Topic 3 UK Taxation Flashcards
What dates are tax year in the UK
6th April - 5th April (following year)
Income tax and CGT mainly affects which tax persons in the UK?
Residence
How many days in a tax year does a person need to stay in the UK to be classed as a resident?
183 Days
Do UK residences need to pay tax on all income & unearned worldwide?
Yes
Describe what Domicile means?
- A country an individual treats as home
- can be changed by moving to a different country
How does IHT affect UK domiciles?
IHT is chargeable on all worldwide assets
True or false
Non-UK Domiciles only pay IHT tax on UK assets?
True
What happens to a non UK Domicile who has lived in the UK for 15 of the last 20 tax years?
They are deemed UK Domiciled for IHT purposes
What do Reciprocal Tax Treaties do?
- Ensure a person is not taxed twice on the same income
- Income to be taxed in 1 of the 2 countries involved
- Helps to combat tax evasion
What type of tax is defined as?
Payable on gain when assets such as property over a certain amount and business assets are disposed of via sale or gift.
Capital Gains Tax (CGT)
What type of income is defined as?
Income from employer or self-employment
(Profits,Salary,tips, commission, bonus, pensions benefits)
Earned income
What type of employment is defined as?
Income not from employment or self-employed
(Investment Dividends/ Interest, rental and trust income)
Unearned Income
True or false
Children are subject to tax?
True UK residents including children can pay tax
If a child receives income from parents in the form of an arrangement or settlement is this the child’s income?
No treated as parents income for tax purposes
Wages/bonuses/commission, Pension,self employed profits, Investor income, interest on bank deposits, Tips, company dividends, stocks/corporate bonds, trust income, rents, employees BIK
Assessable Income
Redundancy payments, shares (by employer), NS&I savings interest, ISA income, Gift aid, proceeds of life policy, Casual gambling profits, lottery prizes, interest on tax rebate
Non-assessable income
Wedding present/ gifts from employer for employee service, retirement gratitudes from employer, educational grant
Non-assessable income
grants from employer for degree/diploma, war widows pension, certain state benefits, house grants, capital from life annuity
Non-assessable
What is an allowance?
The amount of income that can be received before tax is taken
What are the 7 types of allowances?
- Person allowance
- Marriage allowance
- Married couple’s allowance
- Blind Person’s allowance
- Personal Savings Allowance (PSA)
- Dividend Allowance
- Property & Trading Allowance
Key considerations for Personal Allowance?
- Allowance is £12,570
- reduced by £1 for every £2 over £100k
- £1,260 can be transferred to spouse
Which allowence is this?
- Only available if born before 06/04/1935
- Provided as tax reduction
- Limited to a percentage of allowance
Married Couple’s Allowance
Which allowence is this?
- Only available to blind person
- If blind person can’t use allowance it can be transferred to spouse
Blind Person’s Allowance
What allowance is?
- Allows savers to earn interest on savings without paying tax on interest
- Depends on tax band
- Not available to additional rate tax
Personal Savers Allowance (PSA)
What allowance is?
- Receive a dividend allowance each year
- Dividend above the allowence is taxable
- ISA shares are tax free
Dividend Allowance (DA)
Describe what a Micro-entrepreneur is
Somebody who supplements income with property or trading income
- 2 separate allowances
- 1 for property & trading
- Small amounts of income
- if income is less than allowence tax is not payable
- If income more tax is payable
Is allowances for property and trading
Which allowence is this?
- Part can be transferred to spouse
- Providing the transferor is not liable for tax
- Receiptiant is not due to tax at higher & Additional rates
Marriage Allowance
What are the types of deductions?
- Charitable contributions
- Pension contributions
- Allowable expenses (employment)
What tax percentage does the below pay?
£0 - 37,700
Basic rate 20%
What tax percentage does the below pay?
£37,701 - £125,140
Higher rate 40%
What tax percentage does the below pay?
£125,141+
Additional rate 45%
What order is income tax calculated?
1st Non-savings (earned, rents etc)
2nd Savings (Interest)
3rd Dividends
4th chargeable gains (qualifying life assurance policies)
How are employees tax deducted?
- At source via PAYE system
- HMRC provide tax tables to employer
- Tax code from HMRC is used to determine how much can be earned before tax
What is a P60?
Form given by employer to employee every May that shows a figures income, deductions (Inc tax code) for last tax year
What is P45?
When employee leaves a company, employer will provide P45 showing contributions of tax YTD. HMRC receive copy. P45 gives new employer tax details for the tax year.
What is Self Assessment?
Self employed calculate own figures to HMRC. HMRC provide amount of tax to be paid.
How do the self-employed pay tax?
- Directly to HMRC
- Income based on net profits
- Submit “Self-assessment” to HMRC
- Tax payable figure from by HMRC
- Tax payable in 2 equal parts 31st January & July
- Self Employed
- Investment income in access of allowances
- people who receive rental income
- Trustees
- Legal representatives of the deceased
Have to complete Self Assessments
PSA Allowances for tax band are?
Basic £1,000
Higher £500
Additional N/A
Savings within these limits pay 0% tax
How do people pay tax interest on deposits?
Received gross so either by:
1. Paid via self assessment
2. Ask HMRC to deduct via tax code
What is the Starting rate tax band?
0% tax on the first £5,000 of savings income for low income.
Reduces as Non-savings Income is received
When doesn’t the start rate band apply?
When taxable income is more than personal allowance & starting rate band
What are the two categories savings income fall in to?
- Tax Free (ISA, Investments, some national savings
- Gross paid without tax deduction (Bank, Building Society accounts)
What is the 4 stage process for tax calculation?
- Work out income
- Make deductions
- Deduct allowances
- Apply tax at appropriate band
How can Gift Aid benefit a charity?
They can recover basic rate tax (20%) on amount assumed to have been paid. Increasing the gift value
How does Gift Aid donations aid a basic or higher rate tax payer?
Tax threshold is increased by the value of the gross gift
Why would an employee want to make a charitable gift from their salary?
Tax relief is granted on the gift at the employee’s highest rate of tax
What NIC Limit is?
- Paid by employees between “primary/ upper earnings” limit
- Paid by employers above “secondary threshold”
- No employer NIC paid for employees & apprentices under a certain age
Class 1
What NIC Limit is?
- Paid by self employed if profits exceed “small profits threshold”
- Deemed paid if above “small profits” but below “lower profits threshold”
- Quoted as weekly amount
- Collected by 1 lump sum payment through self assessment
Class 2
What NIC Limit is?
- Voluntary contribution by those not entitled for full pension or sickness benefit
- Flat rate contributions
- occurs if person takes career break, overseas etc
Class 3
What NIC Limit is?
- Additional contributions by self employed on profits between min & max limits
- Reduced payment for above upper limit
- Paid half yearly to HMRC by self assessment
Class 4
What happened to Class 2 NICs
Abolished in April 2024
When does a person acquire their Domicile?
At birth
