U1: T3 - UK TAXATION I Flashcards
For a child, which of the following would be subject to income tax?
a) All earned income.
b) An educational grant.
c) Any earned income that exceeds their personal allowance.
d) A settlement from their parents.
Any earned income that exceeds their personal allowance. The settlement from their parents (answer d) will be taxed as the parents’ income, the educational grant (answer b) is tax‐free, and they would not pay tax on all of their earned income (answer a), only that which exceeds their personal allowance.
Which of the following people would be most likely to be a ‘UK resident’?
a) Susan, who normally lives in Spain but spends three months a year working for the family business in England.
b) Antoine, a French surveyor, whose eight‑month contract in Devon with a construction company started in May.
c) Max, who moved to London from Cologne on 6 January for a seven‑month teaching contract.
d) Brenda, who spends 180 days a year in the UK and the remainder in the USA.
Answer b) Antoine is correct. Answer c) is not correct because three months of Max’s contract are in one tax year and the rest in the following year. He will not spend 183 days in either tax year in the UK.
Which of the following will not be subject to UK inheritance tax upon death?
a) UK property owned by Paolo, who has lived in the UK for three years but is not UK domiciled.
b) Overseas property owned by Kavita, who was born in the US (to American parents) but has lived in the UK for the past 18 years.
c) Overseas property owned by Helena, who is UK resident but not UK domiciled nor deemed domiciled.
d) Overseas property owned by David, who is UK domiciled but resident in France.
C) As Helena is not UK domiciled she will not pay IHT on overseas assets
A person who is UK resident for tax purposes only pays income tax on earnings generated in the UK. True or false?
False. They are liable for income tax on income generated anywhere in the world, but the UK has reciprocal tax treaties (double taxation agreements) with many countries to ensure that people are not taxed twice on the same income
A person may become UK domiciled once they have been settled in the country for a number of years. True or false?
True, as long as their actions indicate that their change of residence is permanent and they have severed links with their original country of domicile.
Which of the following is not assessable for income tax purposes?
a) Tips.
b) Interest from bank and building society deposits.
c) Lottery prizes.
d) Rents from land and property.
c) Lottery prizes.
In what order of priority is income taxed?
Non‐savings income, then savings income, then dividend income
Blind person’s allowance can be transferred to a spouse or civil partner if the blind person does not use the allowance. True or false?
True. Blind person’s allowance can be transferred to a spouse/civil partner if the original recipient does not pay tax or use all their allowance.
Emma worked abroad for five years but is now back working in the UK. What class of National Insurance contributions could she pay to improve her contribution record for the state pension?
Class 3
Mike earns £22,000. He also receives £500 interest on his savings from a building society deposit account. Calculate the income tax payable.
On earnings:
£22,000 – £12,570 (personal allowance) = £9,430
£9,430 × 20% = £1,886
There is no tax on savings income because, as a basic‐rate taxpayer, Mike has a personal savings allowance of £1,000.
Roopa is a company director. In the current tax year, she draws a salary of £12,500. She has dividend income of £27,000. Calculate the income tax payable.
Total income is £39,500
Salary falls within personal allowance of £12,570 so no tax is paid on this.
£2,000 of dividend income is taxable at 0 per cent.
The remaining £25,000 all falls within the basic rate tax band and is taxed at 7.5 per cent.
Total tax is £1,875 (£25,000 × 7.5%).
Jemma is self‑employed and is in receipt of blind person’s allowance. In the current tax year, her gross profit is £20,000 and she has allowable expenses of £2,500. She has to pay
Class 4 NICs at 9 per cent on her taxable profit above £9,500. Calculate the income tax and Class 4 NICs payable.
Income tax:
£20,000 Gross profit
(£2,500) Allowable expenses
£12,570 Personal allowance
(£2,500) Blind person’s allowance Taxable income: £2,500
Tax: £2,500 × 20% = £500
Class 4 NICs:
£20,000 – £2,500 = £17,500 taxable profit
£17,500 – £9,500 × 9% = £720.00
Ashok’s salary is £75,000 and he is paid savings interest of £650. He also has dividend income of £7,000. Calculate the income tax payable.?
Tax on earned income:
£75,000 Income
(£12,570) Personal allowance
£62,430 taxable earned income
£37,700 × 20% = £7,540
£62,430 – £37,700 = £24,730 × 40% = £9,892
Savings interest:
£500 (PSA) × 0% = £0 £150 × 40% = £60
Dividend income:
£2,000 (DA) × 0% = £0
£5,000 × 32.5% = £1,625
Define Capital Gains Tax (CGT)?
Tax payable on the gain made when certain assets (eg personal property above a specific value, or business assets) are disposed of, usually by selling them.
Define Earned Income?
Income from employment or self employment (profits, salary, tips, commission, bonuses and pension benefits).
Define Unearned Income?
Income that is not derived from employment or self employment (interest/dividends from investments, rental income, trust income, etc).
What classifies as UK residency?
Residence for at least 183 in TAX YEAR
When someone is resident for <183 days in a TAX Year the statutory residence test is applied (unless they are regarded as automatically not UK resident).
What taxations does UK residency affect?
Income and Capital Gains Tax
Define Domicile?
Domicile is best described as the country that an individual treats as their home, even if they were to live for a time in another country
Define Domicile of Origin at Birth?
This is the domicile of their father on the date of their birth (or the domicile of the mother if the parents are not married).
Define Domicile of Choice
Domicile of choice is obtained by going to live in a different country, intending to stay there permanently and showing that intent by generally ‘putting down roots’ in the new country and severing connections with the former country. There is no specific process for this.
When is someone liable for UK Inheritance Tax (IHT)?
Logic as follows:
Are they UK domiciled?
If Yes, they are liable for IHT on assets all-over the world
If No but they have been a resident in t he UK for 15 of the last 20 tax years - they are treated as effectively UK domiciled for IHT purposes.
If just No, they are taxed on UK assets only
