1
Q
What is a Will?
A
Statement by an individual of how they wish their property to be divided after death
2
Q
After death, what is the estate used for first?
A
First used to pay debts, funeral costs, IHT
3
Q
In the administration of an estate. what are the following:
- General legacy
- Specific legacy
- Residue of the estate
A
- gift of cash
- gift of a specified item
- remainder after debts, expenses and legacies
4
Q
After death, who administers the estate? (3)
A
- Estate is administrated by personal representatives
- Executors - if appointed in the will
- Administrators: If appointed by courts via letter of administration
5
Q
When administering an estate, what does a disclaimer do and how do you do it? (2)
A
- Inheritance is put back into the estate and passed to next eligible beneficiary
- Beneficiary complete’s a written disclaimer
6
Q
After death, when is IHT due?
A
IHT due 6 months after the end of the month in which death occurs
7
Q
When administering an estate, what are the conditions for a disclaimer to be accepted? (3)
A
- Inheritance not already been accepted
- Completed within 2 yrs of death
- No consideration offered for doing so
8
Q
What is a deed of variation also known as and what is it used for?
A
Aka ‘deeds of family arrangement’
Used to vary the terms of a will or intestacy
9
Q
After death, how and when does a deed of variation need to be completed to be accepted?
A
- In writing
- Within two years of death
10
Q
What’s the difference between a disclaimer and a deed of variation?
A
Unlike a disclaimer, deed of variation can divert assets to any person nominated by the individual
11
Q
What happens if more IHT is payable as a result of the deed of variation?
A
the legal personal representatives must also sign the deed
12
Q
In tax planning, what can you do to reduce income tax liability? (2)
A
- Use of allowances (PA, PSA, PDA) and lower tax bands
- Use tax wrappers (ISA, pension, EIS, VCT)
13
Q
For sole traders, what can they do to reduce IT and CGT liability? (3)
A
- employ spouse to reduce company profits by paying salary
- Make spouse shareholder so they can receive dividends
- Transfer assets at no gain/no loss (NGNL)
14
Q
In tax planning, what can you do to reduce CGT liability? (5)
A
- Effective use of annual exemption
- Transfer assets to spouse before disposal @ NGNL
- Piecemeal disposals over a number of years
- Loss harvesting
- CGT reliefs (EIS reinvestment relief, holdover relief)
15
Q
In inheritance tax planning, how can you reduce the value of the estate through lifetime gifts? (3)
A
- Exempt transfers (spouse, charities)
- Exempt gifts (normal expenditure, annual exemption)
- Make PET or CLT (7-year rule)
16
Q
In tax planning, how can you reduce IHT liability? (3)
A
- Life assurance policies written into trust
- Use of trusts (see later)
- Utilise IHT reliefs (BR, RNRB)
17
Q
In tax planning, what do you have to consider when planning for IHT?
A
Suitability re family conflict & relinquish control
18
Q
For adult ISAs. what are the tax benefits?
A
exempt from income tax and capital gains tax
19
Q
How old do you have to be to have an adult ISA and how many ISAs can you have?
A
- Age limits for ISAs:18 years or older
- Multiple ISAs of each type
20
Q
How much can you subscribe into an adult ISA and what can you do with the funds you have subscribed? (3)
A
- £20,000 per individual per fy
- Withdrawal and reinvestment possible within same year
- Can transfer to other providers
21
Q
What is the residency implication for ISAs? (2)
A
- Must be UK resident to apply for an ISA
- If residency is lost, contributions cease although ISA may be retained
22
Q
In terms of additional permitted subscriptions (APS), what happens to an ISA on death? (3)
A
- On death, ISA becomes ‘continuing ISA’
- No further contributions possible
- Continues to grow tax-free until administration of estate complete
23
Q
Who can claim APS and what can they claim? (3)
A
- Spouse or civil partner can claim APS
- Higher of value at death and value when administration of estate is complete
- Can be taken as one or separate lump sums
24
Q
What is the time limit for claiming APS?
A
Either 180 days after completion of estate or three years after death, whichever’s earlier
25
What does ‘APS is independent of assets within ISA’ mean?
