ACCA ATX ^UK Syllabus A1. Income tax - Pensions - Past Papers ^{1 / 2}

Demeter has recently taken up a new employment and is seeking advice on the tax treatment of certain components of his remuneration package.

Demeter:
– Is UK resident and domiciled.

– Commenced employment with Poseidon Ltd on 1 December 2018.

– Will have no source of income, other than from Poseidon Ltd, in all relevant future tax years.

– Will be a higher rate taxpayer in all relevant future tax years.

Remuneration package from Poseidon Ltd:
– Demeter will receive an annual salary of £130,000.

– On 1 December 2018, Poseidon Ltd made a one-off lump sum payment of £20,000 to Demeter as an inducement to take up employment with the company.

– On 1 December 2018, Demeter was granted share options in Poseidon Ltd’s unapproved share option scheme.

– From 6 April 2019, Demeter will participate in Poseidon Ltd’s approved occupational pension scheme.

Demeter – pension contributions:
– Demeter has made tax-allowable contributions of £40,000 (gross) to a personal pension plan for the last five tax years and will continue to do so in future tax years.

– From the tax year 2019/20, Poseidon Ltd will contribute an amount equal to 10% of Demeter’s annual salary to its approved occupational pension scheme.

– Demeter will make no contributions to Poseidon Ltd’s occupational pension scheme.

Required:
(c) Explain, with supporting calculations, the tax consequences for Demeter of participating in:

Your client, Jessica, has requested advice in relation to the maximum contribution she can make to a personal pension scheme.

Jessica – other income:
– Prior to the tax year 2017/18 Jessica had no other source of income.
– Starting from the tax year 2017/18, Jessica receives rental income of £6,000 each tax year.

The Langley Partnership:
– Prior to 1 July 2018, there were two partners in the partnership – Issa and Finn.
– From 1 July 2018, the profit sharing ratio will be: Issa 20%, Finn 40%, and Jessica 40%.
– The budgeted tax-adjusted trading (loss)/profit of the partnership is:
– Year ending 31 March 2019 – (£160,000)
– Year ending 31 March 2020 – £205,000.

Jessica – personal pension plan contributions:
– Jessica joined a registered personal pension scheme on 1 May 2018.
– She has not previously been in any pension scheme.
– She wishes to make the maximum possible contributions which will qualify for tax relief in each of the tax years
2018/19 and 2019/20.

Required:
(c) Explain, with supporting calculations, the maximum amount of the contributions Jessica can pay into her pension scheme in each of the tax years 2018/19 and 2019/20 without incurring an annual allowance charge.
(5 marks)

Adam would like advice on recent changes in tax law which affect his investment planning.

Adam:
– Is UK resident and domiciled.
– Is 42 years old.
– Is an additional rate taxpayer, with adjusted income (for the purpose of calculating Adam’s annual allowance for pension contributions) of £200,000 per year, which he expects to continue for the foreseeable future.
– Uses his annual exempt amount for capital gains tax purposes each year.
– Is in full-time employment and will lease Eastwick Farm to a tenant farmer.

Adam – investments:
– Adam has regularly contributed £40,000 into a personal pension scheme to use his annual allowance.
– Adam has invested the maximum amount each year in an individual savings account (ISA).

Adam – thoughts on investments:
– ‘I have been advised that my annual allowance for pension contributions was reduced to £15,000 for the tax year 2016/17, so I have incurred an additional tax charge. Please can you explain this reduction in my annual allowance?’
– ‘Is there now any point in investing in either a cash or a stocks and shares ISA as savings income and dividends are now exempt from tax anyway up to £5,000 per year?

Required:
(b) Comment on the thoughts expressed by Adam in relation to his personal pension contributions and investment in individual savings accounts (ISAs). (6 marks)

Your firm has been asked to provide advice to two unrelated clients, Stella and Maris. Stella requires advice on the tax implications of making an increased contribution to her personal pension scheme. Maris requires advice regarding the lump sum payment she has received from her pension scheme and the inheritance tax exemptions available on her proposed lifetime gifts.

(a) Stella:
– Is resident and domiciled in the UK.
– Was born on 1 May 1958.
– Receives a gross salary of £80,000 each year.
– Has income from a portfolio of unfurnished properties, totalling £92,000 in the tax year 2015/16.
– Has no other source of taxable income.
– Wishes to make an increased contribution to her personal pension scheme in the tax year 2015/16.

Personal pension scheme contributions:
– Stella has contributed £40,000 (gross) to her personal pension scheme in each of the four tax years 2011/12, 2012/13, 2013/14 and 2014/15.
– Stella wishes to make an increased contribution of £90,000 (gross) in the tax year 2015/16.

Required:
Calculate Stella’s income after tax and pension contributions for the tax year 2015/16 if she does pay £90,000 (gross) into her personal pension scheme. (10 marks)

Your firm has been asked to provide advice to Shuttelle in connection with personal pension contributions and to three non-UK domiciled individuals in connection with the remittance basis of taxation for overseas income and gains.

(a) Personal pension contributions:
– Shuttelle has been the production director of Din Ltd since 1 February 2000.
– Shuttelle joined a registered personal pension scheme on 6 April 2010.

Shuttelle’s tax position for the tax year 2012/13:
– Shuttelle’s only source of income is her remuneration from Din Ltd.
– Shuttelle’s annual salary is £204,000.
– Shuttelle lived in a house owned by Din Ltd for a period of time during the tax year 2012/13.

The house provided by Din Ltd for Shuttelle’s use:
– Was purchased by Din Ltd on 1 January 2000 for £500,000 and has an annual value of £7,000.
– Shuttelle lived in the house from 1 February 2000 until 30 June 2012.
– The house had a market value of £870,000 on 6 April 2012.

Contributions to Shuttelle’s personal pension scheme:
– Shuttelle has made the following gross contributions:
6 April 2010 – £29,000
6 April 2011 – £48,000
6 April 2012 – £120,000.
– Din Ltd contributes £4,000 to the scheme in each tax year.

Required:
(i) Calculate Shuttelle’s income tax liability for the tax year 2012/13; (8 marks)

Your firm has been asked to provide advice to Shuttelle in connection with personal pension contributions and to three non-UK domiciled individuals in connection with the remittance basis of taxation for overseas income and gains.

(a) Personal pension contributions:
– Shuttelle has been the production director of Din Ltd since 1 February 2000.
– Shuttelle joined a registered personal pension scheme on 6 April 2010.

Shuttelle’s tax position for the tax year 2012/13:
– Shuttelle’s only source of income is her remuneration from Din Ltd.
– Shuttelle’s annual salary is £204,000.
– Shuttelle lived in a house owned by Din Ltd for a period of time during the tax year 2012/13.

The house provided by Din Ltd for Shuttelle’s use:
– Was purchased by Din Ltd on 1 January 2000 for £500,000 and has an annual value of £7,000.
– Shuttelle lived in the house from 1 February 2000 until 30 June 2012.
– The house had a market value of £870,000 on 6 April 2012.

Contributions to Shuttelle’s personal pension scheme:
– Shuttelle has made the following gross contributions:
6 April 2010 – £29,000
6 April 2011 – £48,000
6 April 2012 – £120,000.
– Din Ltd contributes £4,000 to the scheme in each tax year.

Required:
(ii) Calculate the amount of tax relief obtained by Shuttelle as a consequence of the gross personal pension contributions of £120,000 she made on 6 April 2012. (3 marks)