问答题
Coral is the owner and managing director of Reef Ltd. She is considering the manner in which she will make her
first pension contributions. In November 2012 she inherited her mother's house in the country of Kaiania, which is
outside the European Economic Area (EEA).
The following information has been extracted from client files and from telephone conversations with Coral.
Coral:
· 1975 - Born in the country of Kalania. Her father, who died in 2006, was domiciled in Kalania.
· 2004 - Moved to the UK and has lived and worked here since then.
· 2005 - Subscribed for 100% of the ordinary share capital of Reef Ltd.
· Intends to sell Reef Ltd and return to live in the country of Kalania in 2017.
· No income apart from that received from Reef Ltd.
Reef Ltd:
· AUK resident company with annual taxable total profits of approximately ￡350,000.
· Fourteen employees including Coral.
· Provides scuba diving lessons to members of the public and specialist underwater photography facilities for
commercial organisations.
Payments from Reef Ltd to Coral in 2012/13:
· Director's fees of ￡460 per month.
· Dividends paid of ￡16,250 in June 2012 and ￡16,250 in September 2012.
Pension contributions:
· Coral has not so far made any pension contributions in the tax year 2012/13 but wishes to make gross
pension contributions of ￡9,000.
· The contributions are to be made by Reef Ltd or Coral or a combination of the two in such a way as to
minimise the total after tax cost.
· Any contributions made by Coral will be funded by an additional dividend from Reef Ltd.
· Coral was not a member of a pension scheme in 2011/12 or any previous years.
House in the country of Kalania:
· Beachfront property with potential rental income of ￡550 per month after deduction of allowable expenditure.
· Coral will use it for holidays for two months each year.
The tax system in the country of Kalania:
· No capital gains tax or inheritance tax.
· Income tax at 8% on income arising in the country of Kalania.
· No double tax treaty with the UK.
Required
(a) With the objective of minimising the total after tax cost, advise Coral as to whether the gross pension
contributions of ￡9,000 should be made:
· wholly by Reef Ltd; or
· by Coral to the extent that they are tax allowable with the balance made by Reef Ltd.
Your answer should include supporting calculations where necessary.
(b) (i) Explain, by reference to Coral's residence, ordinary residence and domicile position, how the rental
income arising in respect of the property in the country of Kalania will be taxed in the UK in the tax
year 2012/13. State the strategy that Coral should adopt in order to minimise the total income tax
suffered on the rental income.
(ii) Explain how the inclusion of rental income in Coral's UK income tax computation could affect the
income tax due on her dividend income.
You are not required to prepare calculations for part (b) of this question.
Note: you should assume that the tax rates and allowances for the tax year 2011/12 and for the Financial Year to 31
March 2012 will continue to apply for the foreseeable future.
first pension contributions. In November 2012 she inherited her mother's house in the country of Kaiania, which is
outside the European Economic Area (EEA).
The following information has been extracted from client files and from telephone conversations with Coral.
Coral:
· 1975 - Born in the country of Kalania. Her father, who died in 2006, was domiciled in Kalania.
· 2004 - Moved to the UK and has lived and worked here since then.
· 2005 - Subscribed for 100% of the ordinary share capital of Reef Ltd.
· Intends to sell Reef Ltd and return to live in the country of Kalania in 2017.
· No income apart from that received from Reef Ltd.
Reef Ltd:
· AUK resident company with annual taxable total profits of approximately ￡350,000.
· Fourteen employees including Coral.
· Provides scuba diving lessons to members of the public and specialist underwater photography facilities for
commercial organisations.
Payments from Reef Ltd to Coral in 2012/13:
· Director's fees of ￡460 per month.
· Dividends paid of ￡16,250 in June 2012 and ￡16,250 in September 2012.
Pension contributions:
· Coral has not so far made any pension contributions in the tax year 2012/13 but wishes to make gross
pension contributions of ￡9,000.
· The contributions are to be made by Reef Ltd or Coral or a combination of the two in such a way as to
minimise the total after tax cost.
· Any contributions made by Coral will be funded by an additional dividend from Reef Ltd.
· Coral was not a member of a pension scheme in 2011/12 or any previous years.
House in the country of Kalania:
· Beachfront property with potential rental income of ￡550 per month after deduction of allowable expenditure.
· Coral will use it for holidays for two months each year.
The tax system in the country of Kalania:
· No capital gains tax or inheritance tax.
· Income tax at 8% on income arising in the country of Kalania.
· No double tax treaty with the UK.
Required
(a) With the objective of minimising the total after tax cost, advise Coral as to whether the gross pension
contributions of ￡9,000 should be made:
· wholly by Reef Ltd; or
· by Coral to the extent that they are tax allowable with the balance made by Reef Ltd.
Your answer should include supporting calculations where necessary.
