THE CHARTERED INSURANCE INSTITUTE. Diploma in Financial Planning SPECIAL NOTICES

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1 THE CHARTERED INSURANCE INSTITUTE J01 Diploma in Financial Planning Unit J01 Personal tax April 2011 Examination Guide SPECIAL NOTICES Candidates entered for the July 2011 and October 2011 examinations should study this examination guide carefully in order to prepare themselves for the examination. Practice in answering the questions is highly desirable and should be considered a critical part of a properly planned programme of examination preparation.

2 J01 Personal Tax Contents Important guidance for candidates 3 Examiner comments 7 Question paper 10 Model answers 15 Test specification 20 Tax tables 22 Published July 2011 Telephone: Fax: customer.serv@cii.co.uk The Chartered Insurance Institute

3 Introduction IMPORTANT GUIDANCE FOR CANDIDATES The purpose of this Examination Guide is to help you understand how examiners seek to assess the knowledge and skill of candidates. You can then use this understanding to help you demonstrate to the Examiners that you meet the required levels of knowledge and skill to merit a pass in this unit. During your preparation for the examination it should be your aim not only to ensure that you are technically able to answer the questions but also that you can do justice to your abilities under examination conditions. Before the examination Read the Diploma in Financial Planning information for candidates and important notes for candidates Details of administrative arrangements and the regulations which form the basis of your examination entry are to be found in the current Diploma in Financial Planning Information for Candidates and important notes for candidates, which is essential reading for all candidates. It is available online at or from Customer Service. Study the syllabus carefully It is crucial that you study the relevant syllabus carefully, which is available online at or from Customer Service. All the questions in the examination are based directly on the syllabus. You will be tested on the syllabus alone, so it is vital that you are familiar with it. Read widely It is vital that your knowledge is widened beyond the scope of one book. It is quite unrealistic to expect that they study of a single coursebook will be sufficient to meet all your requirements. While books specifically produced to support your studies will provide coverage of all the syllabus areas, you should be prepared to read around the subject. This is important, particularly if you feel that further information is required to fully understand a topic or an alternative viewpoint is sought. The reading list which can be found with the syllabus provides valuable suggestions. Make full use of the Examination Guide The best way to understand what the examiners require is to study the CII Examination Guides. You can purchase copies of Examination Guides online at CII members can download free copies of past Examination Guides online at This guide and previous Examination Guides can be treated as mock examination papers, attempting them under examination conditions as far as possible and then compare your answers to the model ones. The examiner s comments on candidates actual performance in each question should be noted carefully. Know the layout of the tax tables Familiarise yourself with the tax tables printed at the back of each examination paper and the Examination Guide. The tax tables enable you to concentrate on answering the questions without having to worry about remembering all the information. Please note that you are not allowed to take your own tax tables into the examination. Note the assumed knowledge For the Diploma in Financial Planning, candidates are assumed to have already the knowledge gained from studying the relevant units of the Certificate in Financial Planning or the equivalent. 3

4 Understand the nature of assessment Assessment is by means of a two-hour written paper. This Examination Guide contains a full examination paper and model answers. The model answers show the types of responses the examiners are looking for and which would achieve maximum marks. However, you should note that there are alternative answers to some question parts which would also gain high marks. For the sake of clarity and brevity not all of these alternative answers are shown. Know the structure of the examination The paper is made up of 15 short questions. The paper will carry a total of 130 marks. Each question clearly shows the maximum marks which can be earned. 4

