Personal Tax AAT Revision

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Give 3 purposes of using taxation?
Redistribution of wealth from the rich to the poor/ Stabilise the economy by encouraging expenditure/ Influence behaviour e.g. discourage drinking and smoking
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What are the six broad principles of taxation?
Neutrality/ Efficiency / Effectiveness / Equity and Fairness / Simplicity and Fairness / Flexibility
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How do you calculate Car Benefit?
Car Benefit= List Price x Relevant %
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Describe ways how an individual can use Tax Planning to reduce their income tax liability?
- Take advantage of exempt benefits whenever possible. - Choose cars with lower CO2 emissions - Repay all private fuel or none at all. - Do not contribute to more than £5,000 towards the list price of a car.
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More ways to reduce income tax liability?
- Take advantage of allowable deductions wherever possible such as pension contributions. - Increase benefits in kind as opposed to salary or bonuses as there is no NI contributions payable by an employee on benefits.
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Give examples of income which is exempt from tax?
Redundancy Pay/ Income from National savings & Investments (NSI) Certificates/ Winnings and Prizes / Scholarships and educational grants / Child benefits / Local authority grant / Tax Repayments/ SAYE sharesave accounts
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Investment Income- Ways in which tax planning can reduce the income tax liability?
Invest the maximum yearly amount into an ISA whenever possible/ Invest in other tax free investments such as National savings & Investments certificates and premium bonds
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Investment Income- More ways?
Where investment income is received within a marriage or civil partnership, it would be sensible for the spouse or civil partner paying tax at a lower rate to be the one to receive the interest or dividends
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Investment Income- More ways?
If one spouse or civil partner has little or no income, it would again be sensible to ensure that enough investment income is received by this individual to enable them to offset their personal allowance against it.
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What is the restriction for taxable income?
Where an individuals adjusted net income exceeds £100,000 the personal allowance is restricted or eliminated. Restriction= 1/2 x (Adjusted net income - £100,000)
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How can someone use tax planning by using the personal allowance restriction?
A good tax planning technique is to pay enough gift aid or personal pension contributions to bring the adjusted net income down to £100,000 thereby restoring the personal allowance.
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Match the terms- Employed, Self-Employed, Contract of Service, Contract for Services?
Employed- Contract of Service. Self-Employed - Contract for Services
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What is the maximum amount you can invest in an ISA for 2020/21?
£20,000
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Employment Income- Ways in which tax planning can reduce the income tax liability?
- Take advantage of exempt benefits whenever possible. - Choose cars with lower CO2 emissions. -Repay all private fuel or none at all. - Do not contribute more than £5,000 towards the list price of a car.
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Employment Income- More Ways in which tax planning can reduce the income tax liability?
- Take advantage of allowable deductions wherever possible such as pension contributions.
- Increase benefits in kind as opposed to salary or bonuses as there is no NI Contributions payable by an employee on benefits.
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Ways to minimise tax liability on property income?
- Where property income is received within a marriage, it would be sensible for the spouse paying tax at a lowest rate to be the owner of the property
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More Ways to minimise tax liability on property income?
- If one spouse has little or no income, it would again be sensible to ensure that enough property income is received by this individual to enable them to offset their personal allowance against it.
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More Ways to minimise tax liability on property income?
-Property losses can only be offset against property income in the future, so if one party has property losses to use, they should try to ensure they receive enough property income to use them.
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State types of income which are exempt from tax?
Redundancy Pay/Income from NSI certificates/ Winnings and prizes/ Scholarships/ Child benefit/ Interest on damages for injuries/ Local authority grant/ Interest on income tax repayments/ Interest on SAYE sharesave accounts.
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How do you calculate a restricted personal allowance for an individual with earnings over £100,000?
Restriction= 1/2 x (adjusted net income - £100,000)
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Give the 2 specific rules in relation to the calculation of the assessable benefit for accomodation?
1- If the employer purchased the accomodation more than 6 years before the employee moves in, the the market value is substituted for the cost figure. 2- Any employee contribution to the annual rent is deducted whatever the situation.
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What is the rule if the employer owns the property (Non-Job related accomodation)?
If the employer owns the property that the employee is libing in, then the employee is taxed on the annual value.
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What is the rule if the employer rents the property? (Non-Job related accomodation)?
The taxable benefit is the greater of the rent paid by the employer and the annual value.
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What is the cap for Living Expenses?
The benefit is restricted to a maximum of 10% of the total employee's earnings and other benefits.
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What is the formula for assets made available for private use?
Benefit for use= Market Value of asset x 20%. If the asset is subsequently acquired by the employee there is a further benefit. Benefit for the gift= Higher of the market value of the asset when gifted. The Market Value at first use of the asset less any
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Give a list of all of the exempt assets?
Cars, UK Government Stock (Gilts), Wasting Chattels (Life of more than 50 years), Non-Wasting chattels bought and sold for less than £6,000, Lottery wins, Stocks in ISA's, Qualifying corporate bonds
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What is the formula for calculating capital gains tax for a part disposal?
Part Disposal Cost= Orginal Cost x A/A + B. A= Market Value of part disposed of (Gross proceeds). B= Market Value of remainder of asset.
