Tax Flashcards
When is the tax year
6th April - 5th April
When are tax changes made? (2)
- In the autumn pre-budget by the Chancellor
- Finalised in March budget
Why are tax years important?
- To calculate income tax
- Capital gains tax
- Tax allowance changes/refreshes
- Changes to financial products are often made and come into effect in the new tax year
When is the financial year?
1st April to 31st March
What are the 3 tests for automatic overseas residents?
- There are 3 tests but only 1 needs to be met
1. In the UK for fewer than 16 days in a fiscal year
2. Not a resident in the UK during the previous 3 years - in the UK < 46 days a year
3. Works full time overseas and visits the UK < 91 days a year (working no more than 30 days in the UK)
What are the 3 tests for an automatic UK resident?
- In the UK for at least 183 days a fiscal year
- Only home is in the UK - 91 days or more
- An individual works full time in the UK
What is the sufficient ties test? (3)
- A tie that grants eligibility to residency:
- Family tie
- Accommodation tie
- Work tie
What is the concept of residency based on? (4)
- Nationality
- Place of residence
- Citizenship
- Work
What is domicile?
- Where an individual chooses to belong
E.g. someone can have multiple residency but can only be domiciled in one place
What are the 3 different types of domicile under UK tax law?
- Domicile or origin - acquired at birth, normally from the individuals father - does not have to be where the individual was born.
- Domicile of choice - cannot be chosen until the individual is 16 years of age - changing domicile is not easy, it means the person has to cut ties with their previous domicile
- Deemed domicile - an individual is deemed a UK domicile if they are a resident for 15 out of 20 consecutive fiscal years
Why is domicile important?
- For determining income tax liability, especially inheritance tax liability
How are UK residents, UK res non-doms and overseas residents’ income taxed? (3)
- UK resident - worldwide income and gains taxed on an arising basis
- UK resident non-dom - UK income and gains on an arising basis. Overseas income is taxed on an arising or remittance basis if above £2,000. Remittance basis if below £2,000 a fiscal year
- Overseas resident - UK income on an arising basis. Overseas income is not subject to tax
All income earned in the UK is taxed, regardless of status
What is a remittance basis? (2)
- Overseas income will be taxed on a remittance basis when it is bought to the UK
- If income and gains are over £2,000 there is a choice of between being taxed on an arising or remittance basis - if remittance basis is chosen, tax allowances are lost
How much is the Remittance Basis Charge and when does a UK res non dom pay this?
- Individual is living in the UK 7 out of 9 years - £30,000
- Individual is living in the UK for 12 out of 14 years - £60,000
What are the 3 ways income tax is collected for employees, self employed and savings/dividends?
- Non-savings income - PAYE
- Self employed - payments on accounts in 31 Jan in tax year and 31 July after tax year (50% of previous tax year liability)
- Savings, dividends and rental income - self assessment - free calculation from HMRC before 31st Oct. Deadline for submitting tax returns in 31st Jan.
How long must tax self assessment be kept on record?
- 5 years after 31st Jan following the end of the tax year
What 2 ways can statutory income be reduced?
- Charity - donating with gift aid can allow claiming back tax
- Pension contribution - basic amount of £3,600 and maximum of £60,000 a year. If pension allowances are unused, they can be bought forward for 3 years only. For those earning over £260,000 the pension allowance falls by £1 for every £2 earned.
- If net income (after pensions and charity donations) is £200,000 person is exempt from tapered allowance
What is the personal allowance for non-savings income?
£12,570, however this is reduced once an individual starts earnings £100,000 at the rate of £1 for every £2 earned. Anyone earning £125,140 or more will not have a personal allowance
What is the marriage allowance?
- When a person earns less than £12,570, they can transfer 10% of their personal allowance to their spouse if they are a basic rate tax payer up to £50,000.
What are the bands and allowances for savings income? (2)
- £5,000 tax free allowance on savings income
- Allowance is reduced by £1 for every £1 of non-savings income above the personal allowance
Once savings and non savings income is above £17,570 following allowances apply:
- Basic rate - £1,000
- Higher - £500
- Additional - £0
What is the allowance for dividend income and the marginal rates? (1)
- 0% tax paid on first £1,000. Anything above that is taxed at marginal rates
Basic - 8.75%
Higher - 33.75%
Additional - 39.35%
How is a discretionary trust taxed? (6)
- Trusts are liable to income tax
- The first £1,000 is taxed at a basic rate - 20% and 8.75%. This is called the Standard Rate Band
- Above £1,000 is taxed at an additional rate - 45% and 39.75%. This is called the Trust Rate
- It is the Trustees legal duty to ensure tax liabilities are paid from the trust
- Like individuals, non savings income is taxed first, then savings income and then dividend income
- £1,000 is based on the settlor. If the settlor has 2 trusts, this will be £500 for each
What are the 6 features of National Insurance?
- Paid by employees and self employed people aged 16 and over earning above a certain level
- State benefits are linked to NI contributions - ‘contributory benefits’
- Employees - NI is deducted via PAYE income or tax benefits such as a company car
- Self employed people are paid at a flat rate if profits is above threshold or as a percentage of annual taxable profits
- Prior to 1977, married women are eligible to a reduced rate - while this is positive, unlikely to reach minimum contributions to receive state pension
- 35 years of NI contributions must be made to qualify for a full state pension
Who is liable to CGT? And how is CGT calculated? (5)
- A UK resident is liable to CGT on gains arising anywhere in the world
- Proceeds on disposal
- Minus cost of purchase
- Minus other costs
- Minus £6,000 allowance
- Minus losses (losses can be carried forward indefinitely)
= Gains realised
