Section 6.1 - The UK Tax system Flashcards
When does the tax year run
6th April - 5th April
What does income tax apply to:
- Applies to savings income (starting at 0% for savings income up to £5000
- A person only qualifies for this 0% rate if their non savings income is below thier personal allowance plus £5000 e.g. 17,570
What are the personal savings allowance avalialble depending on persons income
- Most savings income is paid gross.
- Basic tax rate payers recieve personal savings allowance of £1000
- Higher-rate tax payers have an allowance of £500
- Additonal-rate taxpayers do not recieve any allowance.
What are the 3 elements of taxable income
- Non savings income (salary)
- Non dividend income (interest)
- Dividend income - Treated as paid gross and once exceeded past £2000 allowance than is taxed at 8.75%
When can an indivdual recieve relief when paying interest on a loan
- Buying a plant or machinery for employment use
- Invest in a partnership
- Buys ordinary shares
Who else may recieve tax relief regarding pension contributions
- An indivdual under age 75 may recieve tax relief on contributions to a registered pension scheme in a tax year until more than £3,600
What non dividend savings income are paid NET/GROSS
NET:
* Interest paid by companies (corporate bonds)
* Authorised unit trusts e.g OEIC’s
Gross:
* GILTS
* Dividends
* Banks and building society
What is the difference between NET and GROSS
NET means for taxes and charges already taken into account wheres Gross means taxes and charges need to be paid.
What is the process for calculating income tax
- Add all gross income
- Deduct tax free personal allowances
- Calculate the tax due to remaining taxable income after allowances from
What are the difference classes of NI
- Class 1 Employees pay NI on their earnings
- Class 1a - Paid by an employer if they recieve certain taxable benefits e.g compnay car
- Class 2 & 4 - paid by those who are self employed and depeding how much they
Class 3 - When someone is making a voluntary contribution
What is capital gains tax paid on
Paid after an investment is sold e.g shares, forgien exchange, bonds and real estate
Chargeable assets
What is exempt on CGT
- GILTS and corporate bonds
- Betting and lottery winnings
- ISA’s
- National savings
What is the CGT for basic, higher and additonal rate taxpayers
- 10% for basic rate taxpayers
- 20% for higher and additonal tax payers
- 18% and 28% is payable on resdential property including: buy-to-let properties (required within 60 days)
What CGT do non-uk residents have to pay
- If they dispose of UK land and property including commercial property.
- Also subjected to CGT on the disposal of assets that dervive at least 75% of their value frim UK land
Non UK residents are not entilted to to either the income tax personal allowance or CGT, however for citizens of EEA the entitlement still contiunes.
What is a planning strategy for reducing CGT
- Spouse transfer to share tax
- Capital losses cannot be shared
When does IHT apply
- If the value of a person’s estate when they die is above the amount of unused nil rate band of £325,000 - payable on the excess at a rate of 40%
What exemptions are there which allow a person to pass on amounts without any IHT being due?
- If a persons estate passes to their spouse or civil partner and they are both domiciled in the UK
- The residence nil rate band (RNRB) provides additonal allowance up to £500,000 when a home is passed on to children and grandchildren
- Anyone leaving at least 10% of their net estate to chairty benefits from a reduced IHT rate of 36%
What are Chargeable lifetime transfers (CLTs)
- Most transfers into trusts are immediatley liable to IHT if the transfer exceeds the donor’s available nil rate band
- The only type of transfer of trust is for disabled beneficary.
- Property can be passed onto of an estate into a trust every seven years at the current nil rate band
- CLT will not be subjected to additional IHT charge provided the donor survives for 7 years after making the gift, however if this is not the case then IHT will be taxed at 40%
What is a statutory residence test used for
- To determine an indivduals residence status, which has to be determined each tax year, which is broken into 3 catogeries:
- Automatically non resident
- Automatically resident
- Those who need to review connecting factors with and the amount of time spent in the UK
What factors are there to determine if a person is automatically non-resident
- If they visit the UK for fewer than 16 days during the tax year
- They work full time overseas and visit the UK for fewer than 91 days during the tax year (with no more than 30 days spent working in the UK)
what factors determine if a person is automatically resident
- They are present in the UK for 183 days or more during the tax year
- Their only residence is in the UK, but they must have had the home for at least 91 consecutive days and lived there for at least 30 days during the tax year
- They carry out full time work in the UK
What is the remittance basis of taxation
- A person pays UK tax on UK sourced income and capital gains as they arise.
- However they only have to pay UK tax on overseas income and/or capital gains when they are brought into the UK.
- The remittance basis must usually be claimed, but it applies automatically if the indivdual has unremitted overseas income and capital gains of less than £2000 in a tax year
How does IHT relate to a person is domiciled
- If a person is domiciled abroad, IHT only applies to their UK assets
What residents are liable to UK income tax
- UK reisdents are liable to **UK income tax on their UK and overseas income **
- A Non-resident is liable to income tax only on income arising in the UK
- A UK resident who is not UK- domiciled may use the remittance basis of taxation, although this is relevant if they have forgein income.
