Section 2 Mocks

Tax relief when contributing to a SIPP

20% for all taxpayers automatically

For HRT and ART they need to claim via tax return

In questions like these they usually give the Net figure

E.g

Monthly cont - £120 grossed up to £150

Lump sum cont - £3,600 grossed up to £4,500

(Times both by 20%)

£150 × 12 = £1,800 + £4,500 = £6,300

£6,300 × 20% = £1,260

withdrawals from a bond

When taking withdrawals from a bond you can either part surrender or full surrender and would pick the one with the lowest tax

Part surrender - based on 5% allowance

Full surrender - based off current value and segments

Full surrender example of a onshore bond

Invested £100k

Current value - £160k

100 segments

Wants £80k withdrawal

ART

As it’s now worth £160k and they need £80k this would be half the segments (50)

That means they are surrendering £80k and 50 segments based on an initial investment of £50k (half of initial)

Would lead to a gain of £30k x 25% (ART)

If partially surrendering is cheaper then you’d pick that one

wants a bond withdrawal of £22k with least amount of tax liability possible

100 segments

Original value £120k

Value now is £110k

ART

Each segment was worth £1100 (£110k/100) but now each segment is £1200

As it’s now showing a loss no tax liability would come so can surrender 20 segments (20 x £1100 = £22k) with no tax

Tax to pay on surrender of bond

Original value - £50k

Surrender value £68k

HRT

Offshore bond

£68k - £50k = £18k

£18k x 40% (offshore) = £7,200

Tax deferred withdrawals only matter for partial surrenders

Full surrender = Surrender - original inv = gain

Maximum additional permitted subscription (APS)

Based on higher value on:

• Date of Death or

• On completion of deceased estates (GofP)

VCT & EIS

VCT:

• Max inv £200k

• Relief - 20% (must hold for 5 years)

• Dividends tax free

• No CGT

EIS:

• Max inv £1m/£2m

• Relief - 30%

• BR after 2 years

• No CGT after 3 years

• Dividends taxable

REIT investments

2 types of income:

• PID - taxed as non savings income

• Non-PID - is a dividend and taxed as such paid gross

Pension contribution question

£1,000 contribution for both a non taxpayer and a ART. How much is actually going in

£1,000 / 0.8 = £250

£1,250 is going in

ART will need to claim tax back to get more