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
With respect to residency, when is Income Tax applicable?
All UK residents including children are subject to income tax, depending on the type and amount of income they receive
What is the ordering in which Income Tax is applied?
- Non-savings income
- Savings income
- Dividends
What are 3 characteristics of National Insurance Class 1?
- Paid by employees at a percentage on earnings between certain levels, known as the primary threshold and the upper earnings limit with a reduced percentage payable on earnings above the upper limit.
- They are also paid by employers on most employees’ earnings above a lower limit called the secondary threshold – but with no upper limit.
- No employer NICs are paid in respect of employees and apprentices under a certain age on earnings between
What are 3 characteristics of National Insurance Class 2?
- Paid by self-employed (flat rate) if their annual profits exceed the small profits threshold.
- They are quoted as a weekly amount.
- They are collected through self assessment.
What are 3 characteristics of National Insurance Class 3?
- Voluntary contributions that can be paid by people who would not otherwise be entitled to the full state pension or sickness benefits.
- This can occur because a person has, for instance, taken a career break or spent some time working overseas.
- They are flat rate contributions.
What are 2 characteristics of National Insurance Class 4?
- Additional contributions payable by self employed people on their annual profits between specified minimum and maximum levels, with a reduced rate payable above the upper limit, as for Class 1.
- They are paid to HMRC in half yearly instalments by self assessment.
Hayley’s gross annual income is £27,430.
She is 28 years old.
What is her tax liability?
Answer is £2,972.
Gross annual income is £27,430.
Less
Personal allowance for under 65’s = £12,570.
= Taxable Income of £14,860
Hayley is therefore a BRT & will pay 20% tax.
20% of £14,860 = £2,972
Bradley is 60 years old.
He receives a gross annual income of £57,000.
How much tax will he have to pay?
Answer is £10,232.
Gross annual income is £57,000.
Less
Personal allowance for under 65’s = £12,570.
= taxable income of £44,430.
Bradley will pay basic rate tax on 1st £37,700
then pay higher rate tax on the remainder
40% of £6,730 (£44,430 - 37,700) = £2,692
Total tax liability (£7,540 + £2,692) = £10,232
National Insurance (NI) is tax on?
1) Earned income
2) Unearned income
1) Earned income. The way NI is paid depends on whether the earner is employed or self-employed
Which of the following sources of income is not subject to income tax?
a) Redundancy payment in lieu of notice.
b) State pensions.
c) War widow’s pension.
d) Share dividends.
c) War widow’s pension.
HMRC sets out a strict order in which income tax on different types of income is applied. Which of the following is third in that order?
a) Interest.
b) Chargeable gains from life assurance policies.
c) Dividends.
d) Earned income.
c) Dividends.
For how many days in a tax year must a person be present in the UK to be considered a UK tax resident?
a) 60.
b) 90.
c) 183.
d) 365.
c) 183.
Greg is self-employed, with annual profits over the minimum threshold. Which of the following classes of National Insurance contributions will he have to pay?
a) 1 and 2.
b) 2 and 3.
c) 2 and 4.
d) 3 and 4.
c) 2 and 4.
The starting rate of income tax applies to:
a) all income for low earners.
b) dividends.
c) interest from savings.
d) pension income.
c) interest from savings.
Jayne left her job in January and is about to start another. Her previous employer will have given her a:
a) P30.
b) P45.
c) P60.
d) P75.
b) P45.
Juan comes from a long line of Argentinians, but now lives in the UK. For how many years must he have been a UK tax resident to be deemed domicile?
a) A total of 15 years.
b) 15 of the last 20 years.
c) 17 of the last 20 years.
d) A total of 20 years.
b) 15 of the last 20 years.
The personal savings allowance is:
a) available to all taxpayers.
b) available only to non-taxpayers.
c) only available to basic-rate taxpayers.
d) not available to additional-rate taxpayers.
d) not available to additional-rate taxpayers.
Imran is self-employed. In order to be able to deduct his business expenses from his gross income, they would need to be:
a) wholly and exclusively incurred for the purpose of his trade.
b) wholly, exclusively and necessarily incurred for his trade.
c) allowable by HMRC.
d) exclusively incurred for his trade.
a) wholly and exclusively incurred for the purpose of his trade.
Paula is a higher-rate taxpayer who makes a charitable donation through Gift Aid. This means:
a) the charity can recover basic- and higher-rate tax Paula paid on the gifted amount.
b) Paula’s basic-rate income-tax threshold will be extended by the gross amount of the gift.
c) Paula will receive immediate basic- and higher-rate tax relief on the gift.
d) Paula will receive immediate basic-rate tax relief on the gift.
b) Paula’s basic-rate income-tax threshold will be extended by the gross amount of the gift.
Finish this sentence:
“For those on low incomes a starting rate of __ per cent applies to the first £5,000 of savings income.”
0%
Finish this sentence:
“The starting‐rate band reduces as taxable ______ _______ income is received”
Non-Savings Income
Finish this sentence:
“The starting rate does not apply at all where income received exceeds an individual’s personal allowance plus _______________.”
plus the starting‐rate band.
Finish this sentence:
“There is a personal savings allowance (PSA) for ___ ____ taxpayers and a lower allowance for ___ ____ taxpayers”
Basic-rate, then
Higher-rate
What P-form is best described with:
“Issued in May each year and shows, for the previous tax year, total tax deducted, National Insurance contributions (NICs) and the final tax code.”
P60
What P-form is best described with:
“On leaving an employer, an employee should be provided with a form showing their name; district reference; code number; week or month of last entries on the employee’s deductions working sheet; total gross pay to date and total tax due to date. A copy is sent to HMRC.”
P45
What counts as an allowable business expense for an EMPLOYED person:
a) wholly and exclusively incurred for the purpose of his trade.
b) wholly, exclusively and necessarily incurred for his trade.
c) allowable by HMRC.
d) exclusively incurred for his trade.
b) wholly, exclusively and necessarily incurred for his trade.
When a gift is made using Gift Aid, the charity can recover:
A) the basic‐rate tax (20 per cent)
B) the higher-rate tax (40 per cent)
B) the additional higher-rate tax (45 per cent)
A) the basic‐rate tax (20 per cent)
When a gift is made using Gift Aid, the donor can recover:
a) their basic‐ and higher‐rate tax threshold extended by the value of the gross gift.
b) they will receive immediate basic- and higher-rate tax relief on the gift.
c) they will receive immediate basic-rate tax relief on the gift.
a) The donor making the gift has their basic‐ and higher‐rate tax THRESHOLD extended by the value of the gross gift.
Which of the following determines IHT liability?
1) Residence
2) Domicile
2) Domicile
Domicile mainly affects liability to IHT
Residence mainly affects liability to income and CGT
Which of the following determines Income & CGT liability?
1) Residence
2) Domicile
1) Residence
Domicile mainly affects liability to IHT
Residence mainly affects liability to income and CGT
If a person is present in the UK for less than 183 they cannot be deemed a UK resident for a particular tax year. True or false?
False.
Where someone is not resident for at least 183 days in a tax year, the statutory residence test is applied (unless they are
regarded as automatically not UK resident). This determines whether they will be treated as resident for a particular tax year. The nature and conditions of
the tests are complex.
A UK employee who returns to the country after 4 years abroad might opt to pay which class NIC?
1, 2, 3, 4?