Advanced Tax Report: Financial Planning and Tax Strategies

This report provides an in-depth analysis of advanced tax strategies and financial planning, addressing two key problems. The first problem involves reviewing the financial situation of a couple who won a lottery and assessing tax-efficient investment options, including child trust funds and individual savings accounts. The second problem focuses on the tax implications of a couple's pre-marriage financial decisions, specifically the transfer of a house to children and subsequent rental income. The report examines capital gains tax, inheritance tax, and income tax liabilities for all parties involved, offering practical recommendations and insights into tax-efficient wealth management. The report uses real-world scenarios to illustrate the complexities of tax planning, making it a valuable resource for students studying finance and taxation.

Advanced Tax

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
PROBLEM 1...................................................................................................................................1
1. Carrying out a review of Rodgers’s present financial situation..............................................1
2. Stating the manner in which concerned couple should invest money from the perspective of
tax efficiency...............................................................................................................................2
PROBLEM 2...................................................................................................................................3
Considering tax implications for all parties to the transactions...................................................3
CONCLUSION................................................................................................................................4
REFERENCES................................................................................................................................5

PROBLEM 1
1. Carrying out a review of Rodgers’s present financial situation
Given case scenario entails that Dave Rogers won £4000000 from state lottery. Couple
such as Rodger and Danielle has two children namely Oliver (16 years aged boy) & Charlotte
(17 years aged girl). Hence, both such children want to enter in or attend university after the
completion of school. Presently, Dave is working as a computer manager in the utility company
and getting a salary of £50000 per annum. On the basis of case, Dave is contributing 15% of his
salary under pension scheme. Such couple also owes liability in relation to mortgage repayment
of £80000 respectively. Other savings include £5000 in shares and £7500 in the local building
society.
Assessment of the current financial position of Rodgers and Danielle
Particulars Figures (in £)
Amount won through state lottery 4000000
Salary of Dave 50000
Shares 5000
Local building society 7500
Contribution in pension (15% of salary) 7500
Mortgage repayment 80000
Considering overall evaluation it can be depicted that financial position of Rodger is
good because as per income such couple can meet obligations more effectually. In accordance
with HMRC, lottery winning amount is not considered as an income. Thus, lottery winning
amount is tax free in UK but concerned authority liable for making payment of 40% tax when
estate of current threshold accounts for £325000 respectively. Further, in the context of local
building society Rodger and Danielle is accountable to pay only 10% tax on income earned.
Moreover, income of such couple is low so out of 20%, they can claim for 10% deduction and
rest amount needs to pay.

2. Stating the manner in which concerned couple should invest money from the perspective of
tax efficiency
Referring the case situation, it can be depicted that Rodgers wife Danielle has done some
part time jobs. Hence, she wants to use some funds, collected through part time jobs, in the
activities of baking and cake decorating. Case presents that Danielle has dream in relation to GH
owning small farm or nursery. However, Rodgers is bit scared pertaining to the issue of taxation
and investment alternatives available. The main motive of Rodgers is to maximize wealth that
offers benefit to themselves and their children. Hence, tax-efficient investment is the main aim of
Rodgers. By keeping in mind all such aspects following recommendations are given to Rodgers
and his wife Danielle such as:
 From assessment, it has identified that all the businesses are liable to pay tax whether
well established or new start-ups. However, there are several tax benefits which in turn
available to entities going to start new venture. In UK, there are 21 UK zones that 100%
tax exempted for the period of 5 years. Hence, by starting business in such zones Rodgers
and Danielle can enjoy tax benefits. By taking into account all such aspects, it is
recommended to Danielle to start new business in one of such 21 zones. Royal Docks, in
the Dockland area of South East London, comes under 21 zones, proves to be suitable for
new business from tax and other perspectives (Business start-up and taxes in UK, 2018).
Further, in the case of new start-ups, capital allowances relief provides corporation tax
benefit for business on the purchase of assets like computer, vehicle, furniture etc. Thus,
it can be depicted that idea in relation to the establishment of new business will not
impose high tax burden.
 Further, it is suggested to such couple that they need to lay focus on investing money in
child trust fund. Hence, by investing money up to £4128 in a CTF account such couple
can gain tax advantages and thereby would become able to offer monetary benefits to the
child. Moreover, CTF income and all the profits it make are tax free. In other words, it
can be said that CTF does not have influence on benefits and tax credits they receive
(Child Trust Fund, 2018). Besides this, money belong to this can be take out by the child
when they are in the age of 18. Further, children are eligible are controlling such account
when they lie in age of 16 years. Case presents that children of Rodger and Danielle are

