Chapter 01 - Computation of taxable income of the individuals

Proforma - Taxable income NSI SI DI TI

Non-savings income xx - - xx
Savings income - xx - xx
Dividend income - - xx xx
Total income xxx xxx xxx xxx
Less: Qualifying interest payment xx - - xx
Less: Losses xx - - xx
Net income xxx xxx xxx xxx
Less: Personal allowance xx - - xx
Taxable income xxxx xxxx xxxx xxxx

Total income
- It comprises of the following viz. -
- Non-savings income
- Savings income
- Dividend income

Non-savings income
- It comprises of the following viz. -
- Employment income
- Property income
- Investment income
- Trading income
- Other taxable incomes

Savings income
- It comprises of interest income
- It is taxed at the same rates as the non-savings income but due to savings starting rate
band and savings nil rate band it is shown separately

Savings starting rate band

- It will be available when the individual is having taxable non-savings income of ≤ £5000

Savings nil rate band

- It will be available when the individual is basic rate taxpayer or higher rate taxpayer

Dividend income
- It comprises of dividend income
It is taxed at different rates from the non-savings income and thus it is shown
-
separately
Dividend nil rate band
- It will be available when the individual is having dividend income

Qualifying interest payment

- It comprises of interest paid (including bank charges) on loan taken irt following viz. -
- Providing loan to close-trading company
- Subscribing new ordinary shares in close-trading company
- Purchasing stake in partnership, co-operative or employee-controlled company
- Purchasing plant and machinery by any partner to be used in partnership
- Purchasing plant and machinery by any employee to be used for performing their duties

Losses
- It comprises of the following viz. -
-
-
-
-
-

Personal allowance
- It is that portion of net income which is tax-free
It will be subtracted from the non-savings, savings and dividend income in such
-
manner
which is most beneficial for the individual

Notes -
- It will be available to all the UK resident individuals (including children)
- It will be available in full in the year of birth and in the year of death

Adjusted net income

- Personal allowance is reduced on the basis of adjusted net income
- If the adjusted net income is > £100000 then the personal allowance will be reduced by
50% of adjusted net income exceeding £100000

Proforma - Adjusted net income Amount

Net income xx
Less: Gross personal pension contribution xx
Less: Gross gift aid donation (not examinable in ATX) xx
Adjusted net income xxxx

Exempt income
- It comprises of the following viz. -
- Interest income from income tax refund
- Interest income from national savings certificate
- Interest income from damages for personal injuries
- State benefits
- Scholarships and grants
- Winnings from betting, gambling, gaming, lottery or races
- HMRC's contribution into the personal pension scheme
- Any withdrawals from the pension scheme upto the specified limits
- Any income from investments held in individual's savings account
- Any income from investments held in venture capital trust scheme
- Any income from investments held in enterprise investment scheme
- Any income from investments held in seed enterprise investment scheme
Chapter 02 - Computation of income tax payable by the individuals
Proforma - Income tax payable Amount
Income tax xx
Less: Other reliefs xx
Income tax liability xxx
Less: Tax credits xx
Income tax payable xxxx

Income tax
- It is paid by any chargeable individual on the basis of the following viz. -
- The taxable income earned or received by them during the tax year
- The income tax bands under which they are falling

Chargeable individual
- It means any individual whether UK domiciled or not-UK domiciled
- UK resident individuals will pay income tax on their worldwide incomes
- Non-UK resident individuals will pay income tax only on their UK based incomes

Taxable income
- It is that portion of net income which is taxable

Tax year
- It starts from 06th April, 202X and it ends on 05th April, 202Y

Income tax bands

It helps in determining whether the individual is basic rate taxpayer, higher rate
-
taxpayer
or additional rate taxpayer

Consumption of income tax bands

- Only the relevant income tax bands will be consumed by the following viz. -
- Savings starting rate band
- Savings nil rate band
- Dividend nil rate band

Extension of income tax bands

- All the income tax bands will be extended by the following viz. -
- Gross personal pension contribution
- Gross gift aid donation (not examinable in ATX)

Other reliefs
- It comprises of the following viz. -
- Interest paid (including bank charges) on loan taken irt any residential property - 20%
- Investments held in individual's savings account - 00%
- Investments held in venture capital trust scheme - 30%
- Investments held in enterprise investment scheme - 30%
- Investments held in seed enterprise investment scheme - 50%
- Double taxation relief

Tax credits
- It comprises of the following viz. -
- Marriage allowance - 20%
- Non-savings income from real estate investment trust - 20%
- Savings income from real estate investment trust - 00%
- Dividend income from real estate investment trust - 8.75%
- Non-savings income from interest in possession trust - 20%
- Savings income from interest in possession trust - 20%
- Dividend income from interest in possession trust - 8.75%
- Non-savings income from discretionary trust - 45%
- Savings income from discretionary trust - 00%
- Dividend income from discretionary trust - 00%
- Non-savings income from disabled trust - 20%
- Savings income from disabled trust - 20%
- Dividend income from disabled trust - 8.75%
- Pay as you earn
Chapter 03 - Taxation of family members and connected persons

Family members
- It comprises of the following viz. -
- Grandparent
- Parent
- Spouse
- Brother and their spouse
- Sister and their spouse
- Children and their spouse
- Grandchildren and their spouse

Notes -
- It includes the following viz. -
- In-laws
- Step family
- It does not include the following viz. -
- Granduncle and their spouse
- Grandaunt and their spouse
- Uncle and their spouse
- Aunt and their spouse
- Cousin and their spouse
- Nephew and their spouse
- Niece and their spouse
- Grandnephew and their spouse
- Grandniece and their spouse

Connected persons
- It comprises of the following viz. -
- Friends and their family
- Partners and their family
- Trustees and their family
-
-

Notes -
- Any other person will be considered as unconnected person
-
-
-
-

Spouse or civil partner

- Each spouse will file their separate income tax return

Separately held assets

- It is taxed in the hands of the owner spouse
- Any spouse can transfer their separately held asset to the other spouse at cost thus
resulting in no gain no loss situation for minimising their joint income tax liability

Jointly held assets

- It is taxed on 50:50 basis irrespective of their actual ownership percentage
- Both spouses can get their jointly held asset taxed on the basis of their actual ownership
percentage for minimising their joint income tax liability

Savings income from investments held in joint bank account

- It will be taxed on 50:50 basis irrespective of their actual ownership percentage

Dividend income from shares held in close-trading company

- It will be taxed on the basis of their actual ownership percentage

Marriage allowance
- It is available when both the spouses are basic rate taxpayer
- Any spouse can transfer their personal allowance as marriage allowance to the other
spouse

Notes -
- It will be available in full in the year of marriage, in the year of separation and in the
year of death of first spouse

Personal allowance
- The personal allowance of the transferor spouse will be reduced
- The personal allowance that can be transferred will be equal to 10% of the available
personal allowance and it cannot change
- If the personal allowance of the transferor spouse is less than the personal allowance
that can be transferred then they will transfer the full amount and they will pay income
tax on the difference

Tax credits
- The tax credits of the transferee spouse will be increased
- The tax credits that can be received will be equal to 20% of the personal allowance
that can be transferred and it cannot change
- If the income tax liability of the transferee spouse is less than the tax credits that
can be received then they cannot claim income tax refund and their balance amount
will lapse

Children
- Each child will file their separate income tax return
Any income from parental disposition
- If any child derives any income from such sources which are set-up through parental
disposition then such income will be taxed in the hands of their parent unless -
- Such income is ≤ £100
- Such child is under 18 years (and unmarried)

