Osborne Books Tutor Zone. Personal Tax. Finance Act Answers to chapter activities

Transcription

1 Osborne Books Tutor Zone Personal Tax Finance Act 2016 Answers to chapter activities Osborne Books Limited, 2016

2 2 p e r s o n a l t a x ( F i n a n c e A c t ) t u t o r z o n e 1 Introduction to taxation 1.1 (b) and (e) are True; the others are False. 1.2 Sample Income Interest from bank accounts Income from buy to let accommodation Income from a company pension scheme Earnings from self employment Income Category Savings and Investment Income Property Income Employment, Pension and Social Security Income Trading Income 1.3 (d) Statute law and case law 1.4 (a), (d), (e), (g) and (h) are Taxable; (b), (c) and (f) are Exempt. 1.5 (a) and (f) are False; (b), (c), (d) and (e) are True. 2 Income from property 2.1 Two bedroom house One bedroom flat Income 8,525 5,400 Expenses: Irrecoverable rent 775 Redecoration 600 Insurance Council tax & water rates 1,000 Taxable profit 6,950 4,160

3 a n s w e r s t o c h a p t e r a c t i v i t i e s (a), (b), (d), (e), (f) and (h) are Allowable; (c) and (g) are Not allowable. 2.3 Income 10,000 Expenditure: Council Tax 800 Water Rates 350 Mortgage Interest 1,500 Insurance 320 Managing Agent s Charges 1,000 Cost of replacement furniture 3,200 7,170 Assessable Income 2,830 3 Income from savings and investments 3.1 (d) Only when their taxable general income is below 5, (a), (b), (c) and (d) are True; (e) and (f) are False. 3.3 General Income 17, Less personal allowance 11, Taxable 6, Basic rate 6, x 20% 1, Savings Income 1, Personal savings allowance: 1, x 0% 0.00 Basic rate x 20% , Dividend Income 2, Dividend allowance 2, x 0% Total Income Tax 1,320.00

4 4 p e r s o n a l t a x ( F i n a n c e A c t ) t u t o r z o n e 3.4 General Income 17, General Income 14, Less personal allowance 11, Taxable 3, Basic rate 3, x 20% Savings Income 4, Starting rate 2, x 0% 0.00 Personal savings allowance: 1, x 0% 0.00 Basic rate 1, x 20% , Dividend Income 5, Dividend allowance 5, x 0% Total Income Tax

5 a n s w e r s t o c h a p t e r a c t i v i t i e s 5 4 Income from employment 4.1 (a) Ford Vauxhall List Price 15,000 14,500 Car Benefit Percentage 28% 29% Car Benefit 4,200 4,205 Fuel Benefit 6,216 6,438 Total Benefit 10,416 10,643 Note that the limit on private fuel imposed by the employer makes no difference to the assessable fuel benefit. (b) The option with the lowest assessable benefit is the Ford. 4.2 (b), (c) and (f) are Taxable; (a), (d), (e), (g) and (h) are Tax exempt. 4.3 (c) It reduces her tax by Benefit / (Deduction) Salary 30,000 Company car benefit 2,800 Company car fuel benefit 4,440 Interest free loan benefit 420 Professional subscription (200) Total assessable employment income 37,460

6 6 p e r s o n a l t a x ( F i n a n c e A c t ) t u t o r z o n e 5 Preparing income tax computations 5.1 Workings: Salary 145,000 Car benefit 28,000 x 32% 8,960 Fuel benefit 22,200 x 32% 7, ,064 Personal allowance 0 Taxable income 161,064 Tax at 20%: (32, ,000) x 20% 7,000 Tax at 40%: (153,000 35,000) x 40% 47,200 Tax at 45%: (161, ,000) x 45% 3,629 Total tax liability 57,829

7 a n s w e r s t o c h a p t e r a c t i v i t i e s Employment income 59,500 Rental income 11,050 Savings income 950 Dividend income 5,500 Less Personal Allowance 11,000 Taxable income 66,000 Tax Calculation: General Income 59,550: ( 32, ,000) x 20% 7,000 ( 59,550-35,000) x 40% 9,820 Savings income 950: 500 x 0% (Personal Savings Allowance) x 40% 180 Dividend income 5,500: 5,000 x 0% (Dividend allowance) x 32.5% 163 Total Income Tax Liability 17, Situation Paul s tax on Cath s tax on savings income savings income Current position 0 80 All savings in Paul s name 80 0 All savings in Cath s name 0 360

