Topic 4 (UK taxation 2) Flashcards
What is Capital Gains Tax?
CGT is payable on the gains arising on the disposal of certain assets
What is ‘Disposal’ in terms of CGT?
A disposal can be the sale of an asset, transferring ownership to another party, giving it away or receiving compensation for its loss
What are ‘allowable deductions’?
Costs incurred in acquiring,enhancing and disposing of an asset
The tax is payable on …. gains, deducting any………… made in that year
Net
Capital losses
What is the CGT allowance for each individual?
£12,000
What part of CGT can’t be carried forward?
The annual allowance of CGT can’t be carried forward
Give examples of Assets exempt from CGT
- personal belongings valued less than £6,000
- premium bonds/lottery wins
- private residence
- ISA’s
- British Government stocks
What happens if a loss is made on a disposal of an asset?
- can be offset against gains made elsewhere
- must be offset agains gains made in the year when loss is made
- capital loss can’t be carried back to previous year
- capital loss can be carried forward but annual exemption cannot
What are the rates for calculating CGT?
Basic taxpayer = 10%
Higher taxpayer = 20%
How do you calculate CGT?
- Calculate amount of the gain
- Deduct annual CGT allowance
- Deduct any losses
- What remains is taxable gains
- Add taxable gain to taxable income
- Apply the appropriate rate of tax
What is Private Residence Relief?
Available when someone sells a property they have lived in as their main/only residence
What is Entrepreneur’s relief?
- A rate of 10% applies to a lifetime limit of £10 million of cumulative gains arising from the disposal of trading businesses
- to claim, an individual must own 5% of the ordinary share capital of business
What is doll over relief?
Can be claimed if the assets disposed of are replaced by other business assets (assets must be replaced within 3 years after date of disposal)
What is hold over relief?
Where gains of certain assets can be deferred until the recipient disposes it
What does IHT involve?
It involves the estate of the deceased and transfers made throughout ones life
How is tax charged for IHT?
It is charge at 40% of the amount the value exceeds the ‘nil rate band’ (2019/20 = £325,000)
What is a Residence Nil Rate Band?
If the estate includes a residence an additional nil rate can be applied
RNRB is phased over 4 years and increases by 25,000 each year (2019/20 = 150,000)
What is a potential exempt transfer PETS?
Where inheritance tax is also payable when assets are transferred (normally as gifts)
When making a gift, the tax payable depends on how many years the donor lives after making the gift….
1 year = 100% 2 years = 100% 3 years = 100% 3-4 years = 80% 4-5 years = 60% 5-6 years = 40% 6-7 years = 20%
How is tax charged on a chargeable lifetime transfer?
- Tax is due immediately at 20% if the transfer amount exceeds the nil rate band at the time the transfer is made
- if the donor dies within the 7 years after a gift is made and the value of the estate exceeds the nil rate band it is then 40%
What gifts and transfers are exempt from IHT?
- transfers between spouses
- small gifts up to £250 per recipient
- donations
- wedding gifts (£1,000 from friends, £5,000 from parents, 2,500 from G.parents)
- gifts from income that don’t effect standard of living
- 3,000 per tax year for gifts not covered elsewhere
What is VAT?
Indirect tax on business transactions in the UK
What are 2 exemptions from VAT?
- Certain loans and insurance
2. Health and education services
What are the 3 rates of VAT?
Goods and services 20%
Domestic heating 5%
Food,books,medicine,water 0%
What is stamp duty?
It is a tax payable by the purchaser on certain transactions such as purchases of shares or land
When is stamp duty reserve tax payable?
It is payable on documents that transfer ownership of financial assets like stocks, shares and unit trusts
What are the exemptions from stamp duty reserve tax?
- Securities on London stock exchange
- Shares in a property authorised investment fund
- Surrenders of units
Who pays stamp duty land tax?
Paid by purchasers of residential property
Who pays Corporation tax?
It is paid by limited companies on their profits
What is withholding tax?
A tax of 20% is withheld for earnings of non-resident entertainers and sports people