Assets within ISA passed to non-spouse beneficiary and spouse still claims APS and make contributions to their ISA
26
What can be included in cash ISAs? (2)
- Savings accounts
- Money market funds
27
What currency can be held in a cash ISA?
Sterling only
28
What can be included in stocks and shares ISAs? (6)
- Listed securities
- Government bonds
- Authorised CIS
- Recognised ITC
- New issues
- Cash designated as an ISA account
29
How does peer-to-peer (P2P) lending work?
Lend money directly to borrowers and businesses via IFISA online portal
30
What is the return on investment for a P2P lender? (2)
1. Borrowers pay capital plus interest
2. Interest is return on investment
31
What are the associated risks to P2P lending? (4)
- Default
- Inadequate contingency fund
- No FSCS protection
- Slow cash withdrawal
32
What is a lifetime ISA used for and what age range can you open one?
- Used for first time buyers or retirement
- Available to 18-39 year olds
33
What are the contribution rules for a LISA? (2)
1. Max contribution £4,000 per annum until 50
2. Maximum contribution part of £20,000 overall individual limit
34
How much is the bonus on a LISA contribution and when do you receive the bonus?
25% bonus added on a monthly basis
35
How can you use the funds in LISA without penalty? (2)
1. Buying house, maximum price £450,000
2. tax-free withdrawal after 60
36
What is the penalty for ealier withdrawal from a LISA?
25% penalty if withdrawal before aged 60
37
What are the features of a british ISA?
- Extra £5,000 allowance for adults
- Invest in UK markets
- Currently under consultation
38
Who can setup a JISA?
Set up in the name of the child by parent or guardian
39
What are the subscription limits for a JISA? (2)
1. Subscription limit: £9,000 per fiscal year per child
2. Anyone can subscribe
40
What happens to a JISA when child turns 18?
At 18, it automatically converts to an adult ISA
41
The three conditions for a company to qualify as a SEIS:
- Company under 3 yrs old
- Total assets no greater than £350k before any shares issued
- Fewer than 25 FT employees when shares issued
42
The two conditions for a company to qualify as an EIS:
- Total assets no greater than £15M before any shares issued
- Fewer than 250 FT employees when shares issued
43
What kind of companies qualify for EIS/SEIS schemes? (2)
1. EIS: In qualifying UK unquoted companies (including AIM)
2. SEIS: In qualifying UK unquoted start-up companies
44
What are the conditions to qualify as a VCT investment? (3)
- Not a close company
- Listed on the LSE
- Invest at least 70% of their funds in UK qualifying unquoted companies (including AIM)
45
What is the income tax relief for investing in EIS/SEIS/VCT? (3)
EIS: 30% IT relief (max inv. £1M p.a.)
SEIS: 50% IT relief (max inv. £200k p.a.)
VCT: 50% IT relief (max inv. £200k p.a.)
46
What is the CGT relief for investing in EIS/SEIS/VCT? (2)
1. No CGT on gains from disposal of shares
2. No restriction on use of capital losses
47
How long should EIS/SEIS/VCT shares be held for to benefit from tax reliefs?
Shares must be held for three years
48
How much is the reinvestment relief on EIS/SEIS/VCT shares?
100% for EIS and 50% for SEIS & VCT
49
What is corporation tax? (3)
- Tax on the taxable profits of companies
- Worldwide profits earned by UK resident companies
- UK profits of non-resident companies operating in the UK
50
Which companies are liable to UK corporation tax? (2)
1. UK resident companies taxed on worldwide profits
2. Non-resident companies operating in the UK taxed on UK profits only
51
What is included in taxable profits (2)
1. A company's trading and investment profits (apart from dividend income)
2. Chargeable gains
52
What are the two types of profits for corporations?
Taxable profits and accounting profits
53
Which profits are used in the calculation for corporation tax?
Based on taxable profits for the chargeable accounting period
54
For corporation tax rates, what is the small profits rate and the main rate?
Small profits rate - 19% on profits under £50,000
Main rate - 25% on profits over £250,000
55
For corporation tax rates, what is the marginal relief? (2)
1. Provides gradual increase in Corporation Tax rate between small profits rate and main rate
2. This allows to reduce rate from the 25% main rate
56
In terms of POA and agency, what is an agent? (2)
- Agent - someone who agrees and is authorised to act on behalf of another
- The agent is acting in a fiduciary duty
57
In terms of agency, fiduciary relationships include: (4)
- Agent and principle
- Directors and company
- Trustees and beneficiary
- Adviser and client
58
[Agency] - Responsibilities that a financial adviser has includes: (4)
1. Act in good faith
2. Not profit from trust placed
3. Avoid conflicts of interest
4. Dont misuse confidential information
59
What is a POA ?
