Calculations

Question 1

Premium on short leases

Formula

Answer 1

Premium (-) [ (years of lease - 1) x premium / 50]

Example
Lease premium £100,000, 40 year lease

£100,000 - (40-1) x £100,000/50 = £22,000

Question 2

Income Tax calculation

6 Step approach

Answer 2

1. Add up all income to give gross income
2. Take off all allowable deductions
3. Deduct P/A
4. Extend basic/higher rate tax band if applicable
5. Calculate tax
6. Deduct any tax reducers

Question 3

Capital Gains Tax

6 step approach

Answer 3

1. Disposal proceeds
2. Less buying/selling costs/ costs of enhancement
3. Less current year losses
4. Less previous tax year losses
5. Less AEA
6. Add to taxable income to determine what rate of CGT

Question 4

Share pool calculation

Answer 4

E.g
No. Shares x purchase price (a). 1000 x 0.90p = £900
Plus
No. Shares x purchase price etc (b) 1000 x 0.80p = £800

Total/no shares - £1700/2000 = 0.85p
Gives average price

Question 5

Part Disposal formula

Answer 5

A
—. X Original cost ……to work out buying cost
A+B

A - proceeds of part disposed, B - market value of part kept

Proceed £20k - original cost £5k. Remaining value of land £50k
Buying cost of part disposed;
£20K / £20K + £50K X £5K = £1,428.57
Gain relating to part disposed 
£20,000 - £1,428.57 = £18,571.43

Remaining buying cost £5,000- £1,428.57 = £3,571.43

Question 6

Interest in Possession Trust

• How much income tax paid by Trustee
• Beneficiary
• Settlor
• How are expenses dealt with

Answer 6

• Trustee pays income tax at BR only(20%/7.5%) - No PA, PSA, DA
  Can deduct expenses
• Settlor no liability unless parental settlement or Settlor interested
• Beneficiary. Non tax - Can reclaim taken ; BR - liability met;HR - 20% ;AR - 25%. Allowances can be used

Further tax due by beneficiary based on Gross trust income after expenses.
Example: £12,500 gross income (£10,000 net) - then deduct expenses (£300) = £9700
You gross up this figure to get £12,125. So HR pays 20% on that, AR 25% (allowance can be used)

Question 7

Interest in possession - IHT charges
What are 3 possible charges and how much (calculations)

£400,000 into IIP Trust (no available exemptions)
What are charges (assume grows to £500,000 after 10 years)

£100,000 paid out after 12 years

Answer 7

1. Immediate charge £400,000 - £325,000 = £75,000 @ 20% = £15,000
2. Periodic charge on 10 year anniversary (assume £500k value) =
   £500,000 - £325,000 = £175,000 @ (30% of lifetime rate of 20% ie 6%) = £10,500
   Giving effective rate of 10,500/500,000 = 2.1%
3. Exit charge No. quarters/ 40 x amount withdrawn x effective rate from previous 10 year ann
   8/40 x £100,000 x 2.1% = £420

Question 8

Chattels calculation

What is a chattel

Answer 8

Chattel is tangible movable property

£6k < Exempt
£6k> 5/3 x excess over £6k

Lower of actual gain or 5/3

Question 9

Child Benefit Tax Charge

Answer 9

£50,000 < 1% per £100 over i.e £1k would be 10%, 10k(£60k total) would be 100%
So ..£53,000 income would mean if Child Benefit was £1,788.50 annually , then tax charge would be 30% ( £3k over) of £1,788.50 = £536,64 (round down)

Question 10

Threshold Income

Answer 10

Taxable income for the tax year
less
Any taxable lump sum pension death benefits accruing in the tax year
plus
Employment income given up for pension contributions (i.e. salary sacrifice)
Less
The gross amount of any relief at source pension contributions (to ensure that when calculating threshold income, there is parity between any contributions made under net pay, which are deducted arriving at taxable income, and relief at source).

Taxable income - Lump sum death benefit - Gr Taxable income for the tax year less
Any taxable lump sum pension death benefits accruing in the tax year (ITEPA 2003 section 636A-4ZA) plus
Employment income given up for pension contributions (i.e. salary sacrifice) under an arrangement made on or after 9 July 2015 less
The gross amount of any relief at source pension contributions (to ensure that when calculating threshold income, there is parity between any contributions made under net pay, which are deducted arriving at taxable income, and relief at source). Taxable income for the tax year less
Any taxable lump sum pension death benefits accruing in the tax year (ITEPA 2003 section 636A-4ZA) plus
Employment income given up for pension contributions (i.e. salary sacrifice) under an arrangement made on or after 9 July 2015 less
The gross amount of any relief at source pension contributions (to ensure that when calculating threshold income, there is parity between any contributions made under net pay, which are deducted arriving at taxable income, and relief at source)

Question 11

Royal London
- Adjusted Income Calculation (simple)