5 In the examination Assuming you have prepared adequately, you will only do justice to yourself in the examination if you follow two crucial common sense rules: 1. Spend your time in accordance with the allocation of marks as indicated on the paper. The maximum marks allocated to each question and its constituent parts are given on the paper; the number of marks allocated is the best indication of how much time you should spend on each question. If a question has just two marks allocated, there are likely to be only one or two points for which the examiner is looking, so a long answer is a waste of time. Conversely, if a question has 12 marks allocated, a couple of lines will not be an adequate answer. Always remember that if the paper is not completed, your chances of passing will be reduced considerably. Do not spend excessive time on any one question; if the time allocation for that question has been used up, leave some space, go on to the next question and only return to the incomplete question after you have completed the rest of the paper, if you have time. 2. Take great care to answer the precise question set. The model answers provided in this Examination Guide are quite focused and precise; alternative answers will only be acceptable if they still answer the question. However brilliantly a candidate writes on a particular topic, if it does not provide a satisfactory answer to the precise question as set, the candidate will not achieve the marks allocated. Many candidates leave the examination room confident that they have written a good paper, only to be mystified when they receive a disappointing result. Often, the explanation for this lies in a failure to think carefully about what the examiner requires before putting pen to paper. Order of tackling questions Tackle the questions in whatever order feels most comfortable. Generally, it is better to leave any questions which are felt to be very challenging until the more familiar questions have been attempted, but remember not to spend excessive time on the questions you are most confident about. Answering different question parts Always read all parts of a question before starting to answer it, otherwise, you may find that after answering part (a), the answer you have given is really more appropriate to part (b) and it would be necessary to duplicate much of what has already been written. The examiners will normally only give credit for an answer if it is contained within its correct question part. Handwriting Provided handwriting is legible, candidates will not lose marks if it is untidy. It is strongly recommended that candidates do not write in block capitals, because they will be slowed down so much by doing so. Answer format Unless the question requires you to produce an answer in a particular format, such as a letter or a report, you should use bullet points or short paragraphs, since this allows you to communicate your thoughts in the most effective way in the least time. The model answers indicate what is acceptable for the different types of question. Calculators If you bring a calculator into the examination room, it must be a silent battery or solar-powered non-programmable calculator. The use of electronic equipment capable of being programmed to hold alphabetical or numerical data and/or formulae is prohibited. You may use a financial or scientific calculator, provided it meets these requirements. It is important to show all the steps of your calculation in your answer. The examination is testing your ability to carry out all the appropriate steps in calculating a value. A proficient mathematician is someone who follows the correct method, i.e. carries out the appropriate steps. The majority of the marks will be allocated for demonstrating the correct method of calculation. 5

6 After the examination All examiners who mark Diploma in Financial Planning answer books are either active practitioners in the financial services industry or are experts on the subject. They have been specially trained to mark papers using a detailed marking scheme, the model answers in examination guides are based on those marking schemes. After each examiner has provisionally marked a small number of answer books, there is a co-ordination meeting of all the examiners at which the Senior Examiner goes through the marking scheme with the other examiners. Based on the feedback from the initial marking, the detailed marking scheme is finalised. The marking of each examiner is closely monitored by a Senior Examiner during the marking period and sampling of marked answer books is carried out. After all the answer books have been marked, a moderation meeting is held, at which all available statistical information is considered, together with the views of the Senior Examiner and other assessment experts. At the meeting a pass mark is set which should ensure that the standard of knowledge and skills required to pass the paper is comparable with that of previous papers. All candidates at or above the agreed pass mark will pass: the CII does not operate a quota system whereby only a fixed percentage of candidates can pass a paper. 6

7 EXAMINERS COMMENTS Candidates overall performance The standard of performance was generally good. The calculation questions proved testing for many candidates. There have been several recent changes to legislation in the areas of Income and Capital Gains Tax. The majority of candidates struggled to apply the recent changes with many having to make two attempts at the calculations. This may have caused time constraints on other questions. The residency and domicile questions which usually prove problematic were answered particularly well by the majority of candidates, which is pleasing to see. Question 1 Part (a) was well answered by the majority of candidates although some used the incorrect tax year. Part (b) was also well answered with many candidates gaining full marks. Question 2 Part (a) was well answered by the majority of candidates. Part (b), appeared to confuse some candidates as they did not explain that tax relief was received in full at source as deducted from gross pay. Some thought tax relief was re-claimed via the tax return. Part (c) was well answered by the majority of candidates. Question 3 This question was not well answered with only a minority of candidates achieving full marks. Most candidates did not recognise the need to add the grossed up pension contribution to both, basic and higher rate tax thresholds. The pension contribution was again not treated correctly by most and was either deducted from income, ignored or grossed up incorrectly. A minority of candidates did not use the new 50% tax rate or 42.5% rate on the dividend income. Question 4 The well prepared candidates performed well in this question. Question 5 The majority of candidates supplied enough information to obtain high marks on this question with quite a few achieving maximum marks. 7

