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Test your knowledge

Test your knowledge of current UK tax, exemptions and allowances in relation to our products and financial planning solutions.

The following questions are designed to test your knowledge of current UK tax, exemptions and allowances in relation to our products and financial planning solutions and to test your trust knowledge.

The solutions (which are provided at the end of the article) are based on exemptions and allowances available under the rules in force at the date of this article for the tax year 2015/16.

Income tax

What is the standard personal allowance for 2015/16?

At what income limit does the standard personal allowance get reduced?

When looking at a reduction in personal allowance what is the rate of reduction above the income limit?

If you have a chargeable event gain which makes the policyholder’s total income £140,000 before top slicing, but £24,000 after, will they lose their personal allowance?

What are the current income tax rates for individuals in 2015/16 (all income types)?

What is the order of income for calculating income tax for individuals?

Do trustees get a personal allowance?

What rate of tax do trusts pay on the first £1,000 of income for the trust?

What are the trustee rates of income tax for 2015/16?

Do bond withdrawals within the 5%s count towards the income limit for age related allowance?

What is deficiency relief?

What is the tax credit attached to UK dividend payments?

Who is liable to pay the income tax on a chargeable event from a bond held under a discretionary trust?

Who is assessed for income tax on natural income paid on a CIA held on an irrevocable designation?

Capital gains tax

What is the annual exempt amount for individuals in 2015/16?

What are the current rates of CGT?

What is the annual exempt amount for trusts with the same settlor?

Would CGT apply to a UK trust company?

What rate of CGT will apply to settlor included trusts?

Is an ongoing advice fee on a CIA a disposal for CGT?

Who is liable to pay any CGT liability for a stocks and shares NISA?

Who is liable to pay CGT on a CIA held under a revocable designated account?

Who is liable to pay CGT on a CIA held under an irrevocable designated account?

If you sell units 100,000 units in Fund A for £100,000 and realise an investment gain of £10,000 then purchase 99,010 units in Fund A within 30 days what is the CGT position?

What are section 104 holdings?

 

Corporation tax

What are the small companies and main rates of corporation tax for the 2016 tax year?

How are bonds taxed when held by UK companies?

Under the loan relationship rules, what is the difference between companies on a fair

value basis for accounting and historic value basis?

 

Qualifying policies

If a Plan is deemed to be a Restricted Relief Qualifying Policy, how will the insurer calculate the chargeable event gain?

 

What is the annual allowable premium limit for qualifying policies to be qualifying since 22 March 2012?

 

If a protected plan has its term extended but the policyholder’s fail to return a statutory declaration within 3 months of the extension what happens to the plan?

 

Chargeable events

What is the formula for calculating CEs on total encashment?

If a Bond is set up with an investment of £100,000 and annual withdrawals of £2,500, when will the policyholder have to start paying income tax on the withdrawals?

If a policyholder requests full surrender of policy segments with the remainder from a part surrender to reach a specific amount, what do you need to consider for the part surrender in respect of the 5%s?

When will a PPB deemed gain apply?

What is the difference in top slicing on excess events for onshore and offshore bonds?

Does time apportionment relief apply to onshore bonds?

Inheritance tax

What does PET stand for?

What does CLT stand for?

What is a Gift with Reservation?

What are the lifetime rates for IHT and when do they apply?

What is the Nil Rate Band amount for 2015/16?

What is the Nil Rate Band available for a joint settlor discretionary trust for periodic charges based on the current tax year’s allowance?

What is the annual exempt amount for IHT in 2015/16?

If the settlor of a trust dies within 5 years of creating a bare trust but the PET falls within the NRB does taper relief apply?

What is the order of reviewing assets when calculating IHT on an estate?

If a lifetime gift is made but a right is retained but this is not a GWR, what tax may apply?

To which types of trust does the relevant property regime apply?

What is the current inter spousal transfer exemption for non-UK domiciled spouses?

What is the rate of IHT on death if you give 12% of your net chargeable estate to charity?

 

Trusts

What is an absolute trust?

What is an interest in possession trust?

What is a discretionary trust?

What is a probate trust?

What is the main difference in use of settlor included or settlor excluded trusts?

What is the difference between Gift and Loan trusts and Loan trusts?

What is the main benefit of a loan trust?

What is the main benefit of a DGT?

What is the Value of Interest retained or the Discount on a DGT?

On a joint settlor loan what happens on the death of the first settlor?

What are exit charges?

What is the maximum IHT charge for period charges?

If a settlor chooses to waive their right to regular withdrawals after 7 years from the trust start date are there any IHT implications?

If the lives assured on a bond held in a DGT died, what would happen to the settlor’s “income stream”?

What is a disabled persons/vulnerable persons trust?

What type of trust is our Protection Trust?

Can a trustee delegate their powers as trustee to another person?

Who is the settlor of a trust?

Who are the trustees?

Who are the beneficiaries?

What is a protector?

What is an IPDI?

What is an 18-25 trust?

If money is left to a minor under a will, would this create a trust?