eligible to control such accounts. Thus, by investing money in such area Rodger can meet
his financial objectives to a great extent.
 Along with this, such couple can also attain tax advantage by investing money in
Individual Savings Accounts (ISAs). From evaluation, it has found that saving up to
£20000is tax free pertaining to ISAs (Individual Savings Accounts, 2018).
 In addition to this, by employing money in Children’s bond concerned couple can meet
their objectives and maximize the wealth for children. Moreover, there was no tax to pay
interest earned from such bonds. Further, children bonds offer interest at fixed rate
annually and bonus when they hold out for the period of five years (Children's Bonds,
2018). Under children’s bonds return is fixed so Rodger and Danielle can assess the
extent to which bonds will grow during the specified time frame.
PROBLEM 2
Considering tax implications for all parties to the transactions
On the basis of cited case situation, Ryan and Ellen want to marry with each other in their
late forties. Both of them have one child from their previous marriage. Case presents that before
marriage Ellen will give her house to the children. Further, in the context of such house, both the
children agreed to rent the house to third party during their travelling period of 2 years. As per
the scenario financial consequences of the below mentioned aspects are:
Present value of Ellen’s house: £200000
Implications: From evaluation, it has identified that tax reliefs vary according to the
manner in which gifts are dealt for the purpose of capital gain tax. On the basis of tax rules and
regulations Ellen is not accountable for paying tax over chargeable gain of £50000which in turn
considered as held-over gain (Relief for gifts and similar transactions, 2018).
Estimated value of property: £250000
Implications: Children to whom Ellen wishes to transfer property are not held
accountable to pay any tax. Moreover, the current inheritance tax threshold is £350000 &
£650000 respectively. Hence, over this limit concerned individuals are accountable to pay 40%

tax (How to reduce your Inheritance Tax bill, 2018). Further, on the basis of rules, when one
give away a property then there is some tax obligations that need to be considered. In the given
case, property is given away by Ellen to her child at less than the estimated value so they are
entitled to pay tax.
Net future rental income per annum: £18000
Implications: On the basis of tax rules, one is not accountable to pay tax on income
generated from property when it below the level of £2500per annum (Renting out your property
in England and Wales, 2018). Hence, as per the case children of couple are entitled to pay tax on
rental income earned during the specified time frame. Further, children can reduce their tax
liability by treating interest on mortgage as an expense if any.

REFERENCES
Online
Business start-up and taxes in UK. 2018. [Online]. Available through:
<https://www.entmagazine.com/taxes.html>.
Child Trust Fund. 2018. [Online]. Available through: <https://www.gov.uk/child-trust-funds>.
Children's Bonds. 2018. [Online]. Available through:
<https://www.moneyadviceservice.org.uk/en/articles/childrens-bonds>.
How to reduce your Inheritance Tax bill. 2018. [Online]. Available through: <
http://www.bbc.com/news/business-29756520>.
Individual Savings Accounts. 2018. [Online]. Available through:
<https://www.gov.uk/individual-savings-accounts>.
Relief for gifts and similar transactions. 2018. [Online]. Available through: <
https://www.gov.uk/government/publications/relief-for-gifts-and-similar-transactions-hs295-
self-assessment-helpsheet/hs295-relief-for-gifts-and-similar-transactions>.
Renting out your property in England and Wales. 2018. [Online]. Available
through:<https://www.gov.uk/renting-out-a-property/paying-tax>.