Chartered Institute of Taxation (CIOT / CTA) Taxation of Individuals Advisory Syllabus

How is finance cost (mortgage interest) relief given for individual residential landlords?

Finance costs cannot be deducted from rental profits. Instead, relief is given as a basic-rate (20%) tax reducer: $\text{relief} = 20\% \times \min(\text{finance costs},\ \text{rental profits},\ \text{adjusted total income above personal allowance})$. Unrelieved amounts are carried forward.

What were the qualifying conditions for a Furnished Holiday Letting (FHL), and why did the classification matter (regime abolished April 2025)?

The property had to be in the UK/EEA, furnished, and let commercially: available for at least 210 days, actually let for at least 105 days, with no long-term occupation (>31 days) exceeding 155 days. FHL status gave trading-style advantages: full finance-cost relief, capital allowances, BADR/gift/rollover CGT reliefs, and relevant earnings for pensions.

What is rent-a-room relief and what is the threshold?

Rent-a-room relief exempts gross receipts up to $\pounds 7{,}500$ per year from letting furnished accommodation in the taxpayer's only/main residence (halved to $\pounds 3{,}750$ if shared). If receipts exceed the limit, the taxpayer can either pay tax on the excess over $\pounds 7{,}500$ or compute profit normally (whichever is lower).

What is the property allowance?

A $\pounds 1{,}000$ allowance: gross property income up to $\pounds 1{,}000$ is exempt (full relief). If income exceeds $\pounds 1{,}000$, the taxpayer can deduct the $\pounds 1{,}000$ allowance instead of actual expenses ('partial relief'), whichever is more beneficial. It cannot be combined with rent-a-room relief on the same income.

What are the main ISA types and the overall annual subscription limit?

The overall annual ISA limit is $\pounds 20{,}000$. Types: Cash ISA, Stocks & Shares ISA, Innovative Finance ISA, and Lifetime ISA (LISA, max $\pounds 4{,}000$ within the overall limit, with a 25% government bonus). Income and gains within an ISA are tax-free. The separate Junior ISA limit is $\pounds 9{,}000$.

Summarise the key income tax and CGT reliefs of the Enterprise Investment Scheme (EIS).

Income tax relief of $30\%$ on investments up to $\pounds 1{,}000{,}000$ per year (or $\pounds 2{,}000{,}000$ if at least the excess is in knowledge-intensive companies). Shares held 3 years are CGT-exempt on disposal. EIS also offers unlimited CGT deferral relief on other gains reinvested. Income tax relief can be carried back one year.

Summarise the reliefs of the Seed Enterprise Investment Scheme (SEIS).

Income tax relief of $50\%$ on investments up to $\pounds 200{,}000$ per year. Gains on SEIS shares held 3 years are CGT-exempt. SEIS reinvestment relief exempts $50\%$ of a reinvested gain (up to $50\%$ of the amount invested) from CGT. SEIS targets very early-stage companies (trading <3 years, assets <$\pounds 350{,}000$).

Summarise the tax advantages of a Venture Capital Trust (VCT) investment.

Income tax relief of $30\%$ on subscriptions of up to $\pounds 200{,}000$ per year in new shares (no carry-back). Shares must be held for 5 years. Dividends from VCTs are tax-free and disposals are CGT-exempt. Unlike EIS, there is no CGT deferral facility.

Compare EIS CGT deferral relief with SEIS CGT reinvestment relief.

EIS deferral relief postpones (defers) an unlimited gain reinvested in EIS shares until a later chargeable event (no minimum holding for the deferral itself). SEIS reinvestment relief gives a permanent exemption of $50\%$ of the gain reinvested, capped at $50\%$ of the SEIS amount subscribed. EIS defers; SEIS partially exempts.

How is top-slicing relief on a chargeable event gain calculated, and what does it relieve?

Top-slicing relief mitigates the higher-rate impact of a gain bunching into one year. Steps: (1) compute tax on the full gain; (2) compute 'relieved' tax using the average gain (gain ÷ number of complete policy years, N) as the top slice and multiply that slice's tax by N; (3) relief = step 1 tax − step 2 relieved tax. The averaging period N for a full surrender runs from inception.

What is the 5% rule for withdrawals from a single-premium life insurance bond?

The policyholder can withdraw up to $5\%$ of the original premium each policy year without an immediate chargeable event, cumulative up to $100\%$ over 20 years. Withdrawals exceeding the cumulative 5% allowance create a 'partial surrender' chargeable event gain taxed in that year; the full position is recalculated on final encashment.

Contrast the tax treatment of gains on UK (onshore) bonds versus offshore bonds.