Separately held assets

- It is taxed in the hands of the owner
- Any owner cannot transfer their separately held asset to the other person at cost thus
resulting in chargeable gain / loss for minimising their joint income tax liability

Jointly held assets

- It is taxed on their actual ownership percentage
- Both owners cannot get their jointly held asset taxed on 50:50 basis irrespective of their
actual ownership percentage for minimising their joint income tax liability

Savings income from investments held in joint bank account

- It will be taxed on 50:50 basis irrespective of their actual ownership percentage

Dividend income from shares held in close-trading company

- It will be taxed on the basis of their actual ownership percentage

Other family members

- They will file their separate income tax return

Separately held assets

- It is taxed in the hands of the owner
- Any owner cannot transfer their separately held asset to the other person at cost thus
resulting in chargeable gain / loss for minimising their joint income tax liability

Jointly held assets

- It is taxed on their actual ownership percentage
- Both owners cannot get their jointly held asset taxed on 50:50 basis irrespective of their
actual ownership percentage for minimising their joint income tax liability

Savings income from investments held in joint bank account

- It will be taxed on 50:50 basis irrespective of their actual ownership percentage

Dividend income from shares held in close-trading company

- It will be taxed on the basis of their actual ownership percentage

Connected persons
- They will file their separate income tax return
Arm's length transaction
- It will be considered to be taken place at the actual value on the date of transaction

Not at arm's length transaction

- It will be considered to be taken place at the market value on the date of transaction

Separately held assets

- It is taxed in the hands of the owner
- Any owner cannot transfer their separately held asset to the other person at cost thus
resulting in chargeable gain / loss for minimising their joint income tax liability

Jointly held assets

- It is taxed on their actual ownership percentage
- Both owners cannot get their jointly held asset taxed on 50:50 basis irrespective of their
actual ownership percentage for minimising their joint income tax liability

Savings income from investments held in joint bank account

- It will be taxed on 50:50 basis irrespective of their actual ownership percentage

Dividend income from shares held in close-trading company

- It will be taxed on the basis of their actual ownership percentage

Unconnected persons
- They will file their separate income tax return

Arm's length transaction

- It will be considered to be taken place at the actual value on the date of transaction

Not at arm's length transaction

- It will be considered to be taken place at the actual value on the date of transaction

Separately held assets

- It is taxed in the hands of the owner
- Any owner cannot transfer their separately held asset to the other person at cost thus
resulting in chargeable gain / loss for minimising their joint income tax liability

Jointly held assets

- It is taxed on their actual ownership percentage
- Both owners cannot get their jointly held asset taxed on 50:50 basis irrespective of their
actual ownership percentage for minimising their joint income tax liability

Savings income from investments held in joint bank account

- It will be taxed on 50:50 basis irrespective of their actual ownership percentage

Dividend income from shares held in close-trading company

- It will be taxed on the basis of their actual ownership percentage
Chapter 04 - National insurance contributions

Employee's class 1 contribution

- It is payable by all the employees who are employed in the UK
- It is payable on the cash employment income earned or received by the employee
- It is paid on or before 22nd of the following month

Employer's class 1 contribution

- It is payable by all the employers
- It is payable on the cash employment income earned or received by the employee
- It is paid on or before 22nd of the following month
- If the employer's class 1 contribution was < £100000 during the previous tax year then
the employer can claim relief of £5000 against the employer's class 1 contribution

Employer's class 1A contribution

- It is payable by all the employers
- It is payable on the non-cash employment income earned or received by the employee
- It is paid on or before 22nd July following the tax year

Employer's class 1B contribution

- It is payable by all the employers
- (not examinable in ATX)

Self-employed individual's class 2 contribution

- It is payable by all the self-employed individuals
- It is payable on the taxable trading profits of the self-employed individual
- It is paid on or before 31st January following the tax year
- If the taxable trading profits of the self-employed individual is < £12570 then the
self-employed individual can claim relief of 100% of self-employed individual's class 2
contribution

Any person's class 3 contribution

- It is payable by any person
- (not examinable in ATX)

Self-employed individual's class 4 contribution

- It is payable by all the self-employed individuals
- It is payable on the taxable trading profits of the self-employed individual
- It is paid alongwith the self-assessment tax
Chapter 05 - Employment income

Proforma - Employment income Amount

Salary income xx
Employment benefits xx
Reimbursed expenses xx
Less: Allowable deductions xx
Employment income xxxx

Employment income
- It is assessed on receipt basis

Date of receipt for other employees

- They are those employees who cannot manipulate the date of payment
- The date of receipt will be earlier of the following viz. -
- The date of actual payment
- The date on which the employee becomes entitled to payment

Date of receipt for key management personnel

- They are those employees who can manipulate the date of payment
- The date of receipt will be earlier of the following viz. -
- The date of actual payment
- The date on which the employee becomes entitled to payment
- The date on which the payment is credited into the account of the employee
- If the earnings were determined before the end of the accounting period then the
date on which the accounting period ended
- If the earnings were determined after the end of the accounting period then the
date on which the earnings were determined

Employment status
- It can be found in the contract which the individual is holding with their employer
- If it cannot be found in the contract or if there is no contract in place then the HMRC
have laid down certain factors which can be used for finding out the employment status
of the individual

Factors Description
Obligated The individual must be obligated to perform the given work
Control The individual must not have control over the work performed
Fixed hours The individual must be committed to the work for fixed number of hours
Integral part The individual must perform such work which is integral part of the business
Risk The individual must not fear the risk of not being paid regularly or on-time
Equipment The individual must be provided with the equipment for performing the work
Right If any individual is having any right under any legislation or otherwise to be
treated as an employee then that individual is an employee

Salary income
- It comprises of the following viz. -
- Basic salary
- Bonus and commission
- Payments in-lieu-of notice
- Employer's contribution into the national insurance contribution
- Tax advantage share option schemes and share incentive plans
- Non-tax advantage share option schemes and share incentive plans
- Post-employment notice payments above £30000 less statutory redundancy payments
(if any)
- Non-contractual or ex-gratia payments above £30000 less statutory redundancy
payments (if any)

Employment benefits
It comprises of any benefit given directly or indirectly to the employee or their
-
family
member by the employer or any third party

Use benefit (rented asset)

- It arises when any rented asset is given for personal use
- Taxable benefit = Higher of the following viz. -
- Annual rent x Number of months used during the tax year ÷ 12
- 20% x Market value on the date when the asset was given for personal use for the
first time x Number of months used during the tax year ÷ 12
- Any amount reimbursed by the employee being regular payment will be reduced from
the taxable benefit

Use benefit (owned asset)

- It arises when any owned asset is given for personal use
- Taxable benefit = 20% x Market value on the date when the asset was given for personal
use for the first time x Number of months used during the tax year ÷ 12
- Any amount reimbursed by the employee being -
- Regular payment will be reduced from the taxable benefit
- One-time payment will be reduced from the market value on the date when the asset
was given for personal use for the first time

Gift benefit (used asset)

- It arises when any used asset is gifted for personal use
- Taxable benefit = Higher of the following viz. -
- Market value on the date when the asset was gifted for personal use
- Market value on the date when the asset was given for personal use for the first
time - Use benefit from the date when the asset was given for personal for the first
time till the date when the asset was gifted for personal use
- Any amount reimbursed by the employee being one-time payment will be reduced from
the taxable benefit

Gift benefit (new asset)