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What are the 2 points to note for disposals to connected parties?
- Disposals to connected parties must be at market value.
- If a loss is made on disposal to a connected party then it can only be utilised against gains to that same connected party.
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What is the rule for disposals to spouse/civil partner?
Disposals between spouses or civil partners do not give rise to a chargeable gain or an allowable loss, they are always deemed to be no gain/no loss.
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Capital Gains Tax- Tax Planning?
- A married couple can transfer assets between spouses at no gain/no loss therefore assets should be allocated so both annual exempt amounts are being used, the partner with the lowest rate of tax pays the tax, capital losses of either partner are fully u
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What are chattels?
Chattels are defined as tangible moveable property. E.G. Furniture, Jewellery and paintings.
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What is the difference between wasting an Non-Wasting chattels?
Wasting Chattels- Chattels with a life of less than 50 years E.G. Racehorses, Greyhounds, Wine. Non-Wasting Chattels- Life of more than 50 years- Paitings, Antiques, Jewellery.
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How do we treat the disposal of a Non-Wasting chattel if it cost more than £6,000 but sold for less than £6,000?
Restrict the loss: Gross proceeds= £6,000
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How do we treat the disposal of a Non-Wasting chattel if it cost less than £6,000 but sold for more than £6,000?
Lower of: - Normal Gain or - 5/3 x (gross sale proceeds - £6,000)
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How do we treat the disposal of a Non-Wasting chattel if it cost more than £6,000 and also sold for more than £6,000?
Normal Capital Gains Tax Disposal
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What is the formula for PPR Relief?
PPR Relief= Period of occupation/Total period of ownership x 100
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Tax Planning- Principle Private Residence (PPR)?
- Carefully check and if possible, plan periods of absence from the property to try and ensure that deemed residency will apply. - It would be sensible to try and ensure all periods of ansence are preceeded and followed by actual occupation.
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Tax Planning-More Principle Private Residence (PPR)?
- Make use of the last 9 months deemed residency by selling the property within 9 months of leaving the property.
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What periods are always considered to be deemed occupation?
- The last 9 months provided the property was the taxpayers PPR at some point. (18 months for disposals before 6th April 2020).
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What periods are considered to be deemed occupation provided they are preceeded and followed by actual occupation?
- Any periods when the taxpayer was overseas due to reasons of employment. - Any periods (up to 4 years max) when the tax payer was required for employment to work elsewhere in the UK.
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What periods are considered to be deemed occupation provided they are preceeded and followed by actual occupation?
- Any periods (up to 4 years max) where the taxpayer was self-employed and had to work away from home either in the UK or overseas. - Any periods for whatever reason not exceeding 3 years in total.
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What is the order of allocating the cost of shares?
1- Same day acquisitons. 2- Shares acquired in the following 30 days. 3- Share Pool (all other shares acquired up to the day before the disposal).
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How to calculate the disposal of shares?
Disposal= Cost x Number of shares disposed of/ Total number of shares
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Listed or quoted shares will be valued at the lower of: - The quarter up value and - Average of highest and lowest marked bargains? What are the 2 calculations?
Quarter up= Lower quoted bid price + 1/4 (higher quoted bid price - lower quoted bid price).
Average marked bargain value = (Highest marked bargain + lowest marked bargain) divided by 2.
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Define a potentially exempt transfer (PET)?
A lifetime transfer between individuals. - There is never any lifetime tax to pay on it. The PET will only become chargeable to death tax if donor dies within 7 years after the transfer. The PET becomes exempt if donor survives 7 years after making the gi
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Define a chargeable lifetime transfer? (CLT)
A CLT is a gist to a trust. Lifetime tax is charged at 20%. Use 20% if trustee pays the tax. 20/80 if donor pays the tax. Assume donor pays tax unless told otherwise. Additionally death tax is payable if the donor dies within 7 years of the CLT.
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Tax Planning- Ways to minimise a charge to IHT?
- Give away assets now and hope to survive 7 years (or at least 3 years for taper relief). - Use the £3,000 annual exemption per year. - Use as many exemptions as possible such as small gifts and marriage exemption. - Use nil band up every 7 years.
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What is tax Planning?
Tax planning is a legal way of reducing your tax liability. It is taking advantage of tax reliefs and exemptions in the way the government intended. An example would be investing in tax free ISA, to avoid paying income tax on the interest earned.
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What is tax avoidance?
Tax avoidance involves bending the rules of the tax system to gain a tax advantage in the way that was not intended. It involves exploiting loopholes in the law. These schemes might operate within the letter of the law, but there are many ethical and lega
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What is tax evasion?
Tax evasion is illegal and involves breaking the law to reduce your tax bill. For example, failing to declare income is tax evasion.
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Describe the difference between a personal pension scheme and an occupational pension scheme?
Unlike an occupational pension scheme a private pension scheme does not get higher rate tax relief at source. All personal pension schemes receive a 20% tax credit. The maximum someone can contribute and still get tax relief is the greater of £3600 and 10
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Other cards in this set

Card 2

Front

What are the six broad principles of taxation?

Back

Neutrality/ Efficiency / Effectiveness / Equity and Fairness / Simplicity and Fairness / Flexibility

Card 3

Front

How do you calculate Car Benefit?

Back

Preview of the front of card 3

Card 4

Front

Describe ways how an individual can use Tax Planning to reduce their income tax liability?

Back

Preview of the front of card 4

Card 5

Front

More ways to reduce income tax liability?

Back

Preview of the front of card 5
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