Tax 3 Flashcards
How is residency defined?
Residence is a short-term concept that reflects where an individual lives.
What are the automatic test requirements for non residency?
- First automatic overseas test – they were resident in the UK for one or more of the three tax years before the current tax year, and they spent fewer than 16 days in the UK in the tax year.
- Second automatic overseas test – they were not resident in the UK for any of those three tax years before the current tax year, and they spent fewer than 46 days in the UK in the tax year.
- Third automatic overseas test – they work abroad full-time (averaging at least 35 hours a week) and spent fewer than 91 days in the UK in the tax year, of which fewer than 31 were spent working
What are the automatic test requirements for residency?
- First automatic UK test – they spend at least 183 days in the UK in a tax year.
- Second automatic UK test
- If they have (or have had) a home in the UK, they must have had that home for at least 91 consecutive days, of which at least 30 days must fall in the tax year.
- In addition, they have been present in their UK home for at least 30 days at anytime during the tax year (not necessarily consecutive).
- If they also have (or have had) an overseas home, they were present in that home for fewer than 30 days in the tax year.
- Third automatic UK test
- They work full-time in the UK for any period of 365 days, which falls in the tax year.
- Of the days in this 365-day period, considering only the days on which they work for more than three hours, at least 75% of those days must have been worked in the UK.
- There must be at least one day of the 365-day period that they have worked in the UK for more than three hours.
UK Ties needed if UK resident for one or more of the 3 tax years under consideration?
Days Spent in the UK in the Tax Year Under Consideration
16–45 All 4
46–90. At least 3
91–120. At least 2
Over 120. At least 1
UK Ties needed if not a UK resident for 3 tax years under consideration?
Days Spent in the UK in the Tax Year Under Consideration
46–90. All 4
91–120. At least 3
Over 120. At least 2
Definition of domicile?
an individual is domiciled in a country where they have their permanent home
4 types of domicile?
- Domicile of origin – this status is acquired at birth, usually from their father. Children of unmarried parents, or those who are born after the death of their father, take on their mother’s domicile.
- Domicile of choice – this status can be established when the individual moves to a new country with the intention of living there permanently. There are no strict rules for acquiring this change of domicile; instead, several factors are taken into account, such as voting in the new country, establishing a business there, or acquiring citizenship or nationality.
- Domicile of dependency – following on from the domicile of origin, if the parent acquires a new domicile of choice, then their child (if under the age of 16) will also adopt that domicile.
- Deemed domicile – this status applies once an individual has been resident in the UK for 15 out of 20 years, meaning it will apply in their sixteenth year of residence.
What is remittance basis?
- If an individual is resident in the UK but is not UK domiciled, and they have foreign income and gains, they are eligible to claim the ‘remittance basis’, which is an alternative type of tax in respect of foreign income and gains
- Individuals who claim the remittance basis lose their entitlement to UK personal tax allowances, for both income tax and CGT
What is the remittance basis charge?
- For those who have been UK resident for seven of the previous nine tax years, the RBC is £30,000.
- For those who have been UK resident for 12 of the previous 14 years, the RBC is £60,000.
How are stamp duty and SDRT charged?
- Stamp duty applies to paper transactions (ie, not settled through CREST) where the investor uses a stock transfer form to buy shares. It is 0.5% of the consideration value, rounded up to the nearest £5 for amounts over £1,000; otherwise, no stamp duty is paid.
- SDRT is a paperless transaction that is settled through CREST. It is 0.5%, payable on the value of purchases of UK equities; and is rounded up to the nearest penny.
When should a company register for VAT?
If goods or services provided by a business count as what is known as taxable supplies, they will have to register for VAT if either:
- their turnover for the previous 12 months has exceeded a specific limit, called the VAT threshold (£90,000 with effect from 6 April 2024, previously £85,000), or
- they believe that turnover will soon exceed this limit.
What items are exempt from VAT?
- insurance
- providing credit
- education and training, if certain conditions are met
- fundraising events by charities, if certain conditions are met
- membership subscriptions, if certain conditions a met
- most services provided by doctors and dentists.
- Selling, leasing and letting commercial land and buildings are also exempt from VAT.
What are the 3 corporation tax rates?
- Small profits rate (companies with profits under £50,000) - 19%
- Main rate on all profits (companies with profits over £250,000) - 25%
- Special rate for unit trusts and open-ended investment companies - 20%
TAPERED MAIN TAX RATE BETWEEN £50-250K
What is the corporation tax for ringfenced companies e.g. oil and gas?
19% on profits up to £50,000
30% on profits over £250,000
What is the tax position with regards to transferring income to children?
- the law prevents the parent of a minor child from transferring income to that child in order to make use of the child’s personal allowance and basic rate tax bands.
- Income that is directly transferred by the parent, or is derived from capital so transferred, remains income of the parent for tax purposes.