Onshore bonds: the life fund pays tax broadly equivalent to basic rate, so the policyholder receives a non-reclaimable 20% tax credit and only pays higher/additional-rate tax on the gain. Offshore bonds: the fund grows largely gross (tax deferral), so there is no tax credit and the policyholder is taxable on the full gain at their marginal rate(s).

What are the pension Annual Allowance, the taper, and the Money Purchase Annual Allowance (MPAA) (2024/25)?

Annual Allowance: $\pounds 60{,}000$. Tapered by $\pounds 1$ for every $\pounds 2$ of 'adjusted income' over $\pounds 260{,}000$, down to a minimum of $\pounds 10{,}000$ (threshold income must also exceed $\pounds 200{,}000$). MPAA: $\pounds 10{,}000$, triggered once money-purchase benefits are flexibly accessed, restricting further DC contributions and removing carry-forward for DC.

How is tax relief given on individual pension contributions, and what is the maximum amount eligible for relief?

Relief is given on the higher of $\pounds 3{,}600$ (gross) and 100% of relevant UK earnings, capped by the annual allowance. Methods: 'relief at source' (contributions paid net of 20%, basic-rate band extended for higher/additional rate) and 'net pay' (occupational schemes deduct contributions before tax).

What replaced the Lifetime Allowance from 6 April 2024, and what are the two key lump sum allowances?

The Lifetime Allowance (charge) was abolished. Replaced by: the Lump Sum Allowance (LSA) of $\pounds 268{,}275$, limiting tax-free pension commencement lump sums; and the Lump Sum and Death Benefit Allowance (LSDBA) of $\pounds 1{,}073{,}100$, limiting tax-free lump sums including on death.

How does pension annual allowance carry-forward work?

Unused annual allowance from the previous 3 tax years can be carried forward and added to the current year's allowance, provided the individual was a member of a registered pension scheme in those years. The current year's allowance must be used first, then the earliest carry-forward year. Contributions are still limited to 100% of relevant earnings.

State the CGT annual exempt amount and the main CGT rates for 2024/25.

Annual exempt amount: $\pounds 3{,}000$. Rates: $10\%$/$20\%$ on most assets (basic/higher rate), and $18\%$/$24\%$ on residential property (gains within the basic-rate band taxed at the lower figure). Carried interest is taxed at $18\%$/$28\%$.

What are the conditions, lifetime limit and rate for Business Asset Disposal Relief (BADR)?

BADR gives a $10\%$ CGT rate on qualifying business disposals, subject to a $\pounds 1{,}000{,}000$ lifetime limit. For shares: the individual must, for 2 years before disposal, be an officer/employee holding $\geq 5\%$ of ordinary shares, voting rights, and entitlement to profits/assets in a personal trading company. Also applies to disposals of (part of) an unincorporated business.

How does Investors' Relief differ from BADR?

Investors' Relief gives a $10\%$ CGT rate on disposals of qualifying unlisted trading company shares, with a separate lifetime limit (reduced to $\pounds 1{,}000{,}000$ for disposals from 30 Oct 2024, previously $\pounds 10{,}000{,}000$). Shares must be newly subscribed, held $\geq 3$ years, and the investor must NOT be an employee/officer (the opposite of BADR's employee requirement).

Compare gift (holdover) relief under TCGA s165 and s260.

s165 holds over the gain on gifts of qualifying business assets (e.g. unquoted trading company shares, assets used in a trade). s260 holds over the gain on transfers that are immediately chargeable to IHT (e.g. gifts into most trusts), regardless of asset type. The gain is deducted from the donee's base cost, deferring it until the donee disposes. s260 takes priority where both apply.

How does Principal Private Residence (PPR) relief work, including the final period exemption?

Gains on disposal of an individual's only/main residence are exempt for periods of actual occupation plus the final 9 months of ownership (always exempt if it was ever the main home). Deemed-occupation periods (e.g. up to 3 years for any reason, 4 years working elsewhere in the UK, any period working abroad) also qualify if bookended by actual occupation. Letting relief is now restricted to shared-occupancy lets.

Explain Potentially Exempt Transfers (PETs), the 7-year rule and IHT taper relief.

A lifetime gift to an individual is a PET — exempt if the donor survives 7 years. If death occurs within 7 years, it becomes chargeable. Taper relief reduces the tax (not the transfer value) on PETs/CLTs above the nil-rate band: $0$–$3$ yrs $0\%$, $3$–$4$ $20\%$, $4$–$5$ $40\%$, $5$–$6$ $60\%$, $6$–$7$ $80\%$ reduction in tax.

List the principal lifetime IHT exemptions for gifting.

