Lecture 16 - Taxes Part 2

Question 1

Expenditure taxes

Answer 1

National insurance contributions
- a means for government to raise money to help them spend on particular services, such as: 
Sick pay 
Maternity pay 
Welfare payments 
The national health service 
National pensions

Question 2

National insurance rates

Answer 2

Class 1 NICS: Employee and employer rates and thresholds
(£per week) - also applies to employees under 21 and apprentices
Class 2 NICS: Self employed rates and thresholds (per week)
Class 3 NICS: Other rates and thresholds (per week)
Class 4 NICS: Self employed rates and thresholds (per year)

Question 3

VAT rates for goods and services

Answer 3

Standard 20% of VAT - most goods and services
Reduced rate 5% - some goods and services e.g children’s car seats and home energy
Zero rate 0% zero rated goods and services, e.g. Most food and children’s clothes

Question 4

Additional expenditure taxes

Answer 4

VAT on import of Goods 
Customs Duty 
Excise duty 
Air transport duty 
Plastic bag charge 
Gambling duty 
Insurance premium tax

Question 5

Alcohol and tobacco duties

Answer 5

Tobacco duty 
Beer duty 
Cider duty 
Wine duty 
Spirit duty

Question 6

Fuel duty

Answer 6

Basic VAT at 20% for fuels, and 5% for domestic heating, PLUS
petrol, diesel - 57.95 pence per litre
Liquefied petroleum gas - 31.61 pence per litre

Question 7

Oil industry taxes

Answer 7

Taxes for the oil industry

Corporation tax 
Supplementary charge 
Petroleum revenue tax 
Royalties 
Gas levy

Question 8

George Osborne may merge income tax and national insurance

Answer 8

Why the chancellor thought it would be a good idea
- taxes far more transparent
- easier to see exactly is handed to the taxman
But
It’s too difficult to implement
Income tax rate may seem worse, even if it was the same
That would show basic rate for the employee would be 32%
Or 45.8% with the employees NIC included

Question 9

Capital gains tax

Answer 9

You pay capital gains tax on the gain when you sell
Most personal possessions worth £6,000 or more, apart from your car
Property that is not your main home
Your main home if you have let it out, used it for business or it is very large
Shares that are not in an ISA or PEP
Business assets
Known as chargeable assets
Depending on the asset, you may be able to reduce any tax you pay by claiming a relief
If you dispose of an asset you jointly own with someone else, you have to pay Capital Gains Tax on your share of the gain

Question 10

You only have to pay capital gains tax on your overall gains above your tax-free allowance (called the Annual Exempt Amount) the tax-free allowance is:

Answer 10

£11,300
£5,650 for trusts
You may be able to reduce your tax bill by deducting losses or claiming reliefs - depending on the asset

Question 11

Capital gains tax rates

Answer 11

Pay a different rate of tax on gains from residential property than you do on other assets
You do not usually pay tax when you sell your own home
If you pay a higher rate income tax
If you are a higher or additional rate taxpayer you will pay:
28% on your gains from residential property
20% on your gains from other chargeable assets

Question 12

If you pay basic rate income tax

Answer 12

The rate you pay depends on the size of your gain, your taxable income and whether your gain is from residential property or other assets
Work out how much taxable income you have - this is your income - personal allowance and any other income tax reliefs you’re entitled to
Deduct your tax-free allowance from your total taxable gains
Add this amount to your taxable income
If this amount is within the basic income tax band you will pay 10% on your gains. You will pay 20% on any amount above this (28% on residential property)

Question 13

Capital gains tax

Answer 13

If you are a trustee or business
Trustees or personal representatives of someone who has died pay:
28% on residential property
20% on other chargeable assets
You’ll pay 10% if you’re a sole trader or partnership and your gains qualify for Entrepreneurs relief

Question 14

Inheritance tax rates

IHT rates/allowances:

Answer 14

Annual exemption of £3,000
Tax free allowance of £325,000
Unlimited lifetime transfer between spouses
Unused balance of allowance can be transferred to spouse on death
Thereafter balance of estate taxed at 40%

Question 15

Value of inherited wealth may be reduced at death

Answer 15

Value of everything the deceased owned
Plus gifts made within 7 years before death
Less debts and reasonable funeral expenses

Question 16

The 7 rule

Answer 16

If there is inheritance tax to pay, it is charged at 40% on gifts given in the 3 years before you die. Gifts made 3-7 years before your death are taxed on a sliding scale known as taper relief
Gifts are not counted towards the value of your estate after 7 years.

Question 17

Pension savings are essentially a tax free investment

Answer 17

Full tax relief is given on contributions by employees and employers
Maximum tax-free pension contribution per annum
Amount that can be contributed to your pension each year, without penalty, while still receiving tax relief is £40,000
2017/18 or 100% of income
Maximum lifetime allowance: £1 million

Question 18

Minimising your tax bill

Answer 18

Avoidance is legal, but is it ethical
Evasion is both illegal and unethical
Government encourages certain investments by making them tax efficient: ISAs, Pensions and charitable donations.