A legal document giving power to make decisions on behalf of someone
60
What are the areas that a POA can make decisions on behalf of someone?
Financial affairs and/or health and personal welfare
61
How should a POA act on behalf of their donor?
Attorney acts for the benefit of donor
62
What can a POA not give away without permission?
Attorney can't give away property unless permission granted in deed
63
When is a PoA normally revoked?
PoA is normally revoked if the donor becomes mentally incapable
64
What two types of POA can makes gifts in limited circumstances?
1. Ordinary powers of attorney
2. Lasting powers of attorney
65
How does mental capacity affect POA and LPOA?
1. POA revoked if donor loses mental capacity
2. LPOA can make decisions even if donor loses mental capacity
66
When does authority of a POA and LPOA end?
1. POA ends on a specified time or donor uses a Deed of Revocation
2. LPOA keeps going unless cancelled by Deed of Revocation while donor has mental capacity
67
Is any registration required for a POA/LPOA?
1. POA no registration needed
2. LPOA must be registered by the Office of the Public Guardian
68
How is a deputy appointed?
Hav to apply to Court of Protections to appoint a deputy
69
What details the authority a deputy has over someone?
Court of Protections provide the Deputy Order which sets out powers granted to the deputy
70
When should a deputy be appointed?
When someone loses mentally capacity and have not made a LPOA, a deputy needs to be appointed
71
What qualifies someone as a deputy?
Deputy must be trustworthy and have appropriate skills
72
How does a deputy control someone's assets?
A separate deputy account is opened to hold the assets
73
What are the different purposes of a trust? (8)
1. Someone is too young to handle their affairs
2. Control and protection of family assets
3. Someone loses mental capacity
4. Pass on assets (in lifetime or on death)
5. Tax planning
6. Confidentiality
7. Investment vehicle (unit trusts)
8. Employee incentive schemes (pensions)
74
What is a trust?
When someone transfers assets to trustees to hold (including income) for the benefit of one or more persons
75
What is a revocable trust? (2)
1. Terms (including trustees and beneficiaries) can be altered after creation
2. Trust can be revoked entirely
76
What is an irrevocable trust?
Trust where terms can't be altered
77
What is typical for a revocable trust?
Typically a revocable trust evolves into an irrevocable trust after the death of settlor
78
For trusts, it has long been considered against public policy to allow: (2)
1. Property to be retained in trust indefinitely
2. Trustees to accumulate income indefinitely
79
What is the maximum term of a trust? (2)
1. Maximum term of 125 years
2. This rule doesn't apply to charitable trusts or pension schemes
80
For trusts, what are the features of creation by deed? (2)
1. Most common method
2. There is no prescribed format
81
When a trust is setup through creation by deed, what must the deed specify? (4)
1. Trust property
2. Name of trustees and their powers
3. Names of beneficiaries and their rights
4. Name of protector
82
For trusts, what are the features of creation by will? (2)
1. Also known as a testamentary trust
2. Come into operation on the death of the testator
83
What does creation by statute mean for trusts? (2)
1. Trust created by law
2. E.g. if a legal estate is held by 2+ persons as joint tenants, it is held in trust
84
For trusts, what are the test of three certainties?
1. Certainty of words or intention
2. Certainty of subject matter
3. Certainty of objects
85
What are the features of certainty of words or intention?
If there is absence of certainty of intent to create a trust, the trust is not valid
86
What are the features of certainty of subject matter? (2)
1. Subject matter must be clearly defined in the trust instrument
2. The property is defined and able to be identified
87
What are the 'objects' in certainty of objects?
The objects refer to the intended beneficiaries of a trust
88
How does 'certainty of objects' affect fixed trusts (IIPT)?
For fixed trusts, must be able to identify all beneficiaries to distribute property correctly.
