1. AF1:Taxation of Investments
2019/20
27 June 2019
Audely Financial Training

2. Taxation of Investments
ISA
Unit Trusts/OEICS
Taxation of Investments
EIS/SEIS
VCT
Insurance Policies
Property
Furnished Holiday Lets
Real Estate Investment Trust
Rent a Room
27 June 2019
Audely Financial Training

3. Audely Financial Training
What we will cover
Assume there are no issues with the taxation of unit trusts and OEICs
Investment Bonds will be covered on the second day
On ISA we will cover new rules on what happens on death, HTB ISA and Lifetime ISA
REITs and Furnished Holiday Lettings
EIS, SEIS & VCT
27 June 2019
Audely Financial Training

4. ISA: What happens on death
If death occurred after April it can be classed as a continuing ISA.
This means its tax privileged status is retained whilst in the estate.
The deceased’s executors usually apply to the provider(s) for this status.
The status will last until the earlier of
3 years from date of death
The ISA is closed
The administration of the estate is completed
27 June 2019
Audely Financial Training

5. Additional Personal Subscription (APS)
If death occurred after 3/12/14 a surviving spouse or CP gets an APS.
They inherit the deceased’s wrapper even if they don’t inherit the underlying assets.
If death occurs before April , the APS is the value of the deceased’s ISA at date of death.
If death occurred on or after 6 April 2018 the APS is the greater of the value at date of death or the value of the assets when they cease to be a continuing ISA
The APS is available on the day after the spouse’s death
27 June 2019
Audely Financial Training

6. Audely Financial Training
Using the APS
It can be either an in specie or cash contribution
In specie contribution must be made to the same manager used by the deceased and must be made within 180 days of becoming the owner.
Cash contributions can be made by either the spouse using their own assets or selling the deceased’s ISA and reinvesting the proceeds.
Can be made to any provider or type of ISA but must keep to one provider for the whole of the APS
The APS entitlement expires 3 years after the death of the spouse
27 June 2019
Audely Financial Training

7. Audely Financial Training
Think about this
Harry dies on 1/5/19 with ISA value £90,000 at date of death
The executors designate it as a continuing ISA
His wife has not made an ISA subscription for 19/20
She makes a £20,000 subscription on 31/7/19
Should this be set against her annual subscription or her APS
What would be the consequence if she were to make a £40K subscription on that date?
27 June 2019
Audely Financial Training

8. Audely Financial Training
Help to Buy ISA
Must be over 16 and UK resident
Be a first time buyer & own no property anywhere in the world
Cannot have contributed to a cash ISA in the same tax year as HTB ISA
Open account with a max of £1,200
Save up to £200 a month
Get a 25% Government bonus. Minimum savings £1,600, Maximum £12,000
Will close to new applications on 30 November 2019
27 June 2019
Audely Financial Training

9. Audely Financial Training
Lifetime ISA
Available to individuals aged 18 to 40 but contributions can continue until 50
Maximum contribution £4,000 per tax year, comes out of standard ISA allowance of £20,000
Government bonus of 25% on each contribution made up to age 50.
BUT penalty of 25% on withdrawals unless
Used for first time house purchase
Taken after age 60
27 June 2019
Audely Financial Training

10. Investing in property through collectives
Open ended – Unit trusts/OEIC/Insurance Funds
Liquidity and valuation issues
Property Authorised Investment Fund (PAIF)
Property Company shares
No liquidity issues
Company pays tax on rents it receives
Investors receive dividends from the overall profits of the business
27 June 2019
Audely Financial Training

11. Real Estate Investment Trust (REIT)
Close ended property company, listed on recognised Stock Exchange
Can be placed in an ISA
Unique tax treatment
To qualify:
75% of its profits must come from property rental income
75% of its assets must be involved in property rental
90% of rental received must be distributed to investors
27 June 2019
Audely Financial Training

12. Taxation of a REIT REIT Investors Rent exempt from tax
Property Investment Distribution
Investors
REIT
Rent exempt from tax
Dividend (Non PID)
Rent exempt from tax
27 June 2019
Audely Financial Training

13. Audely Financial Training
Rent a Room Relief
Allows a householder to rent out rooms with the first £7,500 being tax free
It must be in their main residence and in the UK
It must not be a self contained flat
It must be furnished
It must not be used for business purposes
27 June 2019
Audely Financial Training