(b) (i) Explain, by reference to Coral's residence, ordinary residence and domicile position, how the rental
income arising in respect of the property in the country of Kalania will be taxed in the UK in the tax
year 2012/13. State the strategy that Coral should adopt in order to minimise the total income tax
suffered on the rental income.
(ii) Explain how the inclusion of rental income in Coral's UK income tax computation could affect the
income tax due on her dividend income.
You are not required to prepare calculations for part (b) of this question.
Note: you should assume that the tax rates and allowances for the tax year 2011/12 and for the Financial Year to 31
March 2012 will continue to apply for the foreseeable future.
【正确答案】Text references. Chapter 2 covers pension arrangements. Overseas aspects of income tax are dealt with in Chapter 10.
Top tips. In part (a), you were asked to include supporting computations and so you must make sure you do so in
order to get reasonable marks. On the other hand, in part (b), you were told that you were not required to prepare
calculations so it would have been a waste of your time to do so.
Easy marks. You should have been able to spot that the remittance basis could apply to the overseas income and
the effect of double taxation relief.
Examiner's comments. Part (a) required candidates to determine whether pension contributions should be made
by the employee or by the employer and the employee together 'with the objective of minimising the total after tax
cost'. This requirement was trickier than it appeared and could not be easily satisfied by simply preparing a series
of corporation tax and income tax calculations. Instead, it was necessary to focus on the tax savings resulting from
the pension contributions.
Many candidates demonstrated poor knowledge of the tax treatment of pension contributions and consequently did
not score well. Others took the opportunity to explain the tax aspects of pension contributions in a general manner
rather than attempting to satisfy the particular requirements of the question.
Part (b) concerned the resident, ordinarily resident and domicile status of the taxpayer and the taxation of overseas
income. This was answered fairly well by many candidates. The rules concerning deemed domicile relating to inheritance
tax were referred to by many candidates but were not relevant to this question as they do not apply to income tax.
(a) Minimising the total after tax cost of the pension contributions
Reef Ltd makes the pension contributions
The pension contributions will not give rise to any national insurance implications and are an exempt benefit
for the purposes of income tax. Reef Ltd is a marginal relief company and so the reduction in corporation tax
as a result of the payment will be at 27.5%.
￡
Contributions made by Reef Ltd 9,000
Reduction in corporation tax liability (￡9,000 × 27.5%) (2,475)
Total after tax cost 6,525
Coral and Reef Ltd make the pension contributions between them
The maximum gross tax allowable pension contributions that can be made by Coral are equal to her relevant
UK earnings of ￡5,520 (￡460 × 12). The dividend income and any rental income from the overseas property
are not relevant earnings. The overseas property cannot be a furnished holiday letting because it is situated
outside the EEA.
Coral will make the contributions net of 20% income tax. Accordingly, her contributions will be ￡4,416
(￡5,520 × 80%) and she will require a dividend from Reef Ltd of this amount. HMRC will contribute ￡1,104
(￡4,416 × 20/80) such that the gross contributions will be ￡5,520.
The dividend will not be allowable for the purposes of corporation tax.
The dividend will not give rise to an income tax liability as Coral's basic rate band limit will be increased by the
gross amount of pension contributions made (￡5,520) which is more than the taxable dividend income
received of ￡4,907 (￡4,416 × 100/90). Accordingly, the dividend income will be taxed at 10% with a 10% tax
credit.
￡
Contributions made by Coral 4,416
Contributions made by Reef Ltd (￡9,000 -￡5,520) 3,480
Reduction in corporation tax liability (￡3,480 × 27.5%) (957)
Total after tax cost 6,939
The calculations indicate that Reef Ltd alone should make the contributions as this results in the lower after
tax cost.
(b) (i) UK tax on the rental income
Coral is UK resident in 2012/13 because she is present in the UK for more than 182 days.
Coral is ordinarily resident in the UK in 2012/13 as she is habitually resident in the UK.
Coral will have acquired a domicile of origin in Kalania from her father. She has not acquired a
domicile of choice in the UK as she has not severed her ties with Kalania and does not intend to make
her permanent home in the UK.
Therefore, Coral is resident and ordinarily resident in the UK, but she is not domiciled in the UK.
As Coral has been resident in the UK for seven of the nine tax years preceding 2012/13 and has
unremitted income from Kalania in excess of ￡2,000 then she can only use the remittance basis for
overseas income if she makes a claim. If she makes the claim she would have to pay the remittance
basis charge of ￡30,000. Given her low level of overseas income it would not be worth making the
remittance basis claim.
If Coral does not make a remittance basis claim, all rental income from Kalania will be taxed on Coral on
an arising basis. The income will fall into the basic rate band and will be subject to income tax at 20%
on the gross amount (before deduction of Kalanian tax). Unilateral double tax relief will be available in
respect of the 8% tax suffered in Kalania. The effective rate of tax suffered by Coral in the UK on the
grossed up amount of income will be 12%.