8 Question 6 This question was not well answered by many candidates. Most candidates identified that the business gain would qualify for entrepreneurs relief but not how to apply the relief. HM Revenue and Customs allows the individual to apply the annual exemption in the most tax efficient way. Most candidates made the error of not applying it to the personal gain and simply added all the gains together. The gain should have been added onto income in order to assess the amount of gain that falls into the higher rate of 28%. Many candidates did not recognise this. Future candidates should cover this area within their revision. Question 7 This question was well answered by the majority of candidates with many achieving maximum marks. Question 8 This question was not well answered by many candidates with extremely low marks for most. This question relates to the rules about re-investment into Enterprise Investment Scheme (EIS) shares. The majority of candidates listed the rules for initial investment in EIS shares which is different. Candidates need to ensure they relate their answers to the question being asked. Question 9 Part (a) was well answered by most candidates, but some incorrectly stated that the gain is subject to Capital Gains Tax as opposed to Income Tax. Part (b) was well answered by the majority of candidates with many achieving maximum marks. Question 10 This question related to rent a room relief and most candidates performed well. There was confusion over the level of relief that can be claimed which is limited to 4,250 per property not person as some stated. Question 11 The Inheritance Tax calculation was not well answered. Many candidates made the error of not carrying forward the unused Nil Rate Band. The annual exemptions were also incorrectly calculated by many candidates. Question 12 Both parts (a) and (b) were very well answered, with the majority of candidates gaining high marks. 8

9 Question 13 Agricultural property relief is not often tested but many candidates did very well on this question which shows a good level of preparation. The less well prepared candidates did not gain many marks. Question 14 In part (a) most candidates achieved high marks In part (b), candidates demonstrated a good knowledge of the residency and ordinarily resident rules around UK taxation which is excellent as this area is usually quite poorly dealt with by candidates. Question 15 In part (a) most candidates gained some good marks. In part (b) most candidates did not to recognise that Freda would become ordinarily resident in the fifth year of her stay. 9

10 THE CHARTERED INSURANCE INSTITUTE J01 Diploma in Financial Planning Unit J01 Personal tax April 2011 examination SPECIAL NOTICES All questions in this paper are based on English law and practice applicable in the tax year 2010/2011, unless stated otherwise in the question, and should be answered accordingly. Assume all individuals are domiciled, resident and ordinarily resident in the UK unless stated otherwise. Candidates should answer based on the legislative position immediately BEFORE the 2011 budget. Instructions Two hours are allowed for this paper. Do not begin writing until the invigilator instructs you to. Read the instructions on page 3 carefully before answering any questions. Provide the information requested on the answer book and form B. You are allowed to write on the inside pages of this question paper, but you must NOT write your name, candidate number, PIN or any other identification anywhere on this question paper. The answer book and this question paper must both be handed in personally by you to the invigilator before you leave the examination room. Failure to comply with this regulation will result in your paper not being marked and you may be prevented from entering this examination in the future. 10

11 Unit J01 Personal tax Instructions to candidates Read the instructions below before answering any questions Two hours are allowed for this paper which consists of 15 short answer questions and carries a total of 130 marks. You are strongly advised to attempt all questions to gain maximum possible marks. The number of marks allocated to each question is given next to the question and you should spend your time in accordance with that allocation. Read carefully all questions and information provided before starting to answer. Your answer will be marked strictly in accordance with the question set. You may find it helpful in some places to make rough notes in the answer booklet. If you do this, you should cross through these notes before you hand in the booklet. It is important to show all steps in a calculation, even if you have used a calculator. If you bring a calculator into the examination room, it must be a silent battery or solar-powered non-programmable calculator. The use of electronic equipment capable of being programmed to hold alphabetic or numerical data and/or formulae is prohibited. You may use a financial or scientific calculator, provided it meets these requirements. Tax tables are provided at the back of this question paper. Answer each question on a new page and leave six lines blank after each question part. Subject to providing sufficient detail you are advised to be as brief and concise as possible, using note format and short sentences on separate lines wherever possible. 11