- It arises when any new asset is gifted for personal use
- Taxable benefit = Market value on the date when the asset was gifted for personal use
- Any amount reimbursed by the employee being one-time payment will be reduced from
the taxable benefit
Pool car benefit
- It arises when any pool car is provided
- Taxable benefit = Nil
- The taxable benefit will not be increased by the following expenses viz. -
- Any expense incurred on running and maintaining the pool car
- Any expense incurred on providing driver or chauffer with the pool car
- They are those cars which are -
- Used by > 01 employee
- Not kept overnight by any employee
- Not given for personal use or any personal use is only incidental

Car benefit
- It arises when any car is given for personal use
- Taxable benefit = List price x Benefit percentage x Number of months used during the
tax year ÷ 12
- Any amount reimbursed by the employee being -
- Regular payment will be reduced from the taxable benefit
- One-time payment will be reduced from the list price (maximum £5000)
- The taxable benefit will not be increased by any expense incurred on running and
maintaining the car
- The taxable benefit will be increased by any expense incurred on providing driver
or chauffer with the car (full expense)
- The taxable benefit will be decreased if the car is not available for continuous use
of 30 days or more

CO2 emission Range Electric Petrol and diesel Diesel

(gm/km) (miles) and hybrid (RDE2 is met) (RDE2 is not met)
00 < 01 Irrelevant 02% - -
130 ≤ 000 02%
070 - 129 05%
01 - 49 040 - 069 08% - -
030 - 039 12%
000 < 030 14%
50 ≤ 00 15% + 01% 19% + 01%
(round down for every for every
to the Irrelevant - additional additional
nearest 05 gm/km 05 gm/km
05 gm/km) (max 37%) (max 37%)

Van benefit
- It arises when any van is given for personal use
- Taxable benefit = £3600 x Number of months used during the tax year ÷ 12
- Any amount reimbursed by the employee being regular payment will be reduced from
the taxable benefit
- The taxable benefit will not be increased by any expense incurred on running and
maintaining the van
- The taxable benefit will be increased by any expense incurred on providing driver
or chauffer with the van (full expense)
- The taxable benefit will be decreased if the van is not available for continuous use
of 30 days or more
Pool car fuel benefit
- It arises when any pool car fuel is provided
- Taxable benefit = Nil
Car fuel benefit
- It arises when any car fuel is given for personal use
- Taxable benefit = £25300 x Benefit percentage x Number of months used during the
tax year ÷ 12
- If partial amount is reimbursed by the employee then it will be ignored
- If full amount is reimbursed by the employee then it will be reduced from the taxable
benefit

Van fuel benefit

- It arises when any van fuel is given for personal use
- Taxable benefit = £688 x Number of months used during the tax year ÷ 12
- If partial amount is reimbursed by the employee then it will be ignored
- If full amount is reimbursed by the employee then it will be reduced from the taxable
benefit

Job related living accommodation benefit

- It arises when any job related accommodation is provided to live-in
- Taxable benefit = Nil
- The taxable benefit will be increased by any expense incurred on repairing and
maintaining the accommodation (restricted to 10% of net employment income)
- They are those accommodation which are -
- Provided for better performance of the employee
- Provided for security purpose of the employee

Living accommodation benefit (rented accommodation)

- It arises when any rented accommodation is given to live-in
- Taxable benefit = Higher of the following viz. -
- Annual rent x Number of months used during the tax year ÷ 12
- Annual value x Number of months used during the tax year ÷ 12
- Any amount reimbursed by the employee being regular payment will be reduced from
the taxable benefit
- The taxable benefit will be increased by any expense incurred on repairing and
maintaining the accommodation (restricted to 10% of net employment income)

Living accommodation benefit (owned accommodation)

- It arises when any owned accommodation is given to live-in
- Taxable benefit = Annual value x Number of months used during the tax year ÷ 12
- Any amount reimbursed by the employee being -
- Regular payment will be reduced from the taxable benefit
- One-time payment will not be reduced from the annual value
- The taxable benefit will be increased by any expense incurred on repairing and
maintaining the accommodation (restricted to 10% of net employment income)

Additional job related living accommodation benefit

- Taxable benefit = Nil

Additional rented living accommodation benefit

- Taxable benefit = Nil

Additional owned living accommodation benefit (accommodation costing > £75000 owned for
≤ 6 years)
- It arises when any accommodation costing > £75000 owned for ≤ 6 years is given to
live-in
- Taxable benefit = 02% x (Cost of acquisition, enhancement and improvement (including
incidental costs) incurred till the start of the tax year - 75000)

Additional owned living accommodation benefit (accommodation costing > £75000 owned for
> 6 years)
- It arises when any accommodation costing > £75000 owned for > 6 years is given to
live-in
- Taxable benefit = 02% x (Market value on the date when the accommodation was given
to live-in for the first time - 75000)

Loan benefit
- It arises when any loan of ≥ £10000 in aggregate is given at such rate which is less
than the official rate of interest
- Taxable benefit (average method) = (02% x (Loan o/s at the start of the tax year
+ Loan o/s at the end of the tax year) ÷ 2) - Interest paid during the tax year
- Taxable benefit (precise method) = (02% x Daily, monthly or quarterly loan o/s)
- Interest paid during the tax year
- Taxable benefit will be NIL in the following cases viz. -
- If the loan is provided for any qualifying purpose

Scholarship benefit
- It arises when any scholarship is given
- Taxable benefit = Actual amount of scholarship given
- Taxable benefit will be NIL in the following cases viz. -
- If the scholarship is provided through any trust
- If the scholarship is provided to any family member who is in any school, college or
university

Other employment benefit

- It arises when any other employment benefit is given
- Taxable benefit = Actual amount of employment benefit given
- Any amount reimbursed by the employee being -
- Regular payment will be reduced from the taxable benefit
One-time payment will be reduced from the actual amount of employment benefit
-
given
PAYE benefit (for directors only)
- It arises when the PAYE of any director is paid to the HMRC without reducing it from
their net employment income
- Taxable benefit = Actual amount of PAYE paid to the HMRC without reducing it from
their net employment income - Any amount of PAYE reimbursed by them
Allowable deductions and reimbursed expenses
- Allowable deductions comprises of any expense incurred by the employee for
performing their duties
- Reimbursed expenses comprises of any amount reimbursed by the employer irt
any allowable deduction
Travelling expense
- It is available irt any expense incurred by the employee for travelling to and from
the permanent place of business
- Allowable deduction = NIL
- Reimbursed expenses = Any amount reimbursed by the employer

Travelling expense
- It is available irt any expense incurred by the employee for travelling to and from
any temporary place of business
- Allowable deduction = Any expense incurred by the employee
- Reimbursed expenses = Any amount reimbursed by the employer
- Temporary place of business means any place of business where the employee will not
work continuously for > 24 months

Mileage allowance
- It is available irt any expense incurred by the employee for travelling to and from
any place of business on their personal vehicle
- Allowable deduction = As per the approved rates
- Reimbursed expenses = Any amount reimbursed by the employer

Vehicle type Approved rates

Upto 10000 miles p.a. Above 10000 miles p.a.
Cars and vans 45 pence per mile 25 pence per mile
Bikes 24 pence per mile
Bicycles 20 pence per mile
Passengers Upto 05 pence per mile

Employee's contribution into the national insurance contribution

- It is available irt any contribution made by the employee into the national insurance
contribution
- Allowable deduction = NIL
- Reimbursed expenses = Any amount reimbursed by the employer

Employee's contribution into the occupational pension scheme

- It is available irt any contribution made by the employee into the occupational pension
scheme
- Allowable deduction = Any expense incurred by the employee
- Reimbursed expenses = Any amount reimbursed by the employer