• Threshold Income

Answer 11

Adjusted Income

• Total Taxable income (include earnings and investment income)
  PLUS
• Any Employer Contributions (total pension input)
  LESS
• Any taxed lumps sum death benefits

= Adjusted Income

Threshold Income

• Total Taxable Income
  Less
• Gross value of member contributions (RAS and net pay)
  Plus
  -Any income given up from salary exchange
  Less
• Any taxed lump sum death benefits

= Threshold Income

Question 12

Top Slicing

What is 5 step approach

Answer 12

Work out full years tax liability including all of gain
Step 1. Calculate chargeable gain tax across bands (remember to reduce PA if applicable)
2. Work out tax due on bond gain across all tax bands.deduct 20% of gain already paid
3. Calculate annual equivalent (gain divided by n)
4. Calculate tax due on annual equivalent, deduct basic rate tax (on slice)and then multiply back up by n (remember to reinstate PA)
5. Find top slicing relief due by deducting Step 4 from Step 2

You then take this from the original total tax due (1) and then deduct the 20% tax relief of total gain to give total tax due

Question 13

Top Slicing 5 step approach

Answer 13

• 1. Work out total tax due, seeing how much tax is paid on gain over the different bands (don’t forget to inc PSA and starting rate)
• 2. Calculate liability for year by taking figure from step one and taking off 20 % of total gain.
     Tax on bond gain across bands minus tax on total gain @ 20%
• 3. Work out annual equivalent -Take total gain and divide by no. Whole years
• 4 Find total relieved liability-Take annual equivalent figure from step 3 and add to total income. work out tax on the slice
• 5. Calculate top slice due = difference between total liability and total relieved liability (step 2 - Step 4)
     Step one

Anne’s taxable income (including the chargeable event gain) is £59,900. The gain falls within the different tax bands as follows:

PSA - £500 @ 0%

Basic Rate Band - £1,100 @ 20%

Higher Rate Band - £22,400 @ 40%

Step two

The total tax due on the bond gain across all tax bands is £9,180

The tax treated as paid on the gain is £24,000 @ 20% = £4,800

The individual’s liability for the tax year is therefore £9,180 - £4,800 = £4,380

Step three

The ‘annual equivalent’ of the gain £24,000 / 8 = £3,000.

Step four

The ‘annual equivalent’ + taxable income = £3,000 + £35,900 = £38,900.

The total tax on the slice is (£500 @ 0%) + (£1,100 @ 20%) + (£1,400 @ 40%) = £780

The tax treated as paid on the slice is £3,000 @ 20% = £600

The individual’s tax relieved liability is (£780 - £600) multiplied by “N”. In this “N” case is 8 years so the tax relieved liability is £1,440

Step five

Top slicing relief = £4,380 – £1,440 = £2,940

Summary

Anne’s liability after top-slicing relief is £16,360 - £2,940 = £13,420

The basic rate credit is £24,000 @ 20% = £4,800.

The overall liability is reduced to £13,420 - £4,800 = £8,620

Question 14

Trustee Expenses for Interest in Possession trust

Answer 14

Net income received less amount of expense = x
Gross up x to give gross savings income paid out
\Example
Net income. £10,000. £10,000
TAx @ 20%. £. 2,500
Gross. £12,500
Expenses. (£300)
Net income for
Beneficiary. £9,700
Gross therefore £12,125

Question 15

Discretionary Trust

• Periodic Charge
• Exit Charge

Answer 15

Periodic charge - Made on 10th anniversary - charged at 30% of lifetime rate(30% 0f 20% = 6%) on excess of NRB
Eg £75,000 x 6% = £4,500.
Effective rate is 4,500/400,000 x 100 = 1.125%

Exit charge = amount of distribution multiply x/40 (where x is no. Of quarters ) x effective rate at last 10 year

Question 16

Threshold Income

Answer 16

Total Income
\+
Salary sacrifice 
_
Pension contribution under Relief at source & Gross employee under net pay
-
Lump sum death benefits

Question 17

Adjusted Income

) When working our pension taper

Answer 17

Total income ( all income in savings etc)
\+
Total pension input
_
Personal contributions
- 
Lump sum death benefits

Question 18

Trustee expenses for Discretionary Trust

Answer 18

Gross up expenses and take from Savings/dividend income, then apply tax using standard rate @ 20%, expenses at 20%/7.5%, then 45% on excess
Example:
£12,500 savings income, £300 expenses
12,500 - (300/0.8 = £375) = £12,125

£1,000 @ 20%
£375 @ 20%
£11,125 @ 45%

Beneficiary taxed on £12,125 gross income rather than 12,500

Question 19

Multiple sLry N/I

Answer 19

1. • Pay 12% on one employ and 2% on the other
2. Salary 1 minus Primary threshold( 8,632) + Salary 2 minus PT minus £41,368 (50,000 - £8632)

Difference charged at 2%

Total would be 1 + 2