12 Attempt ALL questions Time: 2 hours 1. Steve is self-employed. His Income Tax liability for the last three tax years has been as follows: Tax year Tax liability 2008/ , / , / ,800 (a) (b) State the dates that the payments on account and balancing payment are due for Steve s 2009/2010 Income Tax liability. (3) Calculate the payments on account and balancing payments due for profits made in the tax year 2010/2011. (3) 2. Explain how higher-rate tax relief is claimed on the following types of pension contract: (a) personal pension scheme; (3) (b) defined benefit occupational pension scheme; (2) (c) retirement annuity contract (RAC/section 226). (2) 3. Jane, aged 47, is self employed and has net profits of 205,000 in the tax year 2010/2011. Jane received dividends of 1,800 net from shares in a UK based company and 8,000 net from a UK building society. Jane made a payment of 10,000 into her personal pension scheme during the tax year 2010/2011. Calculate, showing all your workings, Jane s Income Tax payable for the tax year 2010/2011. (14) 4. Explain the rules for a self-employed individual wishing to claim the small earnings exemption for Class 2 National Insurance contributions for the tax year 2010/2011. (6) 5. List six occupations where an individual, who may be classed as self-employed for Income Tax purposes, may be treated as employed for National Insurance purposes. (6) 12

13 6. Linda is a sole trader, having owned her business for many years. On 1 September 2010, she made a gain of 8,000 on the disposal of some business assets. In addition, on 15 November 2010, she also made gains of 15,500 on the disposal of some personal assets. Her taxable income in the 2010/2011 tax year, after deduction of her personal allowance, was 25,000. She has made no other personal or business disposals. Calculate, showing all your workings, Linda s Capital Gains Tax liability for the tax year 2010/2011. (11) 7. List eight investments, that can be made, that are exempt from Capital Gains Tax. (8) 8. Sachin has made a capital gain on the sale of some UK equity shares given to him by his father many years ago. He has been advised that he could avoid paying Capital Gains Tax (CGT) by reinvesting into Enterprise Investment Shares (EIS). Explain the rules for reinvesting into EIS shares and whether Sachin can avoid paying CGT. (7) 9. Describe the tax treatment for each type of tax payer for the following: (a) a regular annual withdrawal from a UK onshore investment bond; (8) (b) the encashment of shares from a UK open-ended investment company. (4) 10. Simon and Emma jointly own their home. They want to rent out their two spare bedrooms. They have established they can achieve rental income of 9,200 per annum. Explain briefly the rent-a-room relief rules that apply. (8) 11. Amy and John were married. Amy died in May 2010 and John died in January They made the following cash gifts before they died. Date of gift Donor Donee Amount of gift March 2006 John Daughter 375,000 June 2007 John Son 310,000 July 2007 Amy Son 71,000 Neither has made any previous gifts. Calculate, showing all your workings, the Inheritance Tax liability on John s gifts. (12) Questions continue over the page 13

14 12. Brian made a gift of 400,000 into a discretionary trust for his daughter in June He died in May 2010 having made no other gifts. Explain, in detail, how the gift would be treated when assessing: (a) the Inheritance Tax (IHT) position at the time of the gift; (6) (b) the IHT position at the time of Brian s death. (5) No calculation is required. 13. Explain the maximum relief available and the conditions that must apply in order to receive Agricultural Property Relief. (5) 14. Antony is UK domiciled but has spent the last four years living in Spain and currently has no plans to return to the UK. He has not visited the UK during this time. Before moving to Spain he lived permanently in the UK. (a) State his liability to UK Income Tax on the following sources of income: (i) earned income from his employment in Spain; (1) (ii) his UK State pension; (1) (iii) any pension he may receive from his Spanish employer; (1) (iv) income received from a UK personal pension/annuity; (1) (v) rental income from a UK property. (1) (b) Antony owned some UK assets before moving to Spain and disposed of these in the tax year 2010/2011. Explain if the assets would be chargeable to Capital Gains Tax. (5) 15. Freda is a German citizen and has German domicile but plans to visit the UK to complete a three year university course. (a) Explain the residency rules that may apply to her in relation to her UK tax status. (4) (b) Explain the residency rules in relation to her UK tax status should she decide to stay in the UK once she has completed her course. (3) 14

