questions about Chapetr 9

[Spock]

Hi,

There are a few bits of chapter 9 that I am not quite getting:

1. I don't get the same answer to question 9.6 that is in the chapter solutions. Can someone give me the answer worked out step by step?

2.on page 24 there is a whole section discussing inheritance tax. I am probably reading this wrong but one paragraph which talks about using split trusts as a way of getting around the problem seems to then be contradicted in the next paragraph which says trust law requires a policy to be treated as a whole so can't have one bit written in trust and the other bit not. Does this mean split trusts are in effect a redundant concept and no longer used?

3. on page 27 under section 8.3 - Taxation of group policies. The first paragraph which talks about premiums paid by the employer for the employees. What does 'benefit in kind' actually mean?

Also a general question. There is a fair bit of detail in these taxation chapters. Do we really need to know all of this detail or just have a more general understanding? Seems more like memorising rather than understanding and applying concepts as in the real world you would look all this up somewhere or talk to tax experts.

Thanks
Geetha

 

[Steve McIntosh]

1. NCI profit is 300; 50 of which has already been taxed; the remaining 250 is taxed at 28%. The remainder of the “BLAGAB I-E” , i.e. 520 – 250 = 270, plus the Case VI profit of 260, i.e. a total of 530, is taxed at 20%.

2. I’m no expert on tax, but my understanding are that split trusts (as described in the first parag you mention) are still fairly common. I think the point of the second parag is that the benefit paid out on a CI event must be the same as that paid out on death.

3. Under UK pay-as-you-earn taxation rules, the employee will have to pay tax on certain benefits that an employee receives from his or her employer. In other words, the value of these benefits are treated as additional salary. These taxable benefits are known as “benefits-in-kind”. For insurance benefits, a common way of assessing the “value” to be taxed is by using the premium (that the employer effectively pays on behalf of its employees). So even though the employee receives these benefits “free of charge”, in some cases they need to pay tax in respect of them.

Generally, yes, there is a lot of detail here, and for the SA1 exam, it is more important that you have a good general understanding of the concepts rather than having to memorise the detail. The topic of taxation has only been examined once in Subject SA1 (in Sept 2007) and this tested the application of the tax rules, rather than their detail. Of course, the examiners could ask you about anything in the course, but I think it is more likely that the detail has been included for the practice module exam, P1, rather than for SA1.

Hope this helps

Steve

 

[Spock]

questions about Chpater 9

Thanks for the explanations. Much clearer now.

Geetha

 

[tde123]

I know that this is quite an old thread, but do the comments made about general understanding and likelihood of being tested on the tax material still apply?

 

[Sarah Byrne]

Yes, I would say so. Although there is nothing to stop them setting a detailed tax question!

They set a calculation question in SA2 a couple of years ago (April 10) if you are looking for some practice.

This is one of the sections of Core Reading with the most changes for this year and so you might think it is more likely to come up than in the past. I wouldn't try and second guess the examiners though!

Good luck