Advanced Taxation (ATX-UK) Flashcards

A UK resident individual receives a dividend of £50,000 from a UK company in the 2025/26 tax year. Their other income already exceeds the higher rate threshold but is below the additional rate threshold. After the £500 dividend allowance, how much income tax is payable on the dividend?

Answer: £16,706.25

Taxable dividend = £50,000 - £500 (dividend allowance) = £49,500. Since the individual's other income already exceeds the higher rate threshold (but not additional rate), the entire taxable dividend falls into the higher rate band at 33.75%. Tax = £49,500 × 33.75% = £16,706.25. Dividends have their own tax rates separate from employment and savings income — currently 8.75% (basic), 33.75% (higher), and 39.35% (additional).

A company is considering whether a payment to a departing employee constitutes earnings from employment or a termination payment. Why is this distinction important for tax purposes?

Answer: The first £30,000 of qualifying termination payments is exempt from income tax, whereas earnings are fully taxable

The distinction is critical because genuine termination payments (those not representing payment for services, contractual entitlements, or payments in lieu of notice) benefit from a £30,000 exemption under s.403 ITEPA 2003. Only amounts exceeding £30,000 are taxable. Earnings (including contractual PILON, holiday pay, and bonuses) are fully subject to income tax and NICs from the first pound. Post-employment notice pay (PENP) rules also apply to allocate part of termination payments to earnings.

A UK individual sells a painting for £25,000 that they purchased for £4,000 several years ago. The painting is a tangible moveable property (chattel). What is the chargeable gain, applying the chattel rules?

Answer: The lower of £21,000 or 5/3 × (£25,000 - £6,000) = £31,667, so £21,000

For chattels sold for more than £6,000 (the chattel exemption threshold) and acquired for less than £6,000, the gain is restricted to the LOWER of: (1) the actual gain (proceeds minus cost = £25,000 - £4,000 = £21,000), or (2) 5/3 × (gross proceeds - £6,000) = 5/3 × £19,000 = £31,667. Since £21,000 < £31,667, the chargeable gain is £21,000 (the 5/3 rule does not restrict it in this case).

A UK partnership consists of three partners sharing profits equally. The partnership makes a tax-adjusted trading profit of £450,000 for the year ended 5 April 2026. How is this taxed?

Answer: Each partner is assessed on £150,000 as trading income in their personal tax returns

In the UK, partnerships are transparent for tax purposes — the partnership itself is not a taxable entity. The profits are allocated to each partner according to the profit-sharing ratio (in this case equally, so £150,000 each) and each partner includes their share as trading income in their personal Self Assessment tax return. Each partner's tax liability depends on their individual circumstances (other income, personal allowance, tax band).

An individual transfers a property worth £400,000 into a discretionary trust. The property has a base cost of £150,000. The individual has already used their annual exempt amount. Which taxes may arise on this transfer?

Answer: CGT on the gain (holdover relief may be available) and an IHT lifetime charge if cumulative transfers exceed the nil rate band

Transferring property into a discretionary trust triggers two potential tax charges: (1) CGT on the disposal at market value (gain = £400,000 - £150,000 = £250,000), though holdover relief under s.260 TCGA 1992 may be claimed for transfers into relevant property trusts, deferring the CGT. (2) IHT as a chargeable lifetime transfer (CLT) — if cumulative transfers in the previous 7 years exceed the £325,000 NRB, tax at 20% (lifetime rate) applies to the excess.

A UK company with a 31 March year end has taxable total profits of £300,000 for the year ended 31 March 2026. There are no associated companies. What is the Corporation Tax liability?

Answer: £75,000 at the main rate of 25%

For the financial year 2025, the Corporation Tax rates are: 19% on profits up to £50,000 (small profits rate), 25% on profits over £250,000 (main rate), with marginal relief applying between £50,000 and £250,000. Since profits of £300,000 exceed the upper limit of £250,000, the full main rate of 25% applies with NO marginal relief. Corporation Tax = £300,000 × 25% = £75,000. Marginal relief only benefits companies with profits between £50,000 and £250,000.