Employee's contribution into the share option schemes and share incentive plans
- It is available irt any contribution made by the employee into the share option schemes
and share incentive plans
- Allowable deduction = Any expense incurred by the employee
- Reimbursed expenses = Any amount reimbursed by the employer
Subscription or membership fees paid to any professional body
- It is available irt any subscription or membership fees paid to any professional body
- Allowable deduction = Any expense incurred by the employee
- Reimbursed expenses = Any amount reimbursed by the employer

Cost of acquisition, enhancement and improvement (including incidental expenses) irt any
asset purchased by the employee to be used for performing their duties
- It is available irt cost of acquisition, enhancement and improvement (including incidental
expenses) irt any asset purchased by the employee to be used for performing their
duties
- Allowable deduction = NIL
- Reimbursed expenses = Any amount reimbursed by the employer

Capital allowances irt any asset purchased by the employee to be used for performing their
duties
- It is available irt capital allowances irt any asset purchased by the employee to be used
for performing their duties
- Allowable deduction = Any expense incurred by the employee
- Reimbursed expenses = Any amount reimbursed by the employer

Expense incurred on repairing and maintaining irt any asset purchased by the employee
to be used for performing their duties
- It is available irt any expense incurred on repairing and maintaining irt any asset
purchased by the employee to be used for performing their duties
- Allowable deduction = NIL
- Reimbursed expenses = Any amount reimbursed by the employer

Interest paid (including bank charges) on loan taken irt any asset purchased by the employee
to be used for performing their duties
- It is available irt any interest paid (including bank charges) on loan taken irt any asset
purchased by the employee to be used for performing their duties
- Allowable deduction = Any expense incurred by the employee
- Reimbursed expenses = Any amount reimbursed by the employer

Interest paid (including bank charges) on loan taken irt any plant and machinery purchased
by the employee to be used for performing their duties
- It is available irt any interest paid (including bank charges) on loan taken irt any plant
and machinery purchased by the employee to be used for performing their duties
- Allowable deduction = NIL
- Reimbursed expenses = Any amount reimbursed by the employer

Donations made to charities

- It is available irt any donations made to charities
- Allowable deduction = Any expense incurred by the employee
- Reimbursed expenses = Any amount reimbursed by the employer
It includes any donations made to the museums, galleries, historical societies,
-
heritage
societies etc.

Donations made to political parties

- It is available irt any donations made to political parties
- Allowable deduction = NIL
- Reimbursed expenses = Any amount reimbursed by the employer

Other allowable deductions

- It is available irt any other allowable deductions
- Allowable deduction = Any expense incurred by the employee
- Reimbursed expenses = Any amount reimbursed by the employer

Exempt income
- It comprises of the following viz. -
- Car parking and charging facilities
- Canteen facilities
- Nursery facilities
- Sports and recreational facilities
- Welfare counselling facilities
- Cash vouchers
- Cost of uniform
- Cost of one mobile phone
- Mobile bills of one mobile phone
- Gifts from the employer upto £50
- Gifts from third party upto £250
- Staff parties upto £150
- Tax planning advice upto £500
- Medical treatments upto £500
- Transportation services
- Security services
- Training services
- Re-allocation expenses upto £8000
- Overnight stay expenses upto £5 per night in the UK
- Overnight stay expenses upto £10 per night in overseas
- Home worker expenses upto £6 per week or £26 per month
- Long service award upto £50 for each completed year
- Health insurance, life insurance, liability insurance premiums etc.
- Employment benefits given to the employee for performing their duties
- Employer's contribution into the occupational pension scheme
- Employer's contribution into the share option schemes and share incentive plans
- Interest income from share option schemes and share incentive plans
- Dividend income from share option schemes and share incentive plans
- Lumpsum payments on termination due to illness, injury, disability or death
- Retirement benefits
- Statutory redundancy payments
- Post-employment notice payments upto £30000 less statutory redundancy payments
(if any)
- Non-contractual or ex-gratia payments upto £30000 less statutory redundancy
payments (if any)
Chapter 06 - Pension schemes

Pension schemes
- It is an arrangement where any individual can invest in such schemes which encourages
them to save for their retirement

Types of investment schemes

Defined contribution scheme

- It is the scheme in which the amount to be contributed at present will be pre-defined

Defined benefit scheme

- It is the scheme in which the amount to be withdrawn in the future will be pre-defined

Occupational pension scheme

- It is set-up by the employer and it can either be defined contribution scheme or defined
benefit scheme

Enrolment
Any individual who is employed in the UK will be enrolled into this scheme
-
automatically
- Any individual can opt-out of this scheme at anytime

Contributions
- Any contribution into this scheme will be made in gross i.e. 100% will be contributed by
the employee or their employer

Tax implications on contributions under income tax

- Employee's contribution into this scheme will be allowable deduction under employment
income
- Employer's contribution into this scheme will be exempt income under employment income

Withdrawals
- Any withdrawal from this scheme can be made regularly or in lump-sum

Tax implications on withdrawals under income tax

- Any withdrawal from this scheme upto 25% of the pension funds or the lifetime allowance
whichever is lower will be exempt income
- Any withdrawal from this scheme above 25% of the pension funds or the lifetime allowance
whichever is lower but upto the lifetime allowance will be taxed as non-savings income
- Any withdrawal from this scheme above the lifetime allowance will be exempt income

Personal pension scheme

- It is set-up by the financial institutions and it can only be defined contribution scheme

Enrolment
- Any individual (including children) can enrol themselves into this scheme at anytime
- Any individual can opt-out of this scheme at anytime

Contributions
- Any contribution into this scheme will be made in net i.e. 80% will be contributed by
the individual or any third party and 20% will be contributed by the HMRC

Tax implications on contributions under income tax

- Individual's contribution into this scheme will have no tax implication
- Any third party's contribution into this scheme will be taxed as non-savings income
- HMRC's contribution into this scheme will be exempt income

Withdrawals
- Any withdrawal from this scheme can be made regularly or in lump-sum

Tax implications on withdrawals under income tax

- Any withdrawal from this scheme upto 25% of the pension funds or the lifetime allowance
whichever is lower will be exempt income
- Any withdrawal from this scheme above 25% of the pension funds or the lifetime allowance
whichever is lower but upto the lifetime allowance will be taxed as non-savings income
- Any withdrawal from this scheme above the lifetime allowance will be exempt income

Chapter 07 - Income tax charges on contributions and withdrawals

Annual allowance charge on contributions
- Any contribution into the pension scheme will be charged as non-savings income

Charge-free contribution
- Any contribution into the pension scheme upto the tax-relievable contribution or the
annual allowance whichever is lower will be charge-free contribution

Chargeable contribution
- Any contribution into the pension scheme above the tax-relievable contribution or the
annual allowance whichever is lower will be chargeable contribution

Tax-relievable contribution
- Any contribution into the pension scheme upto £3600 or the relevant earnings whichever
is higher will be tax-relievable contribution

Proforma - Relevant earnings Amount

Employment income xx
Trading income xx
Furnished holiday letting income xx
Relevant earnings xxxx

Annual allowance
- It is that portion of contribution into the pension scheme which is charge-free
- Any unused annual allowance can be carried forward to the three immediately succeeding
tax years
- The current tax year's annual allowance must be fully utilised before utilising the previous
tax year's annual allowance

Notes -
- It will be available to all the individuals (including children)
- It will be available in full in the year of birth and in the year of death

Threshold income and adjusted income

- Annual allowance is reduced on the basis of threshold income and adjusted income
- If the threshold income is > £200000 during the current tax year then -
- The annual allowance will be reduced by 50% of adjusted income exceeding £240000
- The annual allowance will not be reduced below £4000