89
How does 'certainty of objects' affect discretionary trusts?
be able to fit a potential beneficiary within description of objects
90
For trusts, who is the settlor and what are they also known as? (2)
1. Sets up the trust by transferring property
2. Also referred to as a trustor or grantor
91
The terms of a trust are usually laid out in: (2)
1. A trust deed for gifts during lifetime (inter vivos)
2. The will on death
92
What common powers are usually reserved for settlors of a trust? (3)
1. Appoint and remove trustees
2. Appoint an investment managers
3. retain investment powers
93
What is the minimum requirement for an individual to be a trustee?
Individual must be over 18 and of sound mind
94
Who are the trustees of a trust? (2)
1. Legal owner of the trust property
2. Can be an individual, business entity or public body
95
For trusts, what are the maximum number of trustees? (4)
1. Can be more than one
2. Maximum of four (land and will trust)
3. No maximum for other types of trust
4. Trustees treated as single notional person
96
What are the duties of trustees? (5)
1. Comply with the terms of the trust
2. Take control of trust property
3. Act impartially between beneficiaries
4. Keep accounts
5. Provide information on request of beneficiaries
97
What are the statutory duties of trustees? (2)
1. Statutory duty to consider financially material factors
2. Statutory duty of care (see Trustee Act)
98
Where is the beneficiary of a trust detailed?
Name specified in trust deed or will
99
What can a beneficiary do with regards to a trust? (2)
1. Beneficiaries can't control the trustees
2. They can monitor trust activity and take legal action if they suspect the trustee has breached their fiduciary duty
100
What does the term beneficiary mean for a trust?
A beneficiary is the person or group of people who receive the benefits of a trust.
101
What are the different types of beneficial interests? (4)
1. Absolute vested interest (no conditions)
2. Contingent interest (e.g. reaching a certain age)
3. Life interest
4. Remainderman
102
What does absolute vested interest (no conditions) mean? (2)
1. immediate right to the trust assets
2. no further conditions required to be met
103
What does contingent interest mean? (2)
1. Condition needs to be met before interest becomes a vested interest
2. E.g. reaching a certain age
104
What does life interest mean?
Allows someone to enjoy benefits of assets for their lifetime w/o legally owning them
105
What does remainderman mean?
A remainderman receives the remaining assets after the life tenant dies
106
What is the aim of the trustee act for trustees? (3)
1. Greater investment freedom
2. More accountability
3. Seek investment advice if needed
107
What are the five main areas of change as per the trustee act? (5)
1. Investment powers
2. The power to delegate - appointment of experts
3. A new statutory duty of care
4. Trustee remuneration
5. The power to insure trust property
108
What are the changes made by The Trustee Act on 'investment powers'? (3)
1. Trustees can make any investment as if the funds were their own
2. Act in best interests of all beneficiaries
3. New statutory duty of care in exercising new investment powers
109
What are the three special duties that The Trustees Act included in 'investment powers'? (2)
1. Consider diversification, suitability, and proper advice'
2. Review investment regularly
110
What are the changes made by The Trustee Act re 'the power to delegate'? (2)
1. Trustees may delegate to agents any of their functions
2. Cant delegate distribution of income or assets
111
For The Trustees Act, a new statutory duty of care is imposed when: (4)
1. Exercising powers of investment
2. Employing agents
3. Using nominees and custodians
4. Insuring trust properties
112
What is considered to see if a trustee meets duty of care? (2)
1. knowledge, experience and professional status of the trustee
2. Higher standards expected of investment professionals
113
For The Trustees Act, what were the changes to 'trustee remuneration'? (2)
1. Trustees can authorise payments to professional trustees
2. Trustees can charge the trust for services if acting in a professional capacity
114
For The Trustees Act, what were the changes to 'the power to insure trust property'? (3)
1. Trust property can now be insured in full (only 75% prior to the Act)
2. Premiums can be paid out of trust income or capital funds
3. Trusts can now purchase investment products that come with a capital guarantee
115
What are the four different main types of trusts?
Charitable trust, Bare trust, Interest in possession trust and Discretionary trust
116
What is the purpose of a Charitable Trust (Public Welfare Trust)?
Promotes a purpose beneficial to the community
117
What does the Charity Commission do?
CC maintains Register of Charities
118
How does a trust gain charitable status?
