this lecture has= 8 slides.

real estate investment trust= REIT or reit.

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Investment Income
Real Estate Investment Trust (REIT)
one of the opportunities available to individuals is working with reit

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 Introduction
▪ Real Estate Investment Trust is a listed property business set-up
reit is property investment firm listed on uk stock exchange.

▪ Investors pool their funds^and the REIT firm invests it in property this is then let out to tenants.
or deposit their money

▪ Income generated is then distributed as dividends to the investors

the tax authorities encourages the operation of such a trust but providing tax relief that in turn enables the trust to diversify property portfolio this leads to better return for the investors
Tax Implications for investors of reit are as follow

▪ The dividend paid by the REIT is net of 20% tax so when it is being included in income tax computation it needs to be grossed up.

▪ The gross amount is treated as property income instead of dividend income and sloted in nsi column

▪ Tax liability is eventually calculated using either 20%, 40% or 45% tax rates based on tax payers overall tax status
further
▪^ The tax amount deducted by the REIT is treated as tax deducted at source in arriving at

the Tax Payable amount

 Example
In the current tax year, Bob earned employment income of £74,000 and received

dividends of £12,800 from a REIT.

Tax Implications: very first tax implication is that amount needs to be grossed up

▪ Dividends grossed up £12,800 x 100/80 = £16,000 so amount will be multiplied with fraction 100/80

the amount after grossed up will now be

▪^Treated as property income in the income tax computation -rather than as di

▪ Tax credit available however remember that tax credit will be available when calculating tax payable amount.
Solution
NSI/ Total we create income tax computation format and we slot in
ei we then include dividends form reit but we treat them as
£
other investment income and we put it as nsi item

Employment Income 74,000

Dividends from REIT/ Other Investment Income 16,000
Solution
we as usual then calculate taxable income and then
NSI/ Total
£
Employment Income 74,000
Dividends from REIT/ Other Investment Income 16,000
Total/ Net Income 90,000
Personal Allowance (12,570)
Taxable Income 77,430
Solution
NSI/ Total then we compute income tax liability we will then claim
tax credit for tax deducted at source on returns form reit
£ this amount is calculated as difference of gross amount
and amount actually received, and this tax deducted
Employment Income 74,000 at source amount is adjusted against tax liability
calculated to arrive at tax payable amount.

Dividends from REIT/ Other Investment Income 16,000

Total/ Net Income 90,000
Personal Allowance (12,570)
Taxable Income 77,430

Tax Payable
£37,700 x 20% 7,540
£39,730 x 40% 15,892
Less tax deducted at source (£16,000 – 12,800) (3,200)
20,232
Thank you…

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 this lecture has 6 slides.

from 9-14

Investment Income
Tax Free Investments
to increase their earnings individuals can opt for investing their saving in products that lead to good returns hmrc encourages investment amount by making some of them tax free.

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Recap: Exempt Income some examples of exempt income are

whether in the form of

▪ Income from Individual Savings Account (ISAs):^Interest/ dividends or gains

▪ Dividends from Venture Capital Trusts (VCTs)

▪ Interest on National Savings and Investment Certificates (NSI&C)

we will be looking at guidelines and tax implications around isa as this is a more commonly tested tax free investment.

Individual Savings Account (ISAs)

▪ UK resident individuals can set up either a cash or stock based ISA,

▪ Upto a total tax free value of £20,000 in a tax year this means any investments amount beyond 20,000£ is allowed but its not eligible for tax relief.

