Taxation

Question 1

What is tax avoidance?

Answer 1

Tax avoidance is the legitimate exploitation of tax loopholes to reduce the individual or business tax liability.

Question 2

What is tax evasion?

Answer 2

Tax evasion is the illegal evasion of taxes properly due and is considered a part of money laundering.

Question 3

What is direct tax?

Answer 3

• Imposed directly on the taxpayer.
• Based on income.

Question 4

What is indirect tax?

Answer 4

Tax paid indirectly as part of the price of goods or services e.g. VAT.

Question 5

Explain child benefit tax charge.

Answer 5

A tax free payment from the government that can be claimed in respect of children.

• Income up to £50,000 is tax free.
• Above that amount, the government will start making you pay tax. (1% for every £100).
• If the income of the individual exceeds £60,000 then all the tax free payments they claimed in respect of children needs to be returned back to government.

Question 6

Personal income tax formula.

Answer 6

Amount - personal allowance = taxable amount.

Question 7

Explain capital gains tax.

Answer 7

Tax on gains arising from disposals of certain assets.
Where an asset is sold, the date of disposal is the date for which the sales becomes binding which could be before the seller receives payment.

Question 8

Calculating the gain.

Answer 8

Disposal proceeds.
Less: costs of disposal.
Less: costs of acquisition.
Less: enhancement costs.
= Chargeable gain.

Question 9

Spouses and civil partners capital gains tax.

Answer 9

Transactions between spouses and civil partners are exempt from capital gains tax.
A disposal by one spouse to the other doesn’t give rise to chargeable gain.

When the asset is ultimately disposed of, the eventual tax liability is calculated by reference to the first spouses acquisition cost.

Question 10

What is inheritance tax?

Answer 10

A transfer of an asset or value to somebody. Either when you are alive or dead where you pass it on. The amount of tax you pay reflects on how it was passed on.

Question 11

What are the 3 types of inheritance tax exemptions?

Answer 11

• Potentially exempt.
• Partially exempt.
• Chargeable lifetime transfer.

Question 12

How much is the surviving spouse or civil partner entitled to inherit?

Answer 12

A surviving spouse or civil partner is entitled to inherit all personal chattels and a statutory legacy, which is the first £270,000 of assets.