Trustee applies to Charity Commission (CC) to claim charitable status
119
For Charitable Trust (Public Welfare Trust), what are the tax advantages within the charity?
With in the charity - Investment income is exempt from tax
120
What are bare trusts usully used for?
Often used to leave assets to children
121
What is a fun fact about bare trusts?
It's the most popular type of trust
122
What makes the beneficiary of a bare trust different to other trusts?
Beneficiary has immediate and absolute right to income and capital
123
What are the advantages of a bare trust? (2)
1. Low administration costs
2. No separate trust documents
124
For Charitable Trust (Public Welfare Trust), what are the tax advantages for donors? (3)
1. No CGT on gifts to charities
2. IT relief on lifetime charitable donations (gift aid)
3. No IHT on gifts to charities via will
125
What does the Charities Act define as a 'charitable purpose'? (11)
1. The prevention and relief of poverty
2. Other purposes beneficial to the community
3. The promotion of human rights
4. Conflict resolution and reconciliation
5. The advancement of education
6. Religion
7. Health
8. Amateur sport
9. Environmental protection and improvement
10. Arts and heritage
11. The promotion of animal welfare
126
What is the sole duty of the trustee of a bare trust?
Safeguard and administer the asset on behalf of a beneficiary
127
What additional power does a beneficiary of a bare trust have? (2)
1. Beneficiary can specify how the trust property is managed
2. Can take possession of the property when legally able and wishes to do so
128
The beneficiaries of a bare trust from the age of 18 have the right to: (2)
1. All of the capital and income from the trust at any time
2. Gain absolute ownership - this effectively ends the trust
129
For bare trusts, who is responsible for any tax due?
Trustees are responsible for paying any tax due on behalf of minors
130
How are bare trusts taxed for IT and CGT purposes? (2)
1. Trust is ignored
2. Income tax and CGT taxed at beneficiary's marginal rate
131
How are bare trusts taxed for IHT purposes? (3)
- potentially exempt transfer by settlor
- No exit charge if assets distributed from trust
- Death of beneficiary - assets part of beneficiary's estate
132
For IIPT, what is the duration of the life interest?
Life or Specified term (no maximum term)
133
For IIPT, what is the life tenant entitled to? (2)
1. Immediate and automatic right to the income from the trust
2. Use the asset rent-free
134
What must the trustees of an IIPT do to the income generated by the trust?
Trustees must pay over income (after tax and expenses) to life tenant
135
For IIPT, what is the remainderman?
A remainderman receives the remaining assets of a trust after the life tenant dies
136
For IIPT, what is the power of appointment? (2)
1. Trustees can override general terms of the trust
2. Used to protect interests of two different parties
137
What income tax do trustees pay for 'interest in possession' trusts?
Pay tax on income at basic rate, unless income <£500, then no tax is due
138
What income tax does the life tenant pay for 'interest in possession' trusts? (3)
1. Trustees initially pay tax on income at the trust rate
2. Life tenant's income is taxed at their marginal rate
3. Life tenant reclaims or pays any further tax due based on their marginal rate
139
What is the CGT implication on 'interest in possession' trusts? (2)
1. Trustees pay tax at mainstream rate of 20%
2. Beneficiaries are not taxed CGT
140
How does the CGT annual exemption work for multiple 'interest in possession' trusts? (6)
1. Half of standard annual exemption
2. Shared between any trusts
3. Minimum of one-fifth per trust
4. One trust AE = £1,500
5. Two trusts AE = £750 each
6. Five or more trusts AE = £300 each
141
For CGT on IIPT, is holdover relief available?
Yes, on creation or on transfer to remainderman at end of life-tenancy
142
What is the CGT on IIPT on death of life tenant?
No CGT on death of life tenant, however, any held over gain is chargeable
143
What IHT is due on the creation of an IIPT? (3)
1. Creation - chargeable lifetime transfer
2. 20% lifetime tax if over NRB
3. Further tax if settlor dies within seven yrs of settlement
144
What is the 10 yr charge on IIPTs?
