Section 4

What is the IHT if someone dies with £500k estate and gives £20k to charity

£500k - £325k(NRB) = £175k (Net Estate)

£175k x 10% = £17,500 which means she gave more than 10% to charity = 4% IHT reduction

£175k - £20k(Charity) = £155k x 36% = £55,800

What losses to be carried forward

£7k loss when selling shares last tax year

£2k loss selling gilts and a gain of £8k selling investment trust this tax year

Have to offset losses against gains from current year first however you can’t offset losses from bonds (exempt from CGT)

Means the overall gain this year is £8k

Only need to bring the chargeable gain down to £3k to avoid CGT

This means using £5k (of the £7k) of losses from last tax year

• This leaves £2k (£7k-£5k) to be carried forward

What tax relief can be carried back to reduce income tax from previous year

Can:

Grossed up gift aid

• Say you make a £8k donation which grosses you to £10k - This can be carried back to 2025/26

EIS/SEIS

Can’t:

• SIPP contribution relief

• VCT relief

Allowance you can use on cash account and unit trust/OEIC

Cash account - PSA

Unit trust/OEIC - DA and CGT annual exemption

For PSA think most interest

• Int from Bonds

• Int from cash acc

• Int from deposits

• ETF investing in bonds

For DA think shares/funds

• Shares

• Inv Trusts

• Unit Trusts/OEICs

• ETF investing in shares

For CGT think profit you make from selling an investment

CGT tax.

Sold business in 2018 for gain of £600k

Sold business in 2026 for gain of £500k

What is the tax for the 2026 sale

2018 sale used up £600k of Business Asset Disposal relief lifetime limit (£1mil)

That means she has £400k left of BAD limit to use on 2026

• This means this £400k is 18% CGT

• The remaining £100k is 24% CGT

= £95,280

Investment trusts original value is £54k and now worth £63k. How much can they sell of shares and not have a CGT charge

The gain is £9k which is 3x the amount of CGT exemption available

This means he can sell a third of the gain and a third of the original capital

£63k / 3 = £21k

On a value of £63k, the following is not taxed

• £54k (original capital) / 3

• £9k (gain) / 3 - As £3k of this uses AE

£100k mark for PA

At £100k your personal allowance starts tapering away

E.g salary or £115k

• £115k - £100k / 2 = £7,500 reduction to his PA

• £12,570 - £7,500 = £5,070

Total income tax to pay with salary of £115k

Taper salary back

• £115k - £100k / 2 = £7,500

• £12,570 - £7,500 = £5,070 Personal All

First £5,070 = 0%

Next £37,700 = 20%

Remaining £67,230 = 40%

Someone is self employed with profits of £56k. How much NIC will she pay

She will pay class 4

£50,270 - £12,570 = £37,700 × 6% = £2,262

Remaining (£56k - £50,270) will pay 2% = £114.60

= £2,376.60

She will also be credit with paying class 2 NIC

Tax on an OEIC/Unit trust

OEICs give 2 incomes

Dividend distribution

• Dividend tax

• Dividend allowance

Interest Distribution

• Income tax

• Personal savings allowance

Tax on shares

For this it’s dividend tax as interest isn’t usually paid

ISA shares it’s tax free

Loan trust

Settlor makes a loan to the trust not a PET

Growth on the investment is outside estate

The amount that is included in estate is

• original investment - any loan repaid

Surrender of a onshore bond tax question

Original inv - £100k

Value now - £160k

Made 3 £4k withdrawals all in different years

The chargeable event is based on overall gain (£60k) + any untaxed withdrawals

As all 3 £4k withdrawals are below the 5% TDW (meaning untaxed) you add these on

£60k + £12k = £72k x 25% (45%-20%) = £18k

Pension contribution question

Someone earns £41,700 above personal allowance and contributes £5k to pension

What is the income tax reduction he gets

Basic rate is £37,700

£4k would have been taxed at 40%

• = £1600 saved

£1k would have been taxed at 20%

• = £200 saved

Tots saved is £1800

Lifetime tax due for the donor who donates

£180k to disc trust 5 yrs ago

£100k to IIP trust 4 yrs ago

£70k to bare trust 2 yrs ago

And now £100k to disc trust

The only CLT’s here are the disc and IIP trust transfers

• £180k + £100k = £280k

The transfer to the bare trust is a PET so ignore

So the newest gift to the disc trust makes it exceed NRB

• £325k - £180k - £100k - £100k = £55k due

As the donor is paying the tax is 25% (usually 20% is the trustees pay)

Income tax due

No earned income

Rental income = £95k

Dividend income = £15k

Overall income = £110k

• PA = £110k - £100k / 2 = £5k

• £12,570 - £5k = £7,570

First £7,570 = 0%

Next £37,700 = 20% = £7,540

last £49,730 = 40% = £19,892

(£95k - £37,700 - £7,570 = £49,730)

Dividend income:

• £15k - £500 = £14,500 × 35.75% = £5,183.75

Total = £7,540 + £19,892 + £5,183.75

• £32,615.75

Received 2 REIT payments

PID of £1,200

Non-PID of £400

HRT

How much tax due

PID:

• £1,200 / 0.8 × 20% = £300

Non-PID:

• Can use £500 dividend allowance so no tax on this

A discretionary trust has a share portfolio worth £150k and produced dividends of £4,800. Also has a bond worth £120k. What is the tax

Ignore bond as only tax for chargeable events

For portfolio - as income is over £500 special allowance means whole thing is taxable at 39.35%

£4800 × 39.35% = £1,888.80

Total earnings of £15,070 and interest received of £1,500. What is the tax due

£15,070 - £12,570 = £2,500 taxable employment income

• £2,500 × 20% = £500

They have £5k of starting band to use for savings income (e.g interest) but employment income eats into this

• Means that £5k-£2.5k= £2.5k starting band is remains

The £1,500 interest falls within her £2.5k remaining so no tax on that

£5k starting band

Tax-free band that only applies to savings income (e.g interest)

Your employment income earned about £12,570 eats into this

• E.g employment income of £14k

• (£14k - £12,570 = £1,430)

• £5k (SB) - £1,430 = £3,570