15 - Personal tax planning.

Standard IT planning measures include:

Investing in tax efficient income. | Incurring tax efficient expenditure. | Maximising use of allowance and basic rate band. | Negotiating tax efficient remuneration. | Tax planning for married couples and civil partners.

Standard capital gains planning measures include:

Maximising use of AEA. | Paying tax at lowest rate. | Effective utilisation of capital losses. | Effective use of CGT reliefs. | Timing the acquisition and disposal of capital assets. | Tax planning for married couples and partners.

Standard IHT planning measures include:

Maximising use of lifetime exemptions. | Making lifetime gifts of appreciating assets.* | Making PETs as soon as possible. | Effective use of IHT reliefs. | Maximising use of NRB. | Use of a deed of variation.

Maximum tax relief rate for Qualifying loan* interest formula:

45% | up to greater of | £50,000 | or 25% of ATI.

Tax planning and company car - overall characteristics:

Additional IT liability on taxable car benefit | and possible fuel benefit. | No running costs borne by individual. | Employer liable to class 1A NICs. | Cost of providing car and fuel including class 1A NICs = allowable deduction against trading profits.

Tax planning and self purchase of a car and AMAP - overall characteristics:

If mileage allowance received > AMAP: additional IT and class 1 NICs on excess. | If MA received < AMAP: allowable deduction from employment income. | Additional IT and class 1 NICs on any cash alternative received.

Employment vs self-employment - Control of work:

Employee is instructed in how and when to work by his or her employer. | Can choose hours, method, location and can sub-contract work. Is contracted to produce a result and is not directed in how to achieve that result.

Employment vs self-employment - Obligations:

Employee has right to expect work and cannot decline the work nor subcontract the work to others outside the organisation. | Has no right to expect further work once the contract is completed and has no obligation to perform further work.

Employment vs self-employment - Risk:

No personal financial risk to own capital, not responsible for correction of bad work, paid regardless of whether or not the business is profitable.

Employment vs self-employment - Pay:

Governed by employment legislation (i.e. regular pay, holiday pay, sick pay) and paid under PAYE system. | No employment rights, paid when work completed and invoiced rendered.

Employment vs self-employment: Equipment and clients:

Employer provides. | Provides own.

Employment income year of assessment basis:

receipt basis

Advantages of self-employment:

More allowable Expenses deductions. | Lower overall NICs payable. | Later payment of IT and NICs.

IT planning for couples advice:

Equalise income. | Maximise pension contributions. | Maximise use of available allowances.

Equalising income of married couples and civil partners advice:

Consider ownership of income producing assets (sole vs joint ownership).| Make declaration to vary a split of joint income if advantageous.

Employment income is not transferable but if one of the couple is a sole trader consider implications of...

creating a partnership with the spouse vs employing the spouse.

Tax planning characteristics of having spouse as a partner in partnership:

Split income in any proportion as desired. | No tax relief for drawings. | Class 2 and 4 NICs payable.

Tax planning characteristics of having spouse as a employee:

I.T. relief on gross employment costs. | Class 1 Ee and Er payable.

CGT advices for couples:

Opportunity to effectively equalise income without incurring CGT. | Ensure both spouses use their AEAs each year. | Ensure gains are realised by the spouse who has capital losses. | Ensure remaining gains are left with the spouse with the lowest income.

IHT planning advice for couples:

Skip a generation. | UK domicile election for partner. | Deed of variation. | Direct descendant choice for residence nil rate band.

Amy takes a 5% loan of £5,000 from a bank to buy a laptop for partnership with 20% private use. Calculate amount of relief and state time when this loan can be treated as qualified loan:

£200 | Interest in respect of equipment is payable is allowable deduction against total profits of Amy for 3 years from the end of the tax year in which the loan was taken out.

What relief is available for a partner joining a partnership.

Opening years relief.

What is a base cost of EMI shares?

2.60 (price paid + taxable discount)

Advantage of adopting early year end (30 April) if profits are expect to rise each year:

Basis period of 30 April 2022, rather than 31 March 2023, will result in an earlier period of profit, and therefore a lower level of profits, being taxed.

What is a benefit to an individual of taking part of the payment for the sale of his business in the form of a loan account?

The loan can be extracted the future with no ‘tax cost’.

What are advantages of FHA from the IT point of view?

Full cost of furniture is deductible (or capital allowances are available, if using the accruals basis) instead of claiming for replacement furniture relief. | The income is relevant earnings for pension relief purposes.

Implications of splitting an investment property by marriage in ratio 80 to 20 for IT and CGT purposes:

Income is automatically split in ratio 50:50 regardless of their actual interests (but they can elect for the actual ratio. | Chargeable gains are split 80:20.

Calculate the taxable benefit in respect of gift of laptop with a significant private use:

680£

BPR over 50% or 100% of the gift value, however BPR is restricted if the company...

has EXCEPTED ASSETS. Those are assets which have not been used wholly or mainly for business in the last 2 years and are not likely to be required for future use in the business, e.g. surplus land rented by third party.

IHT instalment due date:

6 months after the end of the month of death.

Rate of IT relief for EIS (Deduct it from IT liability):

30% of amount subscribed

Calculate value of death estate for the purposes of charitable donation:

1,400,000

Calculate IHT in respect of CLT paid a donor:

367,500 × 25% = 91,875

Calculate base cost of shares for CGT purposes:

148p

One third of a house was let for 111 months. How many months are a subject of chargeable of gain?

37 months. Note: letting relief will be applied and effectively no CGT is paid (restricted to £40,000).

Letting relief is calculated ... the PRR.

after the Principal Residence Relief.

Calculate CGT liability for transfer of 4,000 shares:

16,696. [60,000 deferred as gift relief].

Is Deed of variation for IHT or CGT?

It might be effective for both or only one of then, depends on the clauses used.

What is the rate of I.T. relief and the retention period for VCT?

30% of amount subscribed. | I.T. relief is withdrawn is sold within 5 years.

What is the rate of I.T. relief for SEIS?

I.T. relief is 50% of amount subscribed.