Annual exemption $\pounds 3{,}000$ (one year's unused amount can carry forward 1 year); small gifts exemption $\pounds 250$ per recipient; normal expenditure out of income (regular gifts from surplus income not affecting standard of living); marriage/civil partnership gifts ($\pounds 5{,}000$ parent, $\pounds 2{,}500$ grandparent/party, $\pounds 1{,}000$ other); and the spouse/charity exemptions (unlimited).

What are the gift with reservation of benefit (GWROB) rules and the Pre-Owned Asset Tax (POAT)?

A GWROB occurs where the donor gives an asset but continues to benefit from it (e.g. gifting a house but living in it rent-free); the asset remains in the donor's estate for IHT despite the gift. POAT is an annual income tax charge on the benefit of using an asset previously owned, designed to catch arrangements that escape the GWROB rules; the taxpayer can elect to be subject to GWROB instead.

How do the transferable nil-rate band (NRB) and residence nil-rate band (RNRB) work between spouses?

On the second death, any percentage of the NRB ($\pounds 325{,}000$) and RNRB ($\pounds 175{,}000$) unused on the first spouse's death can be claimed, potentially doubling them. The RNRB requires a residence to pass to direct descendants and is tapered away by $\pounds 1$ for every $\pounds 2$ of estate value over $\pounds 2{,}000{,}000$.

In what order are the three types of income taxed (income 'stacking'), and why does it matter?

Income is stacked as: (1) non-savings income (employment, pension, trading, property), (2) savings income, then (3) dividend income on top. This ordering determines which slices fall into the basic, higher and additional rate bands and how the savings starting rate band, PSA and dividend allowance interact — dividends taxed last benefit from remaining basic-rate band.

How can a pension contribution restore an individual's personal allowance, and over what income range?

The personal allowance is reduced by $\pounds 1$ for every $\pounds 2$ of adjusted net income over $\pounds 100{,}000$, fully lost at $\pounds 125{,}140$, creating an effective marginal rate of $60\%$ in that band. A gross pension contribution (or Gift Aid) reduces adjusted net income, so contributing the excess over $\pounds 100{,}000$ can reinstate the allowance and obtain relief at the effective $60\%$ rate.

What are the key features and limits of Enterprise Management Incentive (EMI) options?

EMI gives tax-advantaged share options to employees of qualifying small companies (gross assets $\leq \pounds 30\text{m}$, <250 employees). Limits: $\pounds 250{,}000$ of options per employee and $\pounds 3\text{m}$ total per company. No income tax on grant or (if granted at market value) exercise; gains are subject to CGT, and the 2-year holding for BADR runs from grant, with the 5% requirement waived.

Compare CSOP, SAYE and SIP tax-advantaged share schemes.

CSOP: discretionary share options up to $\pounds 60{,}000$, no income tax if held $\geq 3$ years. SAYE (Save As You Earn): all-employee savings-linked options ($\pounds 5$–$\pounds 500$/month over 3 or 5 years), discount up to $20\%$, tax-free bonus. SIP (Share Incentive Plan): all-employee plan holding free/partnership/matching shares in trust; shares held $\geq 5$ years are free of income tax and NIC, with no CGT while in the plan.

How are unapproved (non-tax-advantaged) employment-related securities taxed, including restricted securities and the s431 election?

Under ITEPA 2003 Part 7, acquiring shares for less than market value gives an income tax (and possibly NIC) charge on the discount at acquisition. For 'restricted securities', tax is initially charged on the restricted value, with further income tax charges when restrictions lift. A s431 election (within 14 days) elects to be taxed up front on the full unrestricted market value, so future growth is taxed as a CGT gain rather than income.

What is Overseas Workday Relief (OWR) and how were inbound globally mobile employees taxed (pre-April 2025)?

OWR allowed a non-domiciled, newly UK-resident employee (in the first 3 tax years) claiming the remittance basis to exclude from UK tax the portion of earnings relating to overseas workdays, provided that pay was kept offshore and not remitted. Earnings were apportioned between UK and overseas workdays; only UK-duty earnings (and remitted overseas earnings) were taxed.

Explain Post-Employment Notice Pay (PENP) and the £30,000 termination exemption.

PENP is the part of a termination payment treated as taxable earnings (subject to income tax and NIC) representing pay for unworked notice, computed as $$\text{PENP} = \frac{BP \times D}{P} - T$$ where $BP$ is basic pay in the last pay period, $P$ the days in that period, $D$ the days in the unworked notice period, and $T$ amounts already taxed (e.g. contractual PILON). The remaining genuine termination payment benefits from the $\pounds 30{,}000$ tax-free exemption, with the excess taxable (and employer Class 1A NIC due above $\pounds 30{,}000$).