R03

Starting Rate Band - Tricky Concept !

• Applies to savings income only

• Allows up to £5,000 of savings income to be taxed at 0%

• It is reduced by £1 for every £1 of non-savings income that sits above the personal allowance.

• It can be used in conjunction with the PSA

Example: Sally, a BRT has non savings income of £15,070 and savings income of £5,000. Because her non-savings income exceeds her P.A by £2,500, her SRB is also reduced by £2,500. As a result of this, only the first £3,500 of her savings income will be taxed at 0% (this is comprised of her £1k PSA and the remainder of her SRB of £2,500), with the remaining £1,500 being taxed at 20%

Interest In Possession Trust

• The trustees of an interest in possession trust is responsible for distributing income net of basic rate.

• If a life tenant is a non tax payer, then they can reclaim the tax, however if they are a higher or additional rate tax payer, then they will owe HMRC further tax.

Marriage Allowance - Applies to couples born after 8/04/35

• Tax reducer

• Benefits couples where one is a non-tax payer and the other is a basic rate tax payers

• Allows the non-tax payers to transfer 10% of their P.A to the basic rate tax payer (the figure is rounded up to £12,600)

• This can generate a maximum tax reduction of £252

IHT Categories

• Exempt: Inter-spousal between UKLTR, Gifts to charities, political parties and those for the national benefit, small gifts, out of normal expenditure, gifts on marriage and the annual exemption
  

• PET: A PET is created when an individual transfers funds or property in excess of their A.E to either an individual or B.A.D trusts. There is only a potential charge on the transfer if the settlor dies within 7 years of the gift. 
  

• CLT - A CLT is created when an individual transfers funds or property to I.D trusts. If a transfer is not exempt or a PET, it is normally a CLT. The value of CLTs over the past 7 years is added together when establishing IHT liability. (Remember, the NRB is available, so long as the value of the CLTs do not exceed this figure, it is charged at 0%). If the donor dies within 7 years, of making a CLT, it is possible that the IHT due after death will be reduced by the amount of Lifetime IHT it paid but if the donor survives the 7 years, the tax already paid wont be refunded. 

Wedding Gifts Limits (IHT)

• Parents: Up to £5,000 per child

• Grandparents / Great-grandparents / Remote ancestors: £2,500 per grandchild, great grandchild

• Anyone else: Up to £1,000

It can be used in conjunction with the annual allowance

Investment Bond - Tricky Question Explained

Frances is an additional-rate tax payer who has recently surrendered an onshore assurance bond valued at £160,000. She originally invested £100,000 and has owned the bond for over 11 years. During her ownership period she made 3 separate withdrawals of £4,000. What is her tax liability?

The chargeable gain on a full surrender is based on the overall gain made in the policy including any untaxed withdrawals. Therefore the chargeable fain we are looking is: £60,000 + £12,000 (£4k x 3 - all of these withdrawals fall within the 5% deferred allowance) = £72,000

The bond is an onshore bond, which means, the gain is net of basic rate tax. As Frances is an additional rate tax payer, it means that she owes an additional 25%.

Final answer: £72,000 X 25% = £18,000

Residence Rules

UK Resident & LTUKR - Liable to UK tax wherever it arises & UK annual exemptions / allowances can be used

UK Resident & Non-LTUKR - FIG rules apply for the first 4 years

Non UK Resident & LTUKR - Liable to income and gains on UK income and gains only may be CGT exempt on certain assets excluding property.

Non UK Resident & Non-LTUKR - Liable to IHT on UK situated assets only

OEIC & Offsetting charges

There are no allowable deductions that can be offset against an OEIC, as charges are generally deducted from the funds assets rather than being directly offset against tax for the investor.

IHT NRB & RNRB

NRB - Currently £325k per person, but it can be increased via: 

a) Transfers - it is transferred as a percentage to a spouse or civil partner on death and; it is the unused % of the NRB on death that is being transferred. A Key principle of NRB transfers to spouses is that, the total can never exceed x 2 NRB I.e., £650,000 even taking into account second marriages. A will trust can mitigate this issue

b) The main residence NRB - This is an additional tax-free allowance on top of the standard Nil Rate Band when a main home is passed on to: 

Children 

Grandchildren 

Stepchildren / adopted children 

     Spouse / civil partners  

Other lineal descendants 

It is up to £175,000 per person. The NRB can be tapered down if the deceased estate is valued at £2m ( £1 lost for every £2 excess)  

Business Asset Disposal Relief

Business Asset Disposal Relief – Is a tax break that enables an investor to pay a reduced rate of CGT (14%) on a qualifying gain above the annual exemption limit. It applies to the first 1m of lifetime qualifying gains and applies to business assets which includes sole traders / business partners and those with a 5%+ shareholding interest. The asset must have been owned for at least 2 years.  