 

Solutions

Category

Question

Answer

Tax – Income tax

What is the standard personal allowance for 2015/16

£10,600

At what income limit does the standard personal allowance get reduced?

£100,000

When looking at a reduction in personal allowance what is the rate of reduction above the income limit?

£1 for every £2 of income above the income limit of £100,000.

If you have a chargeable event gain which makes the policyholder’s total income £140,000 before top slicing, but £24,000 after, will they lose their personal allowance?

Yes. The income limit takes account of the full chargeable event gain, not the top sliced gain.

What are the current income tax rates for individuals in 2015/16 (all income types)?

20%, 40% and 45% for earned and savings income
10%, 32.5% and 37.5% for dividend income

What is the order of income for calculating income tax for individuals?

Earned income
Savings Income
Dividend income
Chargeable event gains

Do trustees get a personal allowance?

No, but trusts have a standard rate band for the first £1,000 of trust income

What rate of tax do trusts pay on the first £1,000 of income for the trust?

20%

What are the trustee rates of income tax for 2015/16?

45% and 37.5%

Do bond withdrawals within the 5%s count towards the income limit for age related allowance?

No

What is deficiency relief?

The ability to use losses on total encashment of a bond due to previous excess events to reduce an individual’s higher rate income tax liability for the tax year in which the encashment occurs

What is the tax credit attached to UK dividend payments?

 

10%

Who is liable to pay the income tax on a chargeable event from a bond held under a discretionary trust?

The settlor if UK resident, if not the Trustees

Who is assessed for income tax on natural income paid on a CIA held on an irrevocable designation?

The beneficiary, unless the beneficiary is the accountholder’s child where the first £100 is on the beneficiary but the rest is on the accountholder.

Tax – CGT

What is the annual exempt amount for individuals in 2015/16?

£11,100

What are the current rates of CGT?

18% and 28%

What is the annual exempt amount for trusts with the same settlor?

Half the AEA for individuals (£5,550 in 15/16) and the split equally between the trusts up to a maximum of 5 trusts.

Would CGT apply to a UK trust company?

No. Companies are subject to corporation tax

What rate of CGT will apply to settlor included trusts?

28%

Is an ongoing advice fee on a CIA a disposal for CGT?

Yes

Who is liable to pay any CGT liability for a stocks and shares NISA?

No-one. It is CGT free

Who is liable to pay CGT on a CIA held under a revocable designated account?

The accountholders

Who is liable to pay CGT on a CIA held under an irrevocable designated account?

The beneficiary

If you sell units 100,000 units in Fund A for £100,000 and realise an investment gain of £10,000 then purchase 99,010 units in Fund A within 30 days what is the CGT position?

Only the sale of 990 of the units in Fund A will count as a disposal for CGT, so the gain would be £99 instead of £10,000 due to bed and breakfasting rules

 

What are section 104 holdings?

Units or shares purchased at various times (including switches) that are pooled to give an average price of the shares when calculating CGT disposals.

Tax – Corporation Tax

What are the small companies and main rates of corporation tax for the 2016 tax year?

20% for both

How are bonds taxed when held by UK companies?

Under the loan relationship rules

Under the loan relationship rules, what is the difference between companies on a fair value basis for accounting and historic value basis?

For fair value basis the increase in value of assets from the first day of the accounting period to the last is assessed and charged to corporation tax, whereas with historic basis, only any gain since purchase of the asset is taxable on disposal in full or part of that asset.

Qualifying policies

If a Plan is deemed to be a Restricted Relief Qualifying Policy, how will the insurer calculate the chargeable event gain?

Assuming the Plan is fully non-qualifying. It is then up to the policyholder to argue the reduction due on this gain for allowable premiums.

What is the annual allowable premium limit for qualifying policies to be qualifying since 22 March 2012?

£3,600

If a protected plan has its term extended but the policyholder’s fail to return a statutory declaration within 3 months of the extension what happens to the plan?

It becomes fully non qualifying

Chargeable Events

What is the formula for calculating CEs on total encashment?

(Surrender Value plus any withdrawals) MINUS (Premiums paid plus any previous excess gains) = Gain or Loss

If a Bond is set up with an investment of £100,000 and annual withdrawals of £2,500, when will the policyholder have to start paying income tax on the withdrawals?

At the end of the 41st policy year

If a policyholder requests full surrender of policy segments with the remainder from a part surrender to reach a specific amount, what do you need to consider for the part surrender in respect of the 5%s?

The 5% allowance for the current policy year will have reduced as the premium for the surrendered policies no longer applies, also the part surrender is treated as being taken over the remaining policies.

 

When will a PPB deemed gain apply?

Where a UK policyholder owns a bond which allows investment into non permitted assets – this includes shares.

What is the difference in top slicing on excess events for onshore and offshore bonds?

For onshore the gain can be sliced for the years since the last excess event or commencement if there are none.
For offshore it is always back to commencement.

Do time apportionment relief apply to onshore bonds?

Yes

Inheritance tax

What does PET stand for?

Potentially Exempt Transfer

What does CLT stand for?

