CII CF1 2025-26 > Chapter 6 > Flashcards

Chapter 6 Flashcards

Taxation of Individuals (55 cards)

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1
Q

What is the Statutory Residence Test (SRT) used for?

A

Determining an individual’s residence status for tax purposes

The SRT consists of three parts: automatic non-resident tests, automatic resident tests, and the sufficient ties test.

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2
Q

If someone is in the UK for 183 days or more in a tax year, what is their tax status?

A

Classed as a UK resident

UK residents are liable to pay UK tax on their income and gains.

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3
Q

What is the difference between domicile and residence?

A

Domicile is a permanent home; residence is where one lives temporarily

A person can be a UK resident but not a UK domicile.

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4
Q

What is domicile of origin?

A

The domicile a child takes at birth, usually from their father

If parents are unmarried, the child takes the mother’s domicile.

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5
Q

What is domicile of choice?

A

Changing domicile by permanently living in a different country

Requires actions like buying a house or registering to vote in the new country.

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6
Q

What is the tax liability for a UK resident who is not a UK domicile?

A

Taxed on UK income and gains on an arising basis

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7
Q

What is the foreign income and gains (FIG) residence-based regime?

A

Introduced on 6 April 2025 for non-domiciles

Allows certain tax benefits for the first four years of UK residency.

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8
Q

What happens to UK tax liability after the first four years under the FIG regime?

A

UK tax becomes payable on worldwide income and gains

This applies whether or not the income is brought into the UK.

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9
Q

What types of income are generally taxable for UK residents?

A
  • Rental income
  • Self-employed profits
  • Employed earnings
  • Pension income
  • Savings income
  • Dividend income
  • Other investment income
  • Trust income
  • Foreign income

Some income types are exempt from tax.

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10
Q

What is the personal allowance for the current tax year?

A

£12,570

This amount is tax-free income for UK residents.

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11
Q

How does the marriage allowance work?

A

Allows transfer of 10% of personal allowance between spouses

Beneficial if one partner does not use their full allowance.

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12
Q

What is the married couple’s allowance (MCA)?

A

Tax relief for couples where one partner was born before 6 April 1935

The MCA can reduce tax liability by up to £1,127.

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13
Q

What is the personal savings allowance (PSA)?

A

Allows basic-rate taxpayers to earn £1,000 tax-free from savings

Higher-rate taxpayers can earn up to £500 tax-free.

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14
Q

What is the dividend allowance?

A

Income tax is not paid on the first £500 of dividend income

Dividends from ISAs and pension funds are tax-free.

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15
Q

True or false: Unearned income from abroad is generally taxable for UK residents.

A

TRUE

This includes investment income from foreign sources.

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16
Q

What is the tax liability for a UK resident on capital gains from assets held worldwide?

A

Liable to capital gains tax (CGT) on gains made

This applies regardless of where the assets are located.

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17
Q

What is the inheritance tax (IHT) liability for a UK-domiciled individual?

A

Charged on all assets worldwide at death

Non-UK domiciled individuals are only subject to IHT on UK assets.

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18
Q

What are employee benefits often referred to as?

A

benefits-in-kind

Examples include a company car or a loan with a below-market interest rate.

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19
Q

How does HMRC treat employee benefits?

A

As if they were earnings

Even though no money is paid, the benefits have a monetary value.

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20
Q

True or false: HMRC can adjust an employee’s personal allowance to charge income tax on employee benefits.

A

TRUE

This adjustment has the same effect as pretending the employee earns more money.

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21
Q

What are the two methods employers can use to collect tax on employee benefits?

A
  • Adjusting the PAYE tax code
  • Payrolling the benefits

Payrolling involves adding the cash equivalent of benefits to the employee’s pay.

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22
Q

Which employee benefits cannot be payrolled?

A
  • Employer provided living accommodation
  • Interest free and low interest loans

These exceptions are specified by HMRC.

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23
Q

What is the annual exempt amount for capital gains tax in 2025/26?

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A

£3,000

This is the amount of gain that can be made free of CGT.

24
Q

What is the priority order for taxing different classes of income?

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A
  • Earned income
  • Savings income
  • Dividends
  • Chargeable gains

This order determines how different types of income are taxed.