14. Audely Financial Training
Property exemption
If property income is less than £1,000, no tax is due and it doesn’t need to be declared
Or if more than £1,000 the first £1,000 can be treated as tax free but no expenses can be claimed.
If property is jointly owned each owner can claim the £1,000 exemption
Can’t use it with rent a room
27 June 2019
Audely Financial Training

15. Furnished Holiday Lettings
If it qualifies for FHL, the income is taxed as trading income.
This means:
Income counts as NRE for pension contributions
Capital Allowance can be used
Mortgage interest can be offset against income
Qualifies for Entrepreneur relief
Business holdover relief can be used
Trading losses can be offset against income
BPR may be available
Doesn’t need to be in a holiday resort!
27 June 2019
Audely Financial Training

16. 210 105 31 To qualify Must be furnished and in the EEA
Number of days it must be available to rent
105
Number of days it must be let 31
Maximum rental period to count towards 105 days
27 June 2019
Audely Financial Training

17. The tax efficient but risky trio
Enterprise Investment Scheme (EIS)
Small Enterprise Investment Scheme (SEIS)
Venture Capital Trust (VCT)
All are designed to encourage investment in small start up businesses
All give substantial tax breaks
EIS and SEIS are shares in unlisted companies
VCT are listed but invest in unlisted companies
27 June 2019
Audely Financial Training

18. Contributions EIS SEIS VCT Contribution £1,000,000 £100,000 £200,000
£2,000,000 if it is knowledge intensive
EIS
SEIS
VCT
Contribution
£1,000,000
£100,000
£200,000
Tax relief
30%
50%
Claw back
3 years
5 years
Back dating
One year No
27 June 2019
Audely Financial Training

19. Audely Financial Training
Tax Reducer
Ben invests £100,000 into a VCT so is eligible for tax relief of £30,000
His income tax liability is £28,000 so it is reduced to £0 but there is no refund
27 June 2019
Audely Financial Training

20. Clawback Jan invests £30,000 in an EIS and gets £9,000 in tax relief
Two years later the company is bought by a Private Equity firm and she receives £60,000
Jan must repay the tax relief of £9,000 so her gain is £30,000
If the business had collapsed and the shares were valueless she would still have to repay £9,000 and her loss would be £21,000
27 June 2019
Audely Financial Training

21. Clawback (2)
Two years later the shares have fallen in value to £35,000 and she decides to sell
Sue invested £60,000 in an EIS receiving £18,000 in tax relief
Her net loss is £60,000 less £35,000 less £7,500 = £17,500
Her gross loss is £25,000 but she must repay tax relief on this loss
£25,000 x 30% = £7,500
27 June 2019
Audely Financial Training

22. Audely Financial Training
CGT
EIS
SEIS
VCT
Contribution
£1,000,000
£100,000
£200,000
Tax relief
30%
50%
Claw back
3 years
5 years
Back dating
One year No
CGT deferral on reinvested gains
Yes
Yes and will wipe out 50% of invested gain
CGT on gains
Exempt after 3 years
Free immediately
Loss relief (income tax)
27 June 2019
Audely Financial Training

23. CGT deferral (EIS only)
If the £200,000 gain is invested in an EIS the gain is deferred
Jane is a higher rate tax payer and has a chargeable Capital Gain of £200,000 with a liability of £40,000
But when the EIS is realised the £200,000 gain becomes taxable at that year’s rate
27 June 2019
Audely Financial Training

24. CGT Reinvestment (SEIS)
She invests the maximum £100,000 in a SEIS and wipes out £50,000 of her gain saving her £10,000
Jane is an additional rate tax payer and has a chargeable Capital Gain of £200,000 with a liability of £40,000
As she could also have claimed £50,000 as a tax reducer, it would have cost her £40,000 to invest £100,000
If she lost all the money in the SEIS, she could offset £50,000 under loss relief saving her £22,500
Her maximum possible loss is £17,500
27 June 2019
Audely Financial Training

25. Audely Financial Training
Dividends and IHT
EIS
SEIS
VCT
Contribution
£1,000,000
£100,000
£200,000
Tax relief
30%
50%
Claw back
3 years
5 years
Back dating
One year No
CGT deferral on reinvested gains
Yes
Yes and will wipe out 50% of invested gain
CGT on gains
Exempt after 3 years
Free immediately
Dividends
Taxable
Tax free
BPR
27 June 2019
Audely Financial Training