zero rate is not available if annual rent exceeds 1000

• 0%-0-125K
• 1%-Over 125K

• 0%-0-150K
• 1%-Over 150K

SDLT on any lease premium

to the whole value

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

payable by the purchaser at a flat rate of 0.5% based on the amount paid for the shares

• 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)

capital allowance instead

calculate it into overall profits to be taxed

such as debentures, is deductible for tax purposes and does not usually have to be adjusted for

tax free

are chargeable to corporate tax and not to capital gains tax, only individuals pay CGT

• are fixed for financial years
• a financial year runs from 1 april to 31 march

• 26%
• total profits plus gross dividends 1,500,000 or more

• 20%
• profits less than 300K

charged marginally 29.5% between these 2 figures

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

Value added tax is a tax on turnover not profit

17.5%

5%, example is domestic fuel

• 0%,
• example-supply of books
• output is zero rated but inputs are standard rated will obtain repayments of the VAT paiud on purchases

is the supply of financial services or insurance

example-must shoulder the burden of VAT, by increasing prices

• -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)

he expects the value of his taxable supplies to fall below 68K

a trader who no longer makes taxable supplies

• 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

i.e. VAT on motor cars and on business entertainment

banks and building societies

natoinal savings and investments is a government agency that also takes cash deposits, guaranteed by the government so ae completely secure

• 1. teh easy access savings account
• 2. the investment account
• They also offer savings certificates, childrens bonus bonds and cash ISAs

• 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%

gross, tax liability must be paid through self assessment system

tax free

produces income, so there is no CGT

pay a pre-specified return, in the form of capital and income. such securities are also generally called bonds

gilts, corporate bonds, loan stock, debentures and loan notes are names given to types of bonds

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

• 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)

• 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)

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

• 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

at the same rates as other (eg bank) interest

• -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

net of 20% income tax

• 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)

private companies, which may be owner managed and cannot offer their shares to the general public

• 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

• 1. to recieve dividends from the companies earnings stream (income)
• 2. to gain from the increase in the value of the share (capital gain)

• 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

• net dividend 90
• tax credit 10
• gross dividend 100
• additional tax due nil
• net income 90

• net dividend 90
• tax credit 10
• gross 100
• additional tax due nil
• net income 90

• net div 90
• tax cred 10
• gross div 100
• additional tax due 22.50
• net income 67.50

• 90
• 10
• 100
• additional tax due 32.50
• net income 57.50

• 1. (22.5/90 X 100)25%
• 2. 32.5/90 X 100) 36%

• 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)

• 1. 'buy to let' ownership of residential property
• 2. commercial property

non savings income at 20%, 40% or 50%

a deductable expense when calculating the letting profit

• -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

not deductable

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

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

the gain will be taxable in full

• legal fees
• purchase cost
• SDLT (% based on the original value of the property)
• -property will not usually qualify for entrepreneurs relief

instead of directly buying the property or shares, invests in a product that invests

• 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

the scheme must be registered with HMRC

are tax free, as is any growth of the fund when the pension fund disposes

pension fund is a tax free wrapper around the investments within it

• -his earnings (employment and self employment income) in the tax year and
• -3,600

• 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

• 50K
• limit of total pension that can be put into a pension for each tax year

there is an income tax charge on the individual of 40%

150K

55 or if incapacitated by ill health

• -an income pension and/or
• -a lump sum (up to 25% can be taken as tax free lump some)
• from the pension scheme

non savings income

the maximum value for a pension fund is 1.8m

• income tax charge on the excess value of the fund
• -lump sum-charge of 55%
• -pension income-25%

individual savings accounts are tax free savings accounts

• 1. cash
• 2. stocks and shares

No

• 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

No

yes, but only up to 5,340 into cash only ISA

completely exempt from tax

tax relief holds but no further subcriptions can be made unless UK residence is regained

• 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

1200 a year into the account

18

cash accounts, unit trusts and life products

No

• Unit trusts
• Investment trusts
• open ended investment companies

open ended

closed ended, i.e. fixed number of shares and they can leverage unlike unit trusts and OEICs

hybrids of unit and investment trusts, open ended and marketed throughout europe

it recieves dividends net of 10% tax credit and has no further tax to pay

it has to pay corporate tax at 20% equivalent to basic rate tax

other companies, dividends are exempt while other income is taxed at a rate up to 26%

always exempt

HMRC approved

• -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

YES

• 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

income for the investoris treated as taxable income in the UK, and gain is treated as capital gain

all income distributions ad profits on encashment (gains) are treated as taxable income, there is no CGT exempt amount

tax benefit is limited resulting from income being paid in gross

• 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

• 1. life of the life assured
• 2. 10 years
• 3. three quarters of the term

income tax charge on encashment

• 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

5%, if over 5%, excess will be taxable

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%

• 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

then relief for the time that he was non resident is given

TRUE

Real Estate investment trust is a listed company that ownes, manages and earns rental income from commercial and residential property

• 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

are taxed as dividendsin the normal way

YES

Enterprise Investment Schemes, helps high risk, unlisted companies raise finance

must be unquoted trading company that carries on qualifying business activity for at least 3 years, shares in AIM can qualify

banking, dealing in commodities, property development

• 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

• 30%
• Max total investment that can qualify for this income tax relief is 500K each year

certain events such as the sale of the shares, occur within 3 years

yes, under normal rules

NO

• after three years, if sold, no CGT, less than three years, normal CGT
• loss is allowable, set against both capital gains and investors income

• if sold between 1 and 3 years
• -does not depend on income tax relief being available and is also available to trustees

Venture capial trusts are listed companies that invest in unquoted trading companies and meet certain conditions

• 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

• 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

• 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

seperate taxable person entitled to a personal allowance in his own right

to the parent, this rule only applies to parents though, not granparents etc.

if child is employeed in the parents trade

• 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

• -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

IHT

yes

• 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

• -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
• -leave assets to spouse/cp