(ii) The effect of taxable rental income on the tax due on Coral's dividend income
Taxing a full year's rental income in the UK will cause some of Coral's dividend income currently
falling within the basic rate band to fall within the higher rate band.
The effect of this would be to increase the tax on the gross dividend income from 0% (10% less the
10% tax credit) to
(
Top tips. In part (a), you were asked to include supporting computations and so you must make sure you do so in
order to get reasonable marks. On the other hand, in part (b), you were told that you were not required to prepare
calculations so it would have been a waste of your time to do so.
Easy marks. You should have been able to spot that the remittance basis could apply to the overseas income and
the effect of double taxation relief.
Examiner's comments. Part (a) required candidates to determine whether pension contributions should be made
by the employee or by the employer and the employee together 'with the objective of minimising the total after tax
cost'. This requirement was trickier than it appeared and could not be easily satisfied by simply preparing a series
of corporation tax and income tax calculations. Instead, it was necessary to focus on the tax savings resulting from
the pension contributions.
Many candidates demonstrated poor knowledge of the tax treatment of pension contributions and consequently did
not score well. Others took the opportunity to explain the tax aspects of pension contributions in a general manner
rather than attempting to satisfy the particular requirements of the question.
Part (b) concerned the resident, ordinarily resident and domicile status of the taxpayer and the taxation of overseas
income. This was answered fairly well by many candidates. The rules concerning deemed domicile relating to inheritance
tax were referred to by many candidates but were not relevant to this question as they do not apply to income tax.
(a) Minimising the total after tax cost of the pension contributions
Reef Ltd makes the pension contributions
The pension contributions will not give rise to any national insurance implications and are an exempt benefit
for the purposes of income tax. Reef Ltd is a marginal relief company and so the reduction in corporation tax
as a result of the payment will be at 27.5%.
￡
Contributions made by Reef Ltd 9,000
Reduction in corporation tax liability (￡9,000 × 27.5%) (2,475)
Total after tax cost 6,525
Coral and Reef Ltd make the pension contributions between them
The maximum gross tax allowable pension contributions that can be made by Coral are equal to her relevant
UK earnings of ￡5,520 (￡460 × 12). The dividend income and any rental income from the overseas property
are not relevant earnings. The overseas property cannot be a furnished holiday letting because it is situated
outside the EEA.
Coral will make the contributions net of 20% income tax. Accordingly, her contributions will be ￡4,416
(￡5,520 × 80%) and she will require a dividend from Reef Ltd of this amount. HMRC will contribute ￡1,104
(￡4,416 × 20/80) such that the gross contributions will be ￡5,520.
The dividend will not be allowable for the purposes of corporation tax.
The dividend will not give rise to an income tax liability as Coral's basic rate band limit will be increased by the
gross amount of pension contributions made (￡5,520) which is more than the taxable dividend income
received of ￡4,907 (￡4,416 × 100/90). Accordingly, the dividend income will be taxed at 10% with a 10% tax
credit.
￡
Contributions made by Coral 4,416
Contributions made by Reef Ltd (￡9,000 -￡5,520) 3,480
Reduction in corporation tax liability (￡3,480 × 27.5%) (957)
Total after tax cost 6,939
The calculations indicate that Reef Ltd alone should make the contributions as this results in the lower after
tax cost.
(b) (i) UK tax on the rental income
Coral is UK resident in 2012/13 because she is present in the UK for more than 182 days.
Coral is ordinarily resident in the UK in 2012/13 as she is habitually resident in the UK.
Coral will have acquired a domicile of origin in Kalania from her father. She has not acquired a
domicile of choice in the UK as she has not severed her ties with Kalania and does not intend to make
her permanent home in the UK.
Therefore, Coral is resident and ordinarily resident in the UK, but she is not domiciled in the UK.
As Coral has been resident in the UK for seven of the nine tax years preceding 2012/13 and has
unremitted income from Kalania in excess of ￡2,000 then she can only use the remittance basis for
overseas income if she makes a claim. If she makes the claim she would have to pay the remittance
basis charge of ￡30,000. Given her low level of overseas income it would not be worth making the
remittance basis claim.
If Coral does not make a remittance basis claim, all rental income from Kalania will be taxed on Coral on
an arising basis. The income will fall into the basic rate band and will be subject to income tax at 20%
on the gross amount (before deduction of Kalanian tax). Unilateral double tax relief will be available in
respect of the 8% tax suffered in Kalania. The effective rate of tax suffered by Coral in the UK on the
grossed up amount of income will be 12%.
(ii) The effect of taxable rental income on the tax due on Coral's dividend income
Taxing a full year's rental income in the UK will cause some of Coral's dividend income currently
falling within the basic rate band to fall within the higher rate band.
The effect of this would be to increase the tax on the gross dividend income from 0% (10% less the
10% tax credit) to
(【答案解析】