Proforma - Threshold income and adjusted income Amount

Net income xx
Less: Gross personal pension contribution xx
Threshold income xxx
Gross occupational pension contribution xx
Gross personal pension contribution xx
Adjusted income xxxx

Lifetime allowance charge on withdrawals

- Any withdrawal from the pension scheme will be charged as non-savings income
Charge-free withdrawals
- Any withdrawal from the pension scheme upto the lifetime allowance will be charge-free
withdrawal

Chargeable withdrawals
- Any withdrawal from the pension scheme above the lifetime allowance will be chargeable
withdrawal as follows viz. -
- At 25% if the excess pension funds are withdrawn regularly
- At 55% if the excess pension funds are withdrawn in lump-sum
Chapter 08 - Share option schemes and share incentive plans

Share option schemes

- It is the offer made by the employer to their employees which gives the employees
right to purchase shares on some future date at some pre-determined price

On the date of grant of option

Under tax advantage option schemes Under non-tax advantage option schemes

No tax implication No tax implication

On the date of exercise of option

Under tax advantage option schemes Under non-tax advantage option schemes
Mkt value on exercise date xx
No tax implication Less: Cost of option xx
Employment income xxxx

On the date of disposal / transfer of shares

Under tax advantage option schemes Under non-tax advantage option schemes
Disposal proceeds xx Disposal proceeds xx
Less: Cost of option xx Less: Mkt value on exercise date xx
Chargeable gain / loss xxxx Chargeable gain / loss xxxx

Inheritance tax will be payable on transfer Inheritance tax will be payable on transfer
made during the lifetime or due to death made during the lifetime or due to death

Share incentive plans

- It is the plan made by the employer for their employees through which the share option
will be provided to the employees

Save as you earn

- It is available for all the employees of the organisation
- Under this plan the employees will pay upto £500 per month into the plan for
03 to 05 years
- Interest income from this plan will be exempt income and it can be re-invested into
this plan
- The employees will have an option to either withdraw the money or to use the money
for exercising the share option at the end of 03 or 05 years
- The exercise price must be ≥ 80% of market value on the date of grant
- Tax implication will be as per the tax advantage option schemes

Company share option plan

- It is available for all the employees having ≤ 30% stake in the company
- Under this plan the employer will provide share option upto £30000 to the employees
- The employees can exercise the share option at anytime between 03 to 10 years
- The exercise price must be ≥ 100% of market value on the date of grant
- Tax implication will be as per the tax advantage option schemes

Enterprise management incentives

- It is available for all the employees having ≤ 30% stake in the enterprise if -
- The gross assets of the enterprise are ≤ £30 million
- The total share option provided are ≤ £3 million
- The number of working employees are ≤ 250
- The enterprise is listed trading company
- Under this plan the employer will provide share option upto £250000 to the employees
- The employees can exercise the share option at anytime within 10 years
- If the exercise price is ≥ 100% of market value on the date of grant then the
tax implication will be as per the tax advantage option schemes
- If the exercise price is < 100% of market value on the date of grant then the
tax implication will be as per the non-tax advantage option schemes

Share incentive plans

- It is available for all the employees of the organisation if -
- The organisation is listed company
- Under this plan -
- The employer will provide share option upto £3600 to the employees
- The employees will have an option to further purchase share option upto £1800 or
10% of their net employment income whichever is lower
- The employer will have an option to further provide share option of £2 as bonus for
every £1 of share option purchased by the employees
- Dividend income from this plan will be exempt income and it can be re-invested into
this plan
- If the share option are held for > 05 years then the tax implication will be as per
the tax advantage option schemes
- If the share option are held for ≤ 05 years then the tax implication will be as per
the non-tax advantage option schemes
Chapter 09 - Property income

Proforma - Property income Amount

Rental income xx
Less: Allowable expenses xx
Less: Reliefs available xx
Property income xxxx

Normal property income

- It is assessed on receipt basis
- It is assessed on accrual basis if the rental income > £150000

Notes -
- Any landlord can get their property income assessed on accrual basis even if their rental
income is ≤ £150000
- Any landlord cannot get part of their property income assessed on receipt basis and
part of their property income assessed on accrual basis
- Election to get their property income assessed on accrual basis can be made within
01 year from 31st January following the tax year

Rental income
- It comprises of income earned or received by the landlord from all the properties

Capital income
- Any income being one-time income will not be assessed as property income unless the
landlord becomes entitled to such income and it comprises of the following viz. -
- Security deposit towards unpaid rent
- Security deposit towards damages and destruction of the property

Revenue income
- Any income being regular income will be assessed as property income and it comprises
of the following viz. -
- Rent
- Any amount reimbursed by the tenant irt any expense incurred by the landlord on the
property

Allowable expenses
- It comprises of expenses incurred by the landlord irt all the properties
- Any expense incurred irt any property will be reduced proportionately in the following
cases viz. -
- If such property is part rented-out and part self-occupied
- If such property is rented-out for such rent which is less than the commercial rent
of the property

Capital expenses
- Any expense incurred on acquisition, enhancements and improvements (including incidental
costs) of any property will not be allowable expense
- Any expense incurred on furnishing and fixing of any property will not be allowable
expense
- Capital allowances irt any property will not be allowable expense
Revenue expenses
- Any expense incurred on repairing and maintaining of any property will be allowable
expense
- Any other expense incurred irt any property will be allowable expense and it comprises
of the following viz. -
- Agent's fee
- Municipal taxes
- Insurance expense
- Decoration expense
- Management expense
- Advertisement expense
- Irrecoverable debts (it will be considered on accrual basis only)
Interest paid (including bank charges) on loan taken irt any non-residential
-
property
- Travelling expense or mileage allowance (the landlord will have an option to either
deduct the expense incurred as per the actual travelling expense or as per the mileage
allowance)

Reliefs available
- It comprises of reliefs available to the landlord irt all the properties

Pre-renting period expenses relief

- All revenue expenses incurred upto 07 years before renting-out the property will be
considered as if such expenses were incurred on the day 01 of renting-out the property
- Relief = Sum of all revenue expenses incurred upto 07 years before renting-out the
property

Replacement of furnishing and fixing relief

- All capital expenses incurred on replacing the furnishing and-fixing of the property
- Relief = Cost of replacement - Scrap proceeds
- This relief will be available irt replacement of the original furnishing and-fixing with
the similar item or its modern equivalent
- This relief will not be available irt replacement of the original furnishing and-fixing with
the enhanced and improved item

Interest paid (including bank charges) on loan taken irt any residential property relief
- All revenue expenses incurred on interest paid (including bank charges) on loan taken
irt any residential property for the following viz. -
- Acquisition, enhancements and improvements (including incidental costs)
- Furnishing and fixing
- Repairing and maintaining
- Incurring any other expense
- Other reliefs will be available at 20% of interest paid (including bank charges) on loan
taken irt any residential property
- If the income tax liability of the landlord is less than the other reliefs available then
they cannot claim income tax refund and their balance amount will lapse

Normal property losses

- It can be carried forward and set-off against any future property incomes

Chapter 10 - Other property income

Furnished holiday letting income
- It is assessed separately from the normal residential property
- It is assessed as non-residential property

Notes -
- Any property will be considered as furnished holiday letting if -
- It is situated in the UK or the EEA
- It is available for letting-out for ≥ 210 days
- It is actually letted-out for ≥ 105 days
- It is not letted-out to the same person for ≥ 30 days continuously
- It is not letted-out to the same person for ≥ 155 days in aggregate
- Election to get their property assessed as normal property or furnished holiday letting
can be made within 01 year from 31st January following the tax year

