3) UK Taxation

Question 1

Residence

Answer 1

Affects income tax and capital gains tax. Any person present for at least 183 days in a tax year, is regarded as UK resident for tax purposes.
A person who is a resident and domiciled in the UK are subject to capital gains tax and income tax on their worldwide 🌎 earned and unearned income.

Question 2

Domicile

Answer 2

The country that someone treats as home. Domicile of origin at birth - Domicile of father on that date of their birth, or mother if not married.
Affects IHT liability. If domiciled in the UK, IHT is chargeable on assets anywhere in the 🌎
If not domiciled in the UK, tax is only due on UK assets.
If resident in UK for 15 of the previous 20 tax years, they are deemed to be UK-Domiciled for IHT purposes.

Question 3

Allowances

Answer 3

Personal Allowance - usually £12,570, but can be 0 depending how much their earnings exceed the threshold.
Marriage Allowance - transfer part of their personal allowance to spouse or civil partner, providing the transferor has no income tax liability.
Blind persons Allowance - for those registered blind with local authority. It can be transferred to spouse/ civil partner.
PSA - enables savers to earn interest without paying tax on the interest. Depends on persons income tax band. No PSA for additional-rate tax payers.
£5k if earnings below 17,570
£1k Basic rate tax payers
500 Higher rate tax payers
0 Additional rate tax payers.
DA - Dividend Allowance - For property and trading income £1k reducing to £500 from 6th April 2024. Does use the portion of the income tax rate.
Basic rate 8.75%
Higher rate 33.75%
Additional rate 39.35%

Question 4

Income Band and Tax Rates

Answer 4

Basic rate 20% 0 - 37,700

Higher rate 40% 37,701 - 125,140

Additional rate 45% 125,141 +

Question 5

NICs

Answer 5

Class 1- paid by employees at a % on earnings between certain levels (primary threshold) and the upper earnings limit with a reduced %
- paid by employers on most employee earnings above a lower limit (secondary threshold) - but with no upper limit
- no NICs for employees and apprentices under a certain age between the primary threshold and upper earnings limit

Class 2 - flat rate paid by self-employed if their annual profit exceeds the small profits threshold but below lower profits threshold.
- quoted as weekly amount
- collected through self-assessment in a lump sum

Class 3 - voluntary contributions that can be paid by people who would not otherwise be entitled to full state pension or sickness benefit
- career break of people who worked overseas
- flat-rate contribution

Class 4 - additional contributions paid by self-employed on their annual profits between specified minimum and maximum levels with a reduced rate payable above the upper limit, as for Class 1
- paid to HMRC in half yearly instalments through self-assessment

Question 6

Calculation of pesonal liability for income tax is generally a 4 stage process:

Answer 6

1) Work out total income.
2) Deduct allowable expenses or certain pension contributions.
3) Deduct personal allowance and other allowances.
4) Apply tax at the current rates to the appropriate bands of income.

Question 7

What order of priority is income taxed?

Answer 7

1) Non savings income/ Earned income
2) Savings income/ Unearned income
3) Dividends
4) Chargeable gains on non-qualifying life assurance policy