Charge every 10th anniversary of the trust
145
What is used to calculate the 10 yr charge on IIPTs? (2)
1. Use valuation of trust at 10yr anniversary
2. Include capital distributions within previous 10 yrs
146
How much is the 10 yr charge on IIPTs? (2)
1. Charge is 30% of the current lifetime tax rate (20%) = rate of 6%
2. NRB reduces the amount taxable
147
What is the exit charge on IIPTs? (3)
1. Payable when assets are distributed
2. Prevents avoiding 10-yr charge
3. Scaled down version of 10-yr charge
148
What is the immediate post-death interest (IPDI) on IIPTs? (2)
1. Interest in possession trust created on death of the testator
2. Beneficiary is the life tenant
149
For IIPTs, what are the different ways for life tenancy to end? (2)
1. Death of life tenant - Pass to remainderman net of IHT
2. If life tenancy ends due to any other reason - Transfer to remainderman is considered a PET
150
Who decides the distribution of income and capital of a discretionary trust?
Distributions of income and capital at discretion of the trustees
151
What do the trustees of discretionary trust decide? (3)
1. How much income is paid out and how much retained to accumulate
2. To which beneficiary or class of beneficiaries payments are made
3. How often payments are made
152
What decides the extent of discretion a trustee has for a discretionary trust?
Extent of discretion depends on the trust deed or letter of wishes
153
What is the maximum term of a discretionary trust?
Maximum term is 125 years
154
What are the uses of a discretionary trust? (4)
1. Surviving spouse/civil partner can enjoy both income and capital
2. Beneficiaries who are not capable or responsible enough to handle the trust property themselves
3. Multi-class of beneficiary (remoter issue)
4. Main advantage is flexibility
155
What is an accumulation trust? (2)
1. Type of discretionary trusts
2. Trustees can accumulate income within the trust and add it to the trust's capital
156
When does an accumulation trust start distribution?
Often until the beneficiary becomes legally entitled to the trust assets
157
What income tax do trustees of a discretionary trust pay?
Pay tax on any income at the additional rate, unless income is less than £500, in which case no tax is due
158
Which income is the beneficiary of a discretionary trust taxed on?
Only liable for tax on income distributed
159
What might lower the IT liability of the beneficiary of a discretionary trust? (2)
1. Credit given for tax paid by the trust - assumed to be 45% regardless of source
2. Beneficiary may reclaim all or part of this voucher depending on their own tax position
160
How much tax is deducted from the income recieved of a beneficiary of a discretionary trust?
Income is received net of additional rate of tax
161
What is the CGT relief on discretionary trusts? (3)
1. Same as IIPT
2. Half annual exemption
3. Holdover relief
162
What is the IHT on discretionary trusts? (4)
1. Same as IIPT
2. Creation = CLT
3. Periodic charges
4. Exit charges
163
What is the tax implication of a mixed trust?
Each different parts treated separately and taxed accordingly
164
What are mixed trusts also known as?
Hybrid trusts
165
What is a mixed trust? (2)
1.. Combination of more than one type of trust
2. E.g. some assets set aside as an IIPT, and others as a discretionary trust
166
Who pays the tax on a settlor's interest trust?
The tax liability falls on the settlor
167
What does 'parental settlements' relate to?
Relates to parents that settle funds for their children
167
What makes a trust a 'settlor's interest trust'?
The settlor or their spouse/civil partner benefits from the trust.
168
What is excluded from 'Parental Settlements' rules?
Does not apply to trusts for the vulnerable
169
What is the income limit for 'parental settlements'?
If the funds placed on account earn over £100 pa, the funds are assessed using the parent's tax position
170
If there are other beneficiaries who are not vulnerable, the assets and income for the vulnerable beneficiary must be: (3)
- Identified and kept separate
- Used only for the vulnerable beneficiary
- Only that part of the trust gets special tax treatment.
171
What makes the settlor of a 'trusts for the vulnerable' different to other trusts?
The person who sets up the trust cannot benefit from the income of the trust
172
How does the special tax treatment on trusts for the vulnerable work? (4)
1. Depeding on the trust, the Trustees looks at their IT and CGT liability
2. Compares to what beneficiary would have paid
3. Then choose the lower of the two
4. Treated as PET for IHT (no lifetime tax)
173
What are trusts for the vulnerable for?
A way to protect the interests of disabled or vulnerable people and to provide them with financial support
last dance
flashcards
Decks in class (8)
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