Chargeable Lifetime Transfer

What is a Gift with Reservation?

Giving money or an asset away, but retaining some right to benefit from it

What are the lifetime rates for IHT and when do they apply?

20% (or 25% if paid by the settlor) and it is charged on CLTs over the available NRB for the settlor/settlors

What is the Nil Rate Band amount for 2015/16?

£325,000

What is the Nil Rate Band available for a joint settlor discretionary trust for periodic charges based on the current tax year’s allowance?

£650,000 (a joint settlor trust is treated as two settlements for IHT, therefore 2 NRBs are available)

What is the annual exempt amount for IHT in 2015/16?

£3,000 and you can carry forward unused for previous tax year (so maximum of £6,000)

 

If the settlor of a trust dies within 5 years of creating a bare trust but the PET falls within the NRB does taper relief apply?

No

What is the order of reviewing assets when calculating IHT on an estate?

Exempt transfers both lifetime and on death – not included
PETs and CLTs within the past 7 years in chronological order
Then residual estate

If a lifetime gift is made but a right is retained but this is not a GWR, what tax may apply?

Income tax as the asset may fall under the Pre owned assets tax legislation

To which types of trust does the relevant property regime apply?

Discretionary trusts and interest in possession trusts which are created or changed after 21st March 2012

What is the current inter spousal transfer exemption for non-UK domiciled spouses?

£325,000

 

What is the rate of IHT on death if you give 12% of your net chargeable estate to charity?

36%

Trusts

What is an absolute trust?

A trust where the beneficiaries and their share of the trust fund is specified at outset and cannot be changed even if a beneficiary dies

What is an interest in possession trust?

A trust where named beneficiaries have a right to income (but not the trust capital)

What is a discretionary trust?

A trust where no beneficiaries have a right to either the income or capital of the trust. Appointment of income and capital is purely at the trustees’ discretion. Usually only classes of beneficiaries are listed but the pooled list could include named individuals or other legal entities

 

 

What is a probate trust?

A discretionary trust or Interest in Possession trust which includes the settlor as a possible beneficiary.

What is the main difference in use of settlor included or settlor excluded trusts?

Settlor included trusts avoid the need for probate to distribute the assets but have no IHT planning benefit.

Settlor excluded are used for IHT planning

What is the difference between Gift and Loan trusts and Loan trusts?

G & L the trust is created by a gift then the settlor makes a loan
Loan trust – the loan creates the trust

What is the main benefit of a loan trust?

It freezes the settlor’s IHT liability as the growth on the loan is outside their estate

What is the main benefit of a DGT?

It allows the settlor to give away capital for IHT planning but retain a lifetime “income”.

What is the Value of Interest retained or the Discount on a DGT?

This is the notional actuarially calculated value of the lifetime “income” selected for the settlor. This amount can be used to reduce (or discount) the value of the transfer into the DGT (the PET or CLT)

On a joint settlor loan what happens on the death of the first settlor?

The deceased portion of the loan passes by survivorship outside the estate to the surviving settlor

What are exit charges?

IHT charges in relation to distributions to beneficiaries on a relevant property trust

What is the maximum IHT charge for period charges?

6% (30% of 20%)

If a settlor chooses to waive their right to regular withdrawals after 7 years from the trust start date are there any IHT implications?

Yes, there is a loss to their estate of the future rights to the regular withdrawals. So there is an actuarial value for the transfer which would be a PET for a Bare version or CLT for a discretionary version.

 

If the lives assured on a bond held in a DGT died, what would happen to the settlor’s “income stream”?

It will stop because the bond will come to an end and no prior settlor consent to replace the income stream has been agreed with the trustees.

What is the purpose of a personal injury trust?

It allows PI claims to be excluded from any means related benefit testing.

What is a disable persons/vulnerable persons trust?

Usually a discretionary trust set up for a vulnerable person in the lifetime but wide classes for distribution after their death. There are certain IHT and CGT advantages to such a trust.

What is our Protection Trust?

It is a split benefit IIP trust which allows certain benefits to be retained by the settlor but others (usually the life cover) to be gifted away to beneficiaries.

Can a trustee delegate their powers as trustee to another person?

Under English Law, if a Trustee General Power of Attorney is executed then the trustee may delegate their powers for 12 months

Who is the settlor of a trust?

The person who creates it

Who are the trustees?

The people who must be 18 or over under English or Manx Law and sane and will legally own the trust assets in accordance with the trust

Who are the beneficiaries?

The persons, trusts, companies or other legal entities (potentially) able to benefit from the trust fund

What is a protector?

An individual appointed to approve certain decisions of the trustees and who has the power to change the trustees. Most commonly used where a professional trustee is appointed

What is an IPDI?

An immediate post death interest to a spouse granted through the deceased’s will or deed of variation

 

 

 

What is an 18-25 trust?

A will trust created on the testator’s death which holds assets for the benefit of the deceased’s children where access to capital can be prescribed between the first beneficiary attaining age 18 and attaining 25.

If money is left to a minor under a will, would this create a trust?

Yes.

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