15 NOTE ON MODEL ANSWERS The model answers given are those which would achieve maximum marks. However, there are alternative answers to some question parts which would also gain high marks. For the sake of clarity and brevity not all of these alternative answers are shown. An oblique (/) indicates an equally acceptable alternative answer. Model answer for question 1 (a) 1st payment on account 31 Jan nd payment on account 31 July Balancing payment 31 Jan (b) 1st payment on account 14,725. 2nd payment on account 14,725. Balancing payment 7,350. Model answer for question 2 (a) 20%/basic rate applied at source/paid net at basic rate tax. A further 20%/30%/difference between basic and higher rate tax which is claimed by increasing the basic-rate tax threshold/basic rate and higher rate tax threshold. Must be claimed via tax return/self assessment. (b) Taken from gross salary/net pay arrangement. Automatically received at source/highest marginal rate. (c) Contributions paid gross. Tax relief received by deducting contribution from gross income/can be claimed through tax return. 15

16 Model answer for question 3 Income Description Non Savings Savings Dividends Earnings 205,000 Savings 8,000 (0.8) 10,000 Dividends 1,800 (0.9) 2,000 Personal allowance Nil Taxable income 205,000 Gross up pension contribution (10, ) 12,500 Extend Basic Tax Band (37, ,500) 49,900 Extend 40% Tax Band (150, ,500-49,900) 112,600 Tax Liability 49,900 x 20% 9, ,600 x 40% 45,040 42,500 x 50% 21,250 Savings Income 10,000 x 50% 5,000 Dividends 2,000 x 42.5% 850 Total Tax Liability 82,120 Less tax already deducted Building Society Interest (2,000) Dividends (200) Income Tax Payable 79,920 Model answer for question 4 They must apply to the National Insurance Contribution Office for a certificate of exception. Anticipated earnings must be less than 5,075 in the tax year. Exemption can only be back dated 13 weeks (longer with concession). Evidence of earnings/payments must be provided. Certificate automatically lapses if earnings limit is exceeded. If business carried out in spare time and earnings less than 1,300 no certificate is required. Model answer for question 5 Candidates would have gained full marks for any six of the following: Domestic workers/office cleaners. Agency workers. Lecturers/ instructors. Ministers of religion. Workers in the film/television industry. Actors and entertainers. Labour only/building sub-contractors. Sub-post master/mistress. 16

17 Model answer for question 6 Remainder of the basic rate tax threshold 37,400 25,000 = 12,400 Business assets = 8,000 (qualifies for entrepreneur s relief at 10%) Personal assets 15,500-10,100 = 5,400 (HMRC allows most tax efficient use of exemption) 8,000 x 10% = 800 4,400 x 18% = 792 1,000 x 28% = 280 1,872 Model answer for question 7 Candidates would have gained full marks for any eight of the following: ISAs. Woodlands. Venture Capital Trust. Permanent Interest Bearing Shares. Most life policies/investment bonds. National Savings Children s Bonus Bond/Premium Bonds. Child trust funds. Qualifying Corporate Bonds. Gilts. Enterprise Investment Scheme. Model answer for question 8 Enterprise Investment Scheme reinvestment relief will allow him to defer the gain only. He must be UK resident. Claim must be made up to 12 months before or 36 months after the disposal. Gain on any asset can be claimed/no maximum limits. The deferred gain will become chargeable when finally encashed unless another qualifying re-investment is made. Transfer to a spouse/civil partner will not incur a tax charge. If held until death, Capital Gains Tax is not payable on the original gain. Model answer for question 9 (a) (b) Investment Bond Subject to Income Tax. 5% per annum of original investment may be taken up to a maximum of 100%/20 years. Tax deferred. If exceeds 5%, higher rate tax payer has liability at 20% or additional rate tax at 30%. No further tax liability for non tax payer/basic rate tax payer if gain after top slicing keeps them in basic rate tax band. Non tax payer/lower rate tax payer cannot reclaim tax. May affect age allowance. Open Ended Investment Company Subject to Capital Gains Tax at a rate of 18% if within basic rate threshold or 28% if over basic rate threshold. Annual Exemption/ 10,100 may be used. 17