Rental income
- It comprises of income earned or received by the individual from all the furnished holiday
lettings

Capital income
- Any income being one-time income will not be assessed as furnished holiday letting income
unless the individual becomes entitled to such income

Revenue income
- Any income being regular income will be assessed as furnished holiday letting income

Allowable expenses
- It comprises of expenses incurred by the individual irt all the furnished holiday lettings
- Any expense incurred irt any furnished holiday letting will be reduced proportionately
in the following cases viz. -
- If such furnished holiday letting is part letted-out and part self-occupied
- If such furnished holiday letting is letted-out for such rent which is less than the
commercial rent of the furnished holiday letting

Capital expenses
- Any expense incurred on acquisition, enhancements and improvements (including incidental
costs) of any furnished holiday letting will not be allowable expense
- Any expense incurred on furnishing and fixing of any furnished holiday letting will be
allowable expense
- Capital allowances irt any furnished holiday letting will be allowable expense

Revenue expenses
- Any expense incurred on repairing and maintaining of any furnished holiday letting will be
allowable expense
- Any other expense incurred irt any furnished holiday letting will be allowable expense

Reliefs available
- It comprises of reliefs available to the individual irt all the furnished holiday lettings
- Following reliefs will be available irt any furnished holiday letting viz. -
 - Rollover relief
- Gift holdover relief
- Business asset disposal relief
- Pre-letting period expenses relief
- Replacement of furnishing and fixing relief
- Interest paid (including bank charges) on loan taken irt any residential property relief

Furnished holiday letting losses

- It can be carried forward and set-off against any future furnished holiday letting
incomes however -
- Losses of furnished holiday lettings situated in the UK can be set-off against
incomes from furnished holiday lettings situated in the UK only
- Losses of furnished holiday lettings situated in the EEA can be set-off against
incomes from furnished holiday lettings situated in the EEA only

Rent-a-room letting income

- It is assessed separately from the normal residential property
- It is assessed as residential property

Notes -
- Any property will be considered as rent-a-room letting if -
- It is furnished and fixtured
- It is part of the main residence of the individual

Tax implications under income tax

- If the rental income from all the rent-a-room lettings is ≤ £7500 then it is exempt
income under property income
- If the rental income from all the rent-a-room lettings is > £7500 then the individual
can either -
- Pay income tax on the rental income from the rent-a-room letting exceeding £7500
- Get the rental income from the rent-a-room letting assessed as normal property
income without the following reliefs viz. -
- Pre-letting period expenses relief
- Replacement of furnishing and fixing relief

Notes -
- Election to get their rent-a-room letting income assessed on alternate basis or normal
basis can be made within 01 year from 31st January following the tax year
- The rental income from all the rent-a-room lettings from jointly held main residence
will be considered as exempt income under property income upto £3750 only

Real estate investment trust

- It is an arrangement where any individual can invest in properties through the listed
companies which are operating as real estate investment trust
Tax implications

Under income tax

- Any income of the individual from the property income or chargeable gain / loss of real
estate investment trust will be taxed as property income on gross basis
- Any income of the individual from any other incomes of real estate investment trust will
be taxed as dividend income on gross basis
- Any tax credits deducted by the trust and paid to the HMRC will be received by the
individual
- If the income tax liability of the individual is less than the amount of tax credits received
by them then they can claim income tax refund

Under chargeable gains tax

- Any gains from disposal of investments held in real estate investment trust will be
taxable gains
- Any losses from disposal of investments held in real estate investment trust will be
adjustable losses
- Gift holdover relief will be available since inheritance tax will be payable

Under inheritance tax

- Inheritance tax will be payable on transfer of investments held in real estate investment
trust during the lifetime
- Inheritance tax will be payable on transfer of investments held in real estate investment
trust due to death
Business property relief will be available on transfer of investments held in real
-
estate
investment trust
Chapter 11 - Taxation of grant of leases and sub-leases

Grant of lease
- It is an arrangement where any landlord (lessor) can give their tenant (lessee) the right
to use their property for fixed duration and for fixed payment

Lease duration
- It is the duration of the lease arrangement and it helps in determining the type of lease
and the tax implications

Types of leases

Short-term lease
- They are the leases with lease duration of ≤ 50 years

Long-term lease
- They are the leases with lease duration of > 50 years

Lease payment
- It is the amount paid by the lessee to the lessor and it helps in determining the tax
implications

Types of lease payments

Lease premium
- Any payment being one-time payment will be considered as lease premium

Lease rentals
- Any payment being regular payment will be considered as lease rentals

Tax implications in case of short-term lease

Under income tax
- Lease premium will be assessed as other property income
- Lease rentals will be assessed as normal property income

Proforma - Income tax implications Amount

Lease premium xx
Less: 02% x Lease premium x (Duration of lease - 1) xx
Other property income xxxx

Lease rentals xx
Less: Lease expenses xx
Normal property income xxxx

Under chargeable gains tax

- Lease premium will be taxable gains (not examinable in ATX)
- Lease rentals will have no tax implication

Proforma - Chargeable gains tax implications Amount

02% x Lease premium x (Duration of lease - 1) xx
Chargeable gains (not examinable in ATX) xxxx

Tax implications in case of long-term lease

Under income tax

- Lease premium will have no tax implications
- Lease rentals will be assessed as normal property income

Proforma - Income tax implications Amount

Lease rentals xx
Less: Lease expenses xx
Normal property income xxxx

Under chargeable gains tax

- Lease premium will be taxable gains (not examinable in ATX)
- Lease rentals will have no tax implication

Proforma - Chargeable gains tax implications Amount

Lease premium xx
Chargeable gains (not examinable in ATX) xxxx

Grant of sub-lease
- It is an arrangement where any tenant (lessee) can give their sub-tenant (sub-lessee)
 the right to use the property of the landlord (lessor) for fixed duration and for fixed
payment

Sub-lease duration
- It is the duration of the sub-lease arrangement and it helps in determining the type of
sub-lease and the tax implications

Types of sub-lease

Short-term sub-lease
- They are the sub-leases with sub-lease duration of ≤ 50 years

Long-term sub-lease
- They are the sub-leases with sub-lease duration of > 50 years

Sub-lease payment
- It is the amount paid by the sub-lessee to the lessee and it helps in determining the tax
implications

Types of sub-lease payments

Sub-lease premium
- Any payment being one-time payment will be considered as sub-lease premium

Sub-lease rentals
- Any payment being regular payment will be considered as sub-lease rentals

Tax implications in case of short-term sub-lease

Under income tax

- Sub-lease premium will be assessed as other property income
- Sub-lease rentals will be assessed as normal property income

Proforma - Income tax implications Amount

Sub-lease premium xx
Less: Sub-lease premium x (Duration of sub-lease ÷ Duration of lease) xx
Other property income xxxx

Sub-lease rentals xx
Less: Sub-lease expenses xx
Normal property income xxxx

Under chargeable gains tax

- Sub-lease premium will be taxable gains (not examinable in ATX)
- Sub-lease rentals will have no tax implication

Proforma - Chargeable gains tax implications Amount

Sub-lease premium x (Duration of sub-lease ÷ Duration of lease) xx
Chargeable gains (not examinable in ATX) xxxx

Tax implications in case of long-term sub-lease

Under income tax

- Sub-lease premium will have no tax implications
- Sub-lease rentals will be assessed as normal property income

Proforma - Income tax implications Amount

Sub-lease rentals xx
Less: Sub-lease expenses xx
Normal property income xxxx

Under chargeable gains tax

- Sub-lease premium will be taxable gains (not examinable in ATX)
- Sub-lease rentals will have no tax implication

Proforma - Chargeable gains tax implications Amount

Sub-lease premium xx
Chargeable gains (not examinable in ATX) xxxx
Chapter 12 - Investment income

Individual's savings account

- It comprises of the following viz. -
- Cash and cash equivalents
- Listed shares and securities traded on any recognised stock exchange all over the
world
- It does not comprise of the following viz. -
- Unlisted shares and securities traded on any alternate investment market all over the
world

Who can invest in individual's savings account?