▪ Interest earned on a cash based ISA is exempt

▪ Dividends earned from a stock based ISA is exempt and

▪ Gains arising on the sale of the ISA stock is also exempt

eventually when stocks from an isa are disposed the gain arising from it is also exempt from any capital gains tax.
 Transfer of Individual Savings Account (ISAs) - hmrc provide further tax advantage on isa

/all
▪ Each^individual is entitled to an annual ISA investment allowance limit of £20,000 but if a person were to die
or inherited

▪ Any unused allowance limit of a deceased spouse/ civil partner can be claimed by the ^

surviving spouse/ partner remember this must be claimed as if the spouse or partner of the deceases want to avail this tax advantage they must file a
claim for it this is not an automatic adjustment

▪ It doesn’t matter to whom the ISA account cash or stock is left to – the allowance is

transferable to the spouse only

the actual cash or stock(which were in the isa of the deceased) may not be transferred to surviving spouse or partner, but the unused allowance of isa can only be transferred to spouse or
civil partner only.
 Tax Impact
▪ Objective: to encourage savings at an individual level
since interest and dividend earned from isa is exempt this was (in some cases is still) a huge attraction for individuals to invest.

▪ But the introduction of Nil Rate Bands for SI has reduced interest for basic and higher rate

taxpayers as £1,000 and £500 respectively of the interest income is taxed at 0.

▪ The NRB for DI has reduced the interest of investors as £2,000 of the dividends are taxed

at 0.
but with the introduction of si and di nil rate bands the attraction has dimmed this is because interest and dividends received from other sources are also now taxed at 0% to some extent
due to new nil rate bands. However isa still remain advantageous for individuals with si that fall in additional higher rate tax slab
Thank you…

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 this lecture has 11 slides

from 15 to 25

enterprise investment scheme = EIS or eis

Investment Income
Enterprise Investment Scheme
Apart from tax free investments hmrc has setup tax relief schemes to encourage investments in small trading companies or new start up one of these scheme is eis.

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 Introduction
Enterprise Investment Scheme has been introduced by the government to encourage

investment in unquoted trading companies. which are a risk venture

in order to encourage investment /despite of high risk

^ Due to the risk ^faced by the investor i.e. of having invested in a single company without a lot of

recognition and easily convertible stock; the government offers tax relief in association with this

investment in:

▪ Income tax

▪ Capital gains tax

▪ Inheritance tax
Investment Conditions the investment conditions that needs to be met in order for the relief to be eligible are as follow

only

▪ The investment must^be for new shares of the company and be in cash -only

▪ The investment should be ≤ 30% of the company’s ordinary share capital

Additionally at any given point in time

▪^The investor cannot be an employee of the company ^and should not already possess a

share in the company at the time of the investment

if all qualifying conditions are met then the income tax implications from an income tax perspective are as follow

Tax Implications: Income Tax

remains

▪ Dividend income is taxable as per the set tax rates

^

▪ Tax relief = 30% x cost of the subscribed shares

but the tax liability is reduced by 30% of cost of the subscribed shares. Tax authorities have set up a cap on the amount of investment that can be eligible for relief and this is set at 1,000,000£

▪ Maximum tax relief = 30% of £1 million = £300,000

Tax authorities have set up a cap on the amount of investment that can be eligible for relief and this is set at 1,000,000£. so if an individual has made the maximum amount of investment then maximum relief is
would amount to 300,000£

▪ This needs to be deducted from the tax liability but can at the most reduce it to 0
when adjusted against tax liability of individual like any other relief it can at most reduce tax liability to 0£ but can not create a negative figure.

tax /relief
▪ Investment can be carried back one ^year but investment^ amount will be maximum of £1

million or relief can only be provided on an overall investment amount of 1,000,000£

▪ This relief will be withdrawn if shares sold within 3 years ----of purchase
 Tax Implications: Capital Gains Tax for cgt perspective,

capital loss = CL or cl

▪ If shares held for ≥ 3 years and then disposed:

• Gains: exempt then the disposal will be an exempt disposal if gain arises.

• Losses: available for relief (can be elected to be treated against total income)
however if loss arises the relief will be available on capital loss regardless of how long shares have been held for This loss relief can also be relived against total income of investor.(for more look cgt
section of syllabus)

▪ Cost of shares for loss calculation = Cost of shares – amount of EIS relief claimed (not

withdrawn) toof calculate the cl the cost of share is compared against sale proceeds of those shares, so the cost of shares to be taken in calculation is equal to cost of share itself less amount
eis relief that has already been claimed by individual provided it was not withdrawn.