18 Model answer for question 10 Gross receipts per annum of up to 4,250 are free from Income Tax. As it is jointly owned, only 2,125 can be claimed by each of them. It cannot be self-contained. Must be furnished. Cannot be let for commercial purposes. Must be their only or main residence. Must be in the UK. Cannot offset any expenditure. Model answer for question 11 Amy s gift 71,000-6,000 (2 x 3,000) = 65, ,000 x 80% = 260,000 Remaining Nil Rate Band 325,000 x 80% = 260,000 Total NRB ( 325, ,000) = 585,000 Less Daughter s Potential Exempt Transfer (PET) 375,000 6,000 (2 x 3,000) = 369,000 Balance of NRB = 216,000 Son s PET 310,000 6,000 (2 x 3,000) = 304,000 Less balance of NRB = 216,000 PET Chargeable to Inheritance Tax (IHT) = 88,000 IHT on PET 88,000 x 40% = 35,200 Less taper relief at 20% 35,200 x 80% = 28,160 Model answer for question 12 (a) Gift will be a chargeable life time transfer. Two annual exemptions/ 6,000 can be deducted from the gift. As the value of the gift is over the Nil Rate Band (NRB) the excess over the NRB will be chargeable at the time of the gift at a rate of 20% if paid by trustees or 25% if paid by Brian/or gift grossed up. (b) As Brian died within seven years of the creation of the trust, additional tax will be due based on the value of the gift at the time of transfer and the NRB at the date of death, payable at 40% less lifetime tax paid. Any overpayment is not refundable. 18

19 Model answer for question % relief for owner-occupied farms/farm tenancies/owner occupied by transferor for agricultural purposes for previous two years. Relief only available on land/crops/farm buildings. Relief given on agricultural value. Relief not available on machinery/animals. Relief not available if property is subject to a binding contract for sale. Model answer for question 14 (a) (i) Not liable to UK tax. (ii) Liable to UK tax. (iii) Not liable to UK tax. (iv) Liable to UK tax. (v) Liable to UK tax. (b) As Antony was resident for at least four out of seven years before leaving the UK, owned the shares before leaving the UK and has been non- resident and not ordinarily resident for less than five years, he will be subject to Capital Gains Tax on any UK disposals he makes chargeable in the tax year of his return to the UK. Model answer for question 15 (a) As she intends to stay in the UK for more than six months for the purpose of education but less than four years, she will be classed as resident but not ordinarily resident. (b) If she stays for more than four years she will be classed as ordinarily resident from the fifth tax year. 19

20 Question No. Test Specification Syllabus learning outcomes being examined 1. 1 Understand the basic structure of the tax system and self-assessment Understand when and how Income Tax is applied to different types of income Understand when and how Income Tax is applied to different types of income Understand when and how National Insurance contributions apply to employed and self-employed income. Understand when and how National Insurance contributions apply to employed and self-employed income Understand when and how Capital Gains Tax applies to an individual s gains Understand when and how Capital Gains Tax applies to an individual s gains; Understand the tax treatment of different kinds of investments Understand the tax treatment of different kinds of investments Understand the tax treatment of different kinds of investments Understand when and how Income Tax is applied to different types of income; Understand the tax treatment of different kinds of investments Understand when and how Inheritance Tax applies Understand when and how Inheritance Tax applies Understand when and how Inheritance Tax applies Understand the impact of an individual s residence and domicile status on liability to UK tax Understand the impact of an individual s residence and domicile status on liability to UK tax. 20

21 All questions in the July 2011 and October 2011 papers will be based on English law and practice applicable in the tax year 2010/2011 and 2011/2012 respectively, unless stated otherwise and should be answered accordingly. The Tax Tables which follow are applicable to the April 2011 and July 2011 examinations. The Tax Tables for the October 2011 examination can be found online on the CII website: 21