- Any individual who is UK resident and is over 18 years

How much can be invested in individual's savings account?

- Any eligible individual can invest upto £20000 per tax year

What is the purpose of investing in individual's savings account?

- It encourages savings for the individuals

What are the tax implications for investments held in individual's savings account?

Under income tax

- Any income from investments held in individual's savings account will be exempt income

Under chargeable gains tax

- Any gains from disposal of investments held in individual's savings account will be
exempt gains
- Any losses from disposal of investments held in individual's savings account will not be
adjustable losses
- Gift holdover relief will be available since inheritance tax will be payable

Under inheritance tax

- Inheritance tax will be payable on transfer of investments held in individual's savings
account during the lifetime
- Inheritance tax will be payable on transfer of investments held in individual's savings
account due to death
- Business property relief will not be available on transfer of investments held in individual's
savings account

Re-balancing of investments held in individual's savings account

- The investments held in individual's savings account can be withdrawn and re-invested
without consuming the annual investment limit of the individual

Transfer of investments held in individual's savings account

- The investments held in individual's savings account can be transferred without enhancing
the annual investment limit of the transferor
- The investments held in individual's savings account can be transferred without consuming
the annual investment limit of the transferee
Chapter 13 - Tax reducers
Venture capital trust scheme
- It is one of the low risk investments which are easy to withdraw

Who can invest in venture capital trust scheme?

- Any individual can invest in this scheme

How much can be invested in venture capital trust scheme?

- Any eligible individual can invest upto £200000 per tax year

What is the purpose of investing in venture capital trust scheme?

- It encourages individuals to invest in listed trading companies which invest in unlisted
trading companies

What are the tax implications for investments held in venture capital trust scheme?

Under income tax

- Any income from investments held in venture capital trust scheme will be exempt income
- Other reliefs will be available at 30% of investments held in venture capital trust
scheme during the tax year
- If the income tax liability of the individual is less than the other reliefs available
then they cannot claim income tax refund and their balance amount will lapse

Notes -
- If the investments in venture capital trust scheme are held for > 05 years then
there is no further tax implication
- If the investments in venture capital trust scheme are held for ≤ 05 years then
there are further tax implications as follows -
- If any gains arise from disposal of investments held in venture capital trust scheme
then full amount of other reliefs provided will be withdrawn
- If any losses arise from disposal of investments held in venture capital trust scheme
then full amount of other reliefs provided or 30% of disposal proceeds whichever is
lower will be withdrawn

Under chargeable gains tax

- Any gains from disposal of investments held in venture capital trust scheme will be
exempt gains
- Any losses from disposal of investments held in venture capital trust scheme will not be
adjustable losses
- Gift holdover relief will be available since inheritance tax will be payable

Under inheritance tax

- Inheritance tax will be payable on transfer of investments held in venture capital trust
scheme during the lifetime
- Inheritance tax will be payable on transfer of investments held in venture capital trust
scheme due to death
- Business property relief will not be available on transfer of investments held in venture
capital trust scheme

Carry-back facility
- Claim of other reliefs irt investments held in venture capital trust scheme cannot be made
irt any unused limit of the immediately preceding tax year
Claim of other reliefs
- Claim of other reliefs irt investments held in venture capital trust scheme can be made
within 05 years from 31st January following the tax year

Notes -
- If the individual invests in more than one investment scheme during the tax year then
claim of other reliefs will be made as follows viz. -
- Investments held in venture capital trust scheme
- Investments held in enterprise investment scheme
- Investments held in seed enterprise investment scheme

Enterprise investment scheme

- It is one of the very high risk investments which are very difficult to withdraw

Who can invest in enterprise investment scheme?

- Any individual can invest in this scheme who is -
- Not the director of the company
- Not the employee of the company
- Not owns more than 30% ordinary shares of the company

How much can be invested in enterprise investment scheme?

- Any eligible individual can invest upto £1000000 per tax year

What is the purpose of investing in enterprise investment scheme?

- It encourages individuals to invest in unlisted trading companies

What are the tax implications for investments held in enterprise investment scheme?

Under income tax

- Any income from investments held in enterprise investment scheme will be taxed
as dividend income
- Other reliefs will be available at 30% of investments held in enterprise investment
scheme during the tax year
- If the income tax liability of the individual is less than the other reliefs available
then they cannot claim income tax refund and their balance amount will lapse

Notes -
- If the investments in enterprise investment scheme are held for > 03 years then
there is no further tax implication
- If the investments in enterprise investment scheme are held for ≤ 03 years then
there are further tax implications as follows -
- If any gains arise from disposal of investments held in enterprise investment scheme
then full amount of other reliefs provided will be withdrawn
- If any losses arise from disposal of investments held in enterprise investment scheme
then full amount of other reliefs provided or 30% of disposal proceeds whichever is
lower will be withdrawn

Under chargeable gains tax

- If the investments in enterprise investment scheme are held for > 03 years then -
- Any gains from disposal of investments held in enterprise investment scheme will be
exempt gains
- Any losses from disposal of investments held in enterprise investment scheme will not
be adjustable losses
- Gift holdover relief will be available since inheritance tax will be payable
- If the investments in enterprise investment scheme are held for ≤ 03 years then -
- Any gains from disposal of investments held in enterprise investment scheme will be
taxable gains
- Any losses from disposal of investments held in enterprise investment scheme will be
adjustable losses
- Cost of acquisition will be reduced by the amount of other reliefs not withdrawn
- Gift holdover relief will be available since inheritance tax will be payable
Under inheritance tax
- Inheritance tax will be payable on transfer of investments held in enterprise investment
scheme during the lifetime
- Inheritance tax will be payable on transfer of investments held in enterprise investment
scheme due to death
- Business property relief will be available on transfer of investments held in enterprise
investment scheme

Carry-back facility
- Claim of other reliefs irt investments held in enterprise investment scheme can be made
irt any unused limit of the immediately preceding tax year as well
- This claim of other reliefs will be made by revising the income tax return of the previous
tax year

Claim of other reliefs

- Claim of other reliefs irt investments held in enterprise investment scheme can be made
within 05 years from 31st January following the tax year

Notes -
- If the individual invests in more than one investment scheme during the tax year then
claim of other reliefs will be made as follows viz. -
- Investments held in venture capital trust scheme
- Investments held in enterprise investment scheme
- Investments held in seed enterprise investment scheme

Seed enterprise investment scheme

- It is one of the very high risk investments which are very difficult to withdraw

Who can invest in seed enterprise investment scheme?

- Any individual can invest in this scheme who is -
- Not the director of the company
 - Not the employee of the company
- Not owns more than 30% ordinary shares of the company

How much can be invested in seed enterprise investment scheme?

- Any eligible individual can invest upto £100000 per tax year

What is the purpose of investing in seed enterprise investment scheme?

- It encourages individuals to invest in unlisted trading companies

What are the tax implications for investments held in seed enterprise investment scheme?