▪ If proceeds are re-invested in EIS shares, the gain on the original disposal can be deferred

and will crystalise on the disposal of the new EIS shares

an additional advantage provided to individual is that if the individual disposes of any qualifying assets and then uses the sales proceeds of that asset to purchase or make an investment in an eis the gain arising from
original disposal can be deferred against the cost of the new shares the gain will crystalize on the disposal of eis shares. This is termed as roll over relief and is from cgt syllabus area.
 Tax Implications: Inheritance Tax as mentioned investor individual will also be provided with iht relief.

provided no iht will be calculated on it since

▪ If shares owned ≥ 2 years and then transferred,^ the transaction can be covered under
^

Business Property Relief under the Inheritance Tax rules

business property relief is a form of tax relief that allows iht relief on business asset including shares in a qualifying business such as eis provided that 2 years holding condition is met.
Example
Almond Ltd is a qualifying EIS company.

In the current tax year, Charles invested £30,000 in the company for the first time and this

represented a 2% shareholding in the company’s share capital.

Charles taxable income from his employment amounts to £50,000 for the tax year but the

dividends (gross) of £15,000 were not included in this amount.

taxable employment income means net of pa
Solution
Income
we start by creating income tax computation format for tax payer and sloting in ei and
gross di to achieve taxable income we will not adjust that pa amount because we assume
that it has already been adjusted against ei as that has been already been stated to be

£
taxable amount in question.

Employment Income 50,000

Dividends from EIS 15,000
Taxable Income 65,000
Solution
so we now compute tax liability and tax payable as follow given the table. These are all
Income simple rules as per income tax basics. having calculated income tax liability we now work
at tax payable amount by making an adjustment for tax relief available on eis, this is
calculated as 30% of investment made as given in solution table so this is adjusted
£ against tax liability leaving us with tax payable amount.

Employment Income 50,000

Dividends from EIS 15,000
Taxable Income 65,000

Tax Payable
£37,700 x 20% 7,540
£12,300 x 40% 4,920
£2,000 x 0% Dividend Nil Rate Band 0
£13,000 x 33.75% 4,387
Less: Tax relief on EIS (30% of £30,000) (9,000)
7,847
Example cl or CL = capital loss

3 years later, the value of Charles shareholding has gone down to £18,000 and Charles is

thinking of selling his EIS shares. What are the implications?

If sold immediately – Capital Loss

the shares have been held for more than than 3 years after the original investment now
when the shares are sold at a lower value this will lead to a cl. To calculate the cl we will
pick up sales proceeds of 18,000£ and we will compare it with cost of investment,
£ £ but there will be an adjustment made to cost of investment of 30,000£ and the adjustment
is for the relief that had already been claimed which is of 9,000£ the adjusted cost of
investment is 21,000£ which when compared to sales proceeds leave tax payer with a

Sale proceeds 18,000 capital loss amount of 3,000£ this loss can be relived and tax payer can also elect
for this to be treated against total income as well.

Less: Cost 30,000

Adjustment for relief claimed (9,000)
(21,000)
Capital Loss (3,000)
Thank you…

25
 this lecture has 7 slides
from 26 to 32

seed enterprise investment scheme = SEIS or seis

Investment Income
Seed Enterprise Investment Scheme
(SEIS)

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Introduction
Seed Enterprise Investment Scheme has been introduced by the government to

encourage investment in new businesses that are unquoted.

Due to the investor contributing in a single company, the risk faced is high -bybuthmrc.
this risk is covered by tax relief made available
 Investment Conditions
▪ The investment must be for new shares of the company and be in cash

▪ The investment should be ≤ 30% of the company’s ordinary share capital

▪ The investor cannot be a current employee of the company although could have

formerly worked at it means they are permitted even if they had worked for the company previously at any given point in time.

for the investment made in seid tax relief is yet again available for income tax cgt and iht.
 Tax Implications: Income Tax
▪ Dividend income is taxable as per the set tax rates

▪ Tax relief = 50% x cost of the subscribed shares

but the individual tax liability for the tax year will be reduced by 50% of cost of subscribed shares value.. Tax authorities have set 100,000£ as maximum investment amount on which relief can be availed.