22 INCOME TAX RATES OF TAX 2009/ /2011 Starting rate for savings* 10% 10% Basic rate 20% 20% Higher rate 40% 40% Additional rate N/A 50% Starting-rate limit 2,440* 2,440* Threshold of taxable income above which higher rate applies 37,400 37,400 Threshold of taxable income above which additional rate applies N/A 150,000 *restricted to savings income only and not available if taxable non-savings income exceeds starting rate band. MAIN PERSONAL RELIEFS Income limit for Personal Allowance N/A 100,000 Personal Allowance (basic) 6,475 6,475 Personal Allowance (age 65-74) 9,490 9,490 Personal Allowance (aged 75 and over) 9,640 9,640 Married/civil partners (minimum) at 10% 2,670 2,670 Married/civil partners (age 75 and over) at 10% 6,965 6,965 Income limit for age-related allowances 22,900 22,900 Blind person s allowance 1,890 1,890 Enterprise Investment Scheme relief limit at 20% 500, ,000 Venture Capital Trust relief limit at 30% 200, ,000 the Personal Allowance reduces by 1 for every 2 of income above the income limit irrespective of age from 2010/2011. where at least one spouse/civil partner was born before 6 April Child Tax Credit (CTC) - family element family element baby addition CTC usually reduced by 6.67% of joint income over 50,000 50,000 22

23 NATIONAL INSURANCE CONTRIBUTIONS Class 1 Employee Weekly Monthly Yearly Lower Earnings Limit (LEL) ,044 Primary threshold ,715 Upper Earnings Limit (UEL) 844 3,656 43,875 Upper Accruals Point 770 3,337 40,040 Total earnings per week CLASS 1 EMPLOYEE CONTRIBUTIONS Contracted-in rate Contracted-out rate Up to * Nil Nil % 9.4% % 11% Above % 1% Total earnings per week CLASS 1 EMPLOYER CONTRIBUTIONS Contracted-in rate Contracted-out rate Final Money purchase salary Below ** Nil Nil Nil % 9.1% 11.4% % 12.8% 12.8% Excess over % 12.8% 12.8% * This is the primary threshold below which no NI contributions are payable. However, the lower earnings limit is 97 per week. This 97 to 110 band is a zero rate band introduced in order to protect lower earners rights to contributory State benefits e.g. Basic State Pension. ** Secondary earnings threshold. Class 2 (self-employed) Flat rate per week 2.40 where earnings exceed 5,075 per annum. Class 3 (voluntary) Flat rate per week Class 4 (self-employed) 8% on profits between 5,715-43,875 plus 1% on profits above 43,875 PENSIONS TAX YEAR LIFETIME ALLOWANCE ANNUAL ALLOWANCE 2006/2007 1,500, , /2008 1,600, , /2009 1,650, , /2010 1,750, , /2011 1,800, ,000 NOTIONAL EARNINGS CAP 123,600 (For schemes that require post-1989 benefits to be still subject to a cap). ANNUAL ALLOWANCE CHARGE 40% member s tax charge on the amount of total pension input in excess of the annual allowance. LIFETIME ALLOWANCE CHARGE 55% of excess over lifetime allowance if taken as a lump sum. 25% of excess over lifetime allowance if taken in the form of income, which is subsequently taxed under PAYE. 23