Discretionary Trust Tax Rules

A discretionary trust is always taxed at trust rate. which is:

45% on income

39.35% on dividend

This is because HMRC doesn’t know which beneficiary will eventually receive the money or what their tax rate will be, so they are at the top by default. Beneficiaries then get tax credit when distributions are made and can reclaim if they’re lower rate taxpayers.

If the income is £500 or less, then no tax is due, but if it is more than £500 then tax applies. Please keep in mind that this £500 rule is not an allowance, if the income exceeds £500 then all of it is taxable

CGT

Costs that can be deducted in arriving to a chargeable gain include: 

• Acquisition costs

• Enhancement costs  

• Disposal / selling costs  

Costs of insurance premiums, maintenance and repairs cannot be deducted for CGT purposes; however, they could be deemed an allowable expense for income tax.

Stamp Duty & SDRT

SDRT - Applies to electronic / Crest based transactions, such as listed shares. Rounded to the nearest penny

SD - Likely to apply to private company shares and is only due if the shares exceed £1,000. Its also rounded UP to the next multiple of £5

Both taxed at 0.5%

Taper relief - Key Factors

Taper relief can apply to both PETs and CLTs.

The key factors for taper relief to be effective are that:

A) The donor must have lived at least 3 years from the time of the gift; and

B) IHT is also due on the gift itself

Allowable Deduction vs Available Deductions

The concept of a deduction is different to that of an allowance.

For example, deductions include; acquisition, enhancement or disposal costs when establishing a taxable gain for CGT purposes, or maintenance and repair costs, when establishing income tax liability for investment properties. An allowance would be, personal savings allowance (savings income) personal allowance (non-savings income), annual exemption allowance (cgt & iht).

The distinction matters:

• An allowance reduces your taxable income before tax is calculated — it's something you're simply entitled to (e.g. the Personal Allowance)

• A deduction is an expense you subtract from your gross income from a specific source to arrive at the net profit/income figure for that source

• Also remember that not all asset classes allows for deductions, but most will have an allowance.

Business Relief (IHT Concept) In Practice

In August 2022 Ria invested £380,000 in to asset A that qualified for Business Relief. In June 2024, she invested £320,000 into asset B that also qualified for Business Relief. She died in August 2025, when the values of the assets were £450,000 (A) and £350,000 (B). Ria left the assets to her daughter, Ava, with the rest of her estate left to her husband Rick. What will the IHT liability be?

Not really a tricky concept, I would say this is more about fully understanding how Business Relief works. Business Relief is a form of IHT relief that reduces the taxable value of certain business assets by 100%, meaning no IHT is payable is payable on qualifying assets. Because Ria lived for more than 2 years after investing into asset A, it is fully exempt from CGT. However, she only lived for a year, after investing in asset B, which means that, the excess above the NRB will be liable for IHT. The answer should be £10,000.

350,000 - 325,000 × 40% = 10,000

IHT Charity Exemption in practice

Amelia died in January 2026 with an estate valued at £334,000. She donated £35,000 to a charity and left the rest of money to her 3 god children. Assuming she made no lifetime transfers, what is the IHT liability?

Again, not really a tricky concept as this is more about fully understanding how charity donations work. Charity donations are exempt, in addition to this, if the charity donation amounts to at least 10% of the net estate, then a reduced IHT rate of 36% is applicable.

Net estate = Estate value - NRB and/or exempt transfers

In practice this is £334,000 - £325,000 = £9,000 (this exceeds the charity donation which means it meets the 10% minimum donation value)

An IHT rate of 36% therefore applies. We work out the taxable value for IHT by

Taxable IHT value = Estate value - charity gift - exemptions - nrb

In practice this is £334,000 - £35,000 = £299,000 as this amount falls into Amelia’s NRB, no IHT is due. But if it were to exceed, her NRB, the excess would benefit from a reduced amount of 36% instead of the standard IHT rate of 40%

REIT - Property Income Distribution

PID is a specific type of income paid by a REIT.

They are taxed as property income (aka non-savings income) and therefore sits in the same category as rental income from a buy to let.

In addition to this, basic rate tax (20%) is withheld at source

When answering questions it is key to understand that any income the investor receives from the PID part of the REIT has withheld BR tax at source, therefore to work out the gross figure, we must divide the income by 0.8. After this, we can work out how much more will be owed to hmrc. We must not, simply, x the PID income by 20% or 25% more.

HMRC Self Assessment Deadline

• £100 for missing the January 31st deadline

• £10 per day for a maximum of 90 days starting May 1st

• £300 for being six months late starting August 1st

Foreign Income and Gains Criteria

• UK residents still within the first 4 years as a UK tax resident, following at least a 10 year period as a non-uk tax resident

• Those eligible will not have to pay tax on their foreign income and gains but will lose their standard allowances i.e., PSA, PA, A.E and marriage allowance