8 8 p e r s o n a l t a x ( F i n a n c e A c t ) t u t o r z o n e 5.4 Current situation Salary Sacrifice Scheme Employment Income 104,000 94,000 Personal Allowance 9,000 11,000 Taxable Income 95,000 83,000 Tax at 20% 6,400 6,400 Tax at 40% 25,200 20,400 Total Income Tax 31,600 26,800 Net Income Tax Saving 4,800 6 Capital gains tax 6.1 (a) (d) 4,920 (b) False 6.2 (b), (d) and (e) are True 6.3 (a) The gain on the asset is 11,600 (b) The amount of loss that will be relieved is 500 (c) The capital gains tax payable is 0 (d) The loss to be carried forwards to the next tax year is 1, (a), (b), (d) and (h) are Chargeable; (c), (e), (f) and (g) are Exempt.

9 a n s w e r s t o c h a p t e r a c t i v i t i e s (a) Occupation / Deemed Occupation 1/7/ /12/2002 (3½ years) 1/1/ /12/2004 (2 years) 1/1/ /12/2007 (3 years) 1/1/2015-1/7/2016 (1½ years) Non-occupation 1/1/ /12/2014 (7 years) (b) The chargeable gain on the property is 34,588 Workings: Gain 205, ,000 = 84,000 x [7/17] = 34, Asset Sale proceeds Cost Statement 1 7,000 3,500 Chattel marginal relief applies 2 24,000 28,000 Calculate loss as normal 3 3,000 8,000 Sale proceeds to be 6, ,800 2,000 Exempt asset 5 8,000 1,000 Chattel marginal relief applies 6 2,300 4,900 Exempt asset 6.7 Number of shares October , ,000 Bonus 2,000 0 Sub total 42, ,000 Disposal 15,000 57,143 Pool balance 27, ,857 Proceeds 105,000 Cost 57,143 Gain 47,857

10 1 0 p e r s o n a l t a x ( F i n a n c e A c t ) t u t o r z o n e 7 Inheritance tax 7.1 Inheritance Tax calculation: Estate 825,000 Less exempt transfer to Peter (375,000) Less exempt transfer to charity (5,000) Less nil rate band (325,000) Amount subject to IHT 120,000 Inheritance tax at 40% 48,000 Calculation of amount received by John: Estate 825,000 Less exempt transfer to Peter (375,000) Less exempt transfer to charity (5,000) Less Inheritance Tax (48,000) Balance due to John 397, Morag s estate: Estate 530,000 Less exempt transfer to Patrick ( 530, ,000) (390,000) Less nil rate band used (140,000) Amount subject to IHT 0 Inheritance tax at 40% 0 Patrick s estate: Estate 780,000 Less nil rate band ( 325,000 + ( 325, ,000)) (510,000) Chargeable to IHT 270,000 Inheritance Tax at 40% 108,000

11 a n s w e r s t o c h a p t e r a c t i v i t i e s Gift to daughter, Josie 12,000 Less marriage gift exemption (5,000) Less annual exemptions: Current tax year (3,000) Previous tax year (3,000) 1,000 Gift to son, Richard 9,000 Gift to friend 2,000 Total PETs 12, Inheritance Tax due in lifetime: The chargeable transfer will not result in any IHT payable immediately, since (after deducting two 3,000 annual exemptions) it is 200,000, which is below the 325,000 threshold. The gifts to Dominic is a PET of 30,000, less annual exemption of 3,000 = 27,000. The gift to Maureen is a PET of 30,000. Inheritance tax on death: Estate 840,000 Less exempt transfer to wife, Jill (290,000) Less exempt transfer to charity (9,000) Less nil rate band ( 325, ,000 27,000 30,000) (68,000) Chargeable to IHT 473,000 Inheritance Tax at 40% 189,200

12 1 2 p e r s o n a l t a x ( F i n a n c e A c t ) t u t o r z o n e 7.5 Inheritance Tax calculation: Estate 740,000 Less exempt transfer to Jack s wife (220,000) Less exempt transfer to charity (150,000) Less nil rate band (325,000) Amount subject to IHT 45,000 Inheritance tax at 36%* 16,200 *The net value of the estate is ( 740, , ,000) = 195,000. The payment to charity of 150,000 is equal to more than 10% of 195,000, and so the rate of 36% applies. Calculation of amount received by Jack s daughter: Estate 740,000 Less exempt transfer to Jack s wife (220,000) Less exempt transfer to charity (150,000) Less Inheritance Tax (16,200) Balance due to Jack s daughter 353,800