▪ Maximum tax relief = 50% of £100,000 = £50,000

so the maximum tax relief that the individual can claim will amount to 50,000£.

▪ This needs to be deducted from the tax liability which can at the most be reduced to 0
when adjusted against tax liability this will at max or most reduce the liability to nil or 0£ and can not create a negative figure.

▪ Investment can be carried back one year but investment amount will be maximum of

£100,000

▪ This relief will be withdrawn if shares sold within 3 years of purchase or investment
Tax Implications: Capital Gains Tax
▪ If shares held for ≥ 3 years and then disposed:

• Gains: exempt

• Losses: available for relief (can be elected to be treated against total income)

▪ If proceeds are re-invested in SEIS shares, the gain on the original disposal can be

deferred and will crystalise when the new SEIS shares are disposed
Tax Implications: Inheritance Tax
▪ If shares owned ≥ 2 years and then transferred, the transaction can be covered under

Business Property Relief under the Inheritance Tax rules

Thank you…

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 this lectue has 7 slides
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venture capital trust - vct or VCT this lecture has 7slides

from 33-39

Investment Income
Venture Capital Trust (VCT)
final type of investment scheme is vct.

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 Introduction
unlike eis and seis or own (fully)
^ A Venture Capital Trust is a quoted company that owns shares in a number of ^EIS, so the
number of eis and since it is a

individual making an investment in a VCT is effectively investing in a ^portfolio of EIS and

therefore reducing the risk faced.--- by the investor

Investment Conditions
▪ The investment must be for new shares of the company and be in cash
eligible for relief is
that
▪ The maximum investment amount can be^£200,000 per tax year---- for an individual.
^
 Tax Implications: Income Tax
▪ Dividend income is exempt upto the maximum investment amount
since maximum investment amount is 200,000£ so any dividends earned on this 200,000£ is exempt, but if an individual were to make an investment beyond 200,000£ then any dividend earned on the excess of 200,00£ will be taxable.

▪ Tax relief = 30% x cost of the subscribed shares

▪ Maximum tax relief = 30% of £200,000 = £60,000

since maximum amount can be 200,000£ so maximum relief is as above.

▪ This needs to be deducted from the tax liability but this can at the most be reduced to 0

▪ The Income Tax Relief will be withdrawn if the shares are sold within 5 years
the share in vct needs to be held for a slighter larger period of 5 years other wise income tax relief will be withdrawn.

▪ The relief cannot be carried back

only scheme where relief can not be carried back
Tax Implications: Capital Gains Tax
the respected cgt implications are as follows

▪ Gains on disposal of shares of investment upto £200,000 per annum are exempt

▪ No capital loss relief is available

neither be there be any of these two.

▪ No rollover/ holdover relief is available

 Tax Implications: Inheritance Tax
investment or in vct
^
▪ Shares ^do not qualify for Business Property Relief
Thank you…

39
 this lecture has slides
form 40 to 43

Investment Income
Withdrawal of Tax Relief
as we have covered before all investment schemes have laid down an investment holding period failure to comply with which may have repercussions

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Income Tax Relief Withdrawal
▪ If EIS and SEIS shares not held for 3 years and VCT shares not held for 5 years, the Income

Tax relief is withdrawn the tax implication is that the income tax made available will be withdrawn.

▪ If sale is to a connected party, the entire amount or Income Tax relief given becomes

taxable if shares has been disposed of before holding period is up and sale is to a connected party then entire amount of income tax relief provided to individual will be withdrawn.

(means to an unconnected party)

▪ If sale is an arm’s length transaction, then taxable amount is the lower of:

• Original Income Tax relief given

• (% of the relief x Sales proceeds of the shares) formula to find other amount.
Capital Gains Tax Relief Withdrawal
If SEIS shares disposed within 3 years of purchase the CGT reinvestment relief is withdrawn
Thank you…

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