24 INHERITANCE TAX RATES OF TAX ON DEATH 2009/ /2011 Transfers made after 5 April Up to 325,000 Nil Nil - Excess over 325,000 40% 40% - Lifetime transfers to and from certain trusts 20% 20% MAIN EXEMPTIONS Transfers to - UK-domiciled spouse/civil partner No limit No limit - non-uk-domiciled spouse/civil partner (from UK domiciled spouse) 55,000 55,000 - UK-registered charities No limit No limit Lifetime transfers - annual exemption per donor 3,000 3,000 - small gifts to same person Wedding/civil partnership gifts by - parent 5,000 5,000 - grandparent/party to marriage/civil partnership 2,500 2,500 - other person 1,000 1, % relief: businesses, unlisted/aim companies, certain farmland/building 50% relief: certain other business assets Reduced tax charge on gifts within 7 years of death: - Years before death Inheritance Tax payable 100% 80% 60% 40% 20% CAR BENEFIT FOR EMPLOYEES The charge for company car benefits is based on the carbon dioxide (CO2) emissions. There is no reduction for high business mileage users. For 2010/2011: The percentage charge is 15% of the car s list price for CO2 emissions at or below the qualifying level of 130g/km. The base percentage charge of 15% increases in 1% steps for every additional full 5g/km over the 130g/km threshold, up to a maximum of 35% of the car s list price. A lower percentage charge of 10% of the car s list price applies for emissions at or below 120g/km and 5% for emissions at or below 75g/km. If price of car exceeds 80,000 then its price for tax purposes will be fixed at 80,000. There is an additional 3% supplement for diesel cars not meeting Euro IV emission standards or registered after 31 December However, the maximum charge remains 35% of the car s list price. Car fuel The benefit is calculated as the CO 2 emissions % relevant to the car and that % applied to a set figure ( 18,000 for 2010/2011) e.g. car emission 160g/km = 21% on car benefit scale. 21% of 18,000 = 3, Accessories are, in most cases, included in the list price on which the benefit is calculated. 2. List price is reduced for capital contributions made by the employee up to 5, Car benefit is reduced by the amount of employee s contributions towards running costs. 4. Fuel scale is reduced only if the employee makes good all the fuel used for private journeys. 5. All car and fuel benefits are subject to employers National Insurance Contributions (Class 1A) of 12.8%. 24

25 2010/2011 Rates PRIVATE VEHICLES USED FOR WORK Cars On the first 10,000 business miles in tax year Each business mile above 10,000 business miles Motor Cycles Bicycles 40p per mile 25p per mile 24p per mile 20p per mile MAIN CAPITAL AND OTHER ALLOWANCES 2010/2011 Plant & machinery 100% annual investment allowance (first year) 100,000 Plant & machinery (reducing balance) per annum 20% Patent rights & know-how (reducing balance) per annum 25% Certain long-life assets, integral features of buildings (reducing balance) per annum 10% Industrial & agricultural buildings (straight line) 1% Energy & water-efficient equipment 100% Zero emission goods vehicles (new) 100% Qualifying flat conversions, business premises & renovations 100% Motor cars: Expenditure on or after 01/04/09 (Corporation Tax) or 06/04/09 (Income Tax) CO 2 emissions of g/km: 110 or less * or more Capital allowance: 100% 20% 10% first year reducing balance reducing balance *If new Research & Development: Capital expenditure 100% Revenue expenditure: Small/medium companies: 175% Large companies: 130% MAIN SOCIAL SECURITY BENEFITS 2009/ /2011 Child Benefit first child subsequent children Incapacity Benefit short-term lower rate* short-term higher rate* long-term rate Attendance Allowance lower rate higher rate Retirement Pension single married Pension Credit single person standard minimum guarantee married couple standard minimum guarantee maximum savings ignored in calculating income 6, , Bereavement Benefit (lump sum) 2, , Widowed Parent s allowance Jobseekers Allowance * under State Pension Age 25

26 RATES OF TAX CAPITAL GAINS TAX Chargeable gains, less allowable losses, are charged to tax as follows from 23 June 2010: - for individuals who are non-taxpayers or basic-rate taxpayers, the rate chargeable is 18%. - for individuals who are higher-rate taxpayers or additional-rate taxpayers, the rate chargeable is 28%. - for trustees of trusts and personal representatives the rate chargeable is 28%. - Entrepreneurs Relief reduces the rate to 10% on qualifying assets subject to a lifetime limit of 5,000,000. ANNUAL EXEMPTION - The annual exemption is 10, Most trusts have an annual exemption of 5,050. CHATTELS EXEMPTION - Gains on chattels are exempt if proceeds do not exceed 6,000 per item. CORPORATION TAX 2009/ /2011 Full rate 28% 28% Small companies rate 21% 21% Small companies limit 300, ,000 Effective marginal rate 29.75% 29.75% Upper marginal limit 1,500,000 1,500,000 VALUE ADDED TAX Standard rate to 03/01/ % Standard rate from 04/01/11 20% Annual Registration limit 70,000 26