25
What is a **capital loss**?
When an asset is disposed of at a price less than the price paid for it ## Footnote Losses can be carried forward to future tax years.
26
What is **business asset disposal relief**?
Relief available for individuals disposing of their own business ## Footnote This includes sole traders or partners disposing of trading businesses.
27
What is the **nil rate band** for inheritance tax?
£325,000 ## Footnote Estates below this amount do not incur IHT.
28
What is the IHT rate for transfers over **£325,000** within seven years of death?
40% ## Footnote Transfers up to £325,000 incur no tax.
29
What is the **annual exemption** for lifetime gifts?
Up to £3,000 ## Footnote This amount can be carried forward to the next tax year if not fully used.
30
What is the exemption limit for gifts made in consideration of **marriage**?
* £5,000 to a child * £2,500 to a grandchild ## Footnote These limits depend on the donor's relationship.
31
Are **gifts for education and maintenance** exempt from IHT?
Yes ## Footnote This includes gifts for the maintenance of a spouse, civil partner, ex-spouse, ex-civil partner, and certain relatives.
32
What types of gifts are exempt from IHT under **gifts to charities and political parties**?
* Gifts of any value to charities * Gifts to major political parties ## Footnote A reduced rate of 36% applies if at least 10% of the net estate is left to charity.
33
What types of gifts are classified as **for the national benefit** and are exempt?
* Gifts to museums * Gifts to libraries * Gifts to universities * Gifts to the National Trust ## Footnote These gifts can be made during lifetime or on death.
34
Is there an exemption from IHT for estates where death is due to wounds received or diseases contracted while on **active service**?
Yes ## Footnote This applies to armed forces, police, fire brigade, ambulance service, and humanitarian aid workers.
35
What is **Business Relief** in relation to IHT?
Relief from IHT on the transfer of business assets ## Footnote The business must have been owned for two years and is not available for companies mainly dealing in investments.
36
What is the **percentage relief** for sole traders and partnerships under Business Relief?
100% ## Footnote This applies to unincorporated businesses.
37
What is the **percentage relief** for controlling shareholdings in fully quoted companies under Business Relief?
50% ## Footnote This also applies to land, buildings, plant, or machinery used mainly in connection with a company controlled by the transferor.
38
What is a **Potentially Exempt Transfer (PET)**?
A lifetime transfer by an individual to another individual, a bare trust, or a disabled trust ## Footnote PETs are fully exempt from IHT if the donor survives for seven years from making the gift.
39
If a PET becomes chargeable and is fully within the donor’s **nil rate band**, what is the tax?
Nil ## Footnote This means no tax is due if the value is within the nil rate band.
40
What is **taper relief** in relation to chargeable lifetime transfers?
Reduces tax if the donor survives more than three years after the gift ## Footnote It is applied in the same way as for potentially exempt transfers (PETs).
41
What is a **gift with a reservation of benefit**?
A gift where the donor retains a benefit from it ## Footnote Examples include gifting a house but continuing to live in it.
42
What is included in an individual's **estate** at the time of death?
Total property owned at the date of death plus gifts made in the seven years prior ## Footnote Deductions can be made for reasonable funeral expenses and outstanding debts.
43
How can a deceased's family vary a **will** or intestacy laws?
By using a deed of variation within two years of the death ## Footnote This is treated as if it had been made by the deceased.
44
Who is responsible for paying any **IHT** on the estate?
The personal representatives ## Footnote Tax is due six months after the end of the month in which death occurs.
45
What is the purpose of a **whole of life insurance policy** in relation to IHT?
To fund a future IHT liability ## Footnote The policy should be placed in trust for the beneficiaries of the estate.
46
What is a **transferable nil-rate band**?
Unused nil-rate band from the first spouse/civil partner can be transferred to the second death ## Footnote This applies if the second death occurs on or after 9 October 2007.
47
What is the **residence nil-rate band (RNRB)**?
An additional allowance for estates where a main residence is left to direct descendants ## Footnote The RNRB is £175,000 and is transferable under certain conditions.
48
What happens to the RNRB for estates valued over **£2m**?
It is withdrawn at a rate of £1 for every £2 over the threshold ## Footnote Unused amounts cannot be set against other assets but are available to transfer.
49
When is **IHT** due for chargeable lifetime transfers?
Usually six months after the end of the month when the transfer was made ## Footnote For transfers made after 5 April and before 1 October, tax is due on 30 April of the next year.
50
What is **Stamp Duty**?
A tax charged on the transfer of UK registered shares ## Footnote Paid by the person buying the shares, not the seller.
51
What is the current rate of **Stamp Duty** and **SDRT**?
0.5% ## Footnote Stamp duty is rounded up to the next multiple of £5, while SDRT is rounded up to the nearest penny.
52
What is **Stamp Duty Land Tax (SDLT)**?
A tax on sales of property and land in England and Northern Ireland ## Footnote Payable within 14 days of the completion of the transaction by the buyer.
53
What additional charge applies to **second residential properties** over £40,000?
An additional 5% SDLT surcharge ## Footnote Exceptions apply, such as when replacing a main residence that has already been sold.
54
What SDLT relief do **first-time buyers** receive?
No SDLT on the first £300,000 of the purchase price ## Footnote For purchases between £300,000 and £500,000, SDLT at 5% is paid only on the amount over £300,000.
55
What is **Land and Buildings Transaction Tax (LBTT)**?
A tax that applies to land transactions in Scotland ## Footnote It is different from SDLT and applies to property sales in Scotland.
CII CF1 2025-26
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