Under income tax

- Any income from investments held in seed enterprise investment scheme will be taxed
as dividend income
- Other reliefs will be available at 50% of investments held in seed enterprise investment
scheme during the tax year
- If the income tax liability of the individual is less than the other reliefs available
then they cannot claim income tax refund and their balance amount will lapse

Notes -
- If the investments in seed enterprise investment scheme are held for > 03 years then
there is no further tax implication
- If the investments in seed enterprise investment scheme are held for ≤ 03 years then
there are further tax implications as follows -
- If any gains arise from disposal of investments held in seed enterprise investment
scheme then full amount of other reliefs provided will be withdrawn
- If any losses arise from disposal of investments held in seed enterprise investment
scheme then full amount of other reliefs provided or 50% of disposal proceeds
whichever is lower will be withdrawn

Under chargeable gains tax

- If the investments in seed enterprise investment scheme are held for > 03 years then -
- Any gains from disposal of investments held in seed enterprise investment scheme
will be exempt gains
- Any losses from disposal of investments held in seed enterprise investment scheme
will not be adjustable losses
- Gift holdover relief will be available since inheritance tax will be payable
- If the investments in seed enterprise investment scheme are held for ≤ 03 years then -
- Any gains from disposal of investments held in seed enterprise investment scheme
will be taxable gains
- Any losses from disposal of investments held in seed enterprise investment scheme
will be adjustable losses
- Cost of acquisition will be reduced by the amount of other reliefs not withdrawn
- Gift holdover relief will be available since inheritance tax will be payable
Under inheritance tax
- Inheritance tax will be payable on transfer of investments held in seed enterprise
investment scheme during the lifetime
- Inheritance tax will be payable on transfer of investments held in seed enterprise
investment scheme due to death
- Business property relief will be available on transfer of investments held in seed
enterprise investment scheme
Carry-back facility
- Claim of other reliefs irt investments held in seed enterprise investment scheme can be
made irt any unused limit of the immediately preceding tax year as well
- This claim of other reliefs will be made by revising the income tax return of the previous
tax year

Claim of other reliefs

- Claim of other reliefs irt investments held in seed enterprise investment scheme can be
made within 05 years from 31st January following the tax year

Notes -
- If the individual invests in more than one investment scheme during the tax year then
claim of other reliefs will be made as follows viz. -
- Investments held in venture capital trust scheme
- Investments held in enterprise investment scheme
- Investments held in seed enterprise investment scheme
Chapter 14 - Trust income

Trust
- It is an arrangement where any person (settlor) can transfer any asset (relevant asset)
to any group of person (trustees) for the benefit of one or more persons (beneficiaries)

Types of trusts

Interest in possession trust

- The beneficiaries are known
- The beneficiaries have legal rights to use the assets, receive income and gains from
the assets and receive the assets

Discretionary trust
- The beneficiaries are unknown
- The beneficiaries have no legal right to use the assets, receive income and gains from
the assets and receive the assets

Disabled trust
- Any trust created for the direct or indirect benefit of the spouse or children

Types of beneficiaries

Life tenant
- It is the beneficiary who uses the asset and receives income from the asset

Remainder man
- It is the beneficiary who receives the asset and receives chargeable gain / loss from
the asset

Terms and conditions

- The terms and conditions of the trust are provided as follows viz. -
- In the trust deed if the trust is created during the lifetime of the settlor
- In the will or through statutory provisions of intestacy if the trust is created due to
death of the settlor

Tax implications of interest in possession trust

In the hands of the settlor

Under income tax

- No tax implication

Under chargeable gains tax

If the asset enters the trust during the lifetime of the settlor
- Any gains in the hands of the settlor will be taxable gains
- Any losses in the hands of the settlor will be adjustable losses
- Disposal proceeds will be market value on the date of transfer
- Gift holdover relief will be available since inheritance tax will be payable

If the asset enters the trust due to death of the settlor

- Any gains in the hands of the settlor will be exempt gains
- Any losses in the hands of the settlor will not be adjustable losses
- Gift holdover relief will be available since inheritance tax will be payable

Under inheritance tax

- Inheritance tax will be payable by the settlor or the trust
- Business property relief and agricultural property relief may be available

In the hands of the trust

Under income tax

- (not examinable in ATX)

Under chargeable gains tax

- (not examinable in ATX)

Under inheritance tax

- (not examinable in ATX)

In the hands of the beneficiaries

Under income tax

- Any income distributed to the beneficiaries by the trust will be taxed as non-savings,
savings and dividend income in the hands of the beneficiaries on gross basis
- Any tax credits deducted by the trust and paid to the HMRC will be received by the
beneficiaries
- If the income tax liability of the beneficiaries is less than the amount of tax credits
received by them then they can claim income tax refund

Under chargeable gains tax

- No tax implication

Under inheritance tax

- No tax implication
Tax implications of discretionary trust
In the hands of the settlor

Under income tax

- No tax implication

Under chargeable gains tax

If the asset enters the trust during the lifetime of the settlor
- Any gains in the hands of the settlor will be taxable gains
- Any losses in the hands of the settlor will be adjustable losses
- Disposal proceeds will be market value on the date of transfer
- Gift holdover relief will be available since inheritance tax will be payable

If the asset enters the trust due to death of the settlor

- Any gains in the hands of the settlor will be exempt gains
- Any losses in the hands of the settlor will not be adjustable losses
- Gift holdover relief will be available since inheritance tax will be payable

Under inheritance tax

- Inheritance tax will be payable by the settlor or the trust
- Business property relief and agricultural property relief may be available

In the hands of the trust

Under income tax

- (not examinable in ATX)

Under chargeable gains tax

- (not examinable in ATX)

Under inheritance tax

- (not examinable in ATX)

In the hands of the beneficiaries

Under income tax

- Any income distributed to the beneficiaries by the trust will be taxed as non-savings,
income in the hands of the beneficiaries on gross basis
- Any tax credits deducted by the trust and paid to the HMRC will be received by the
beneficiaries
- If the income tax liability of the beneficiaries is less than the amount of tax credits
received by them then they can claim income tax refund

Under chargeable gains tax

- No tax implication

Under inheritance tax

- No tax implication
Tax implications of disabled trust

In the hands of the settlor

Under income tax
- No tax implication

Under chargeable gains tax

If the asset enters the trust during the lifetime of the settlor
- Any gains in the hands of the settlor will be taxable gains
- Any losses in the hands of the settlor will be adjustable losses
- Disposal proceeds will be market value on the date of transfer
- Gift holdover relief will not be available since inheritance tax will not be payable

If the asset enters the trust due to death of the settlor

- Any gains in the hands of the settlor will be exempt gains
- Any losses in the hands of the settlor will not be adjustable losses
- Gift holdover relief will not be available since inheritance tax will not be payable

Under inheritance tax

- Inheritance tax will not be payable by the settlor or the trust
- Business property relief and agricultural property relief may be available

In the hands of the trust

Under income tax

- (not examinable in ATX)

Under chargeable gains tax

- (not examinable in ATX)

Under inheritance tax

- (not examinable in ATX)

In the hands of the beneficiaries

Under income tax

- Any income distributed to the beneficiaries by the trust will be taxed as non-savings,
savings and dividend income in the hands of the beneficiaries on gross basis
- Any tax credits deducted by the trust and paid to the HMRC will be received by the
beneficiaries
- If the income tax liability of the beneficiaries is less than the amount of tax credits
received by them then they can claim income tax refund

Under chargeable gains tax

- No tax implication

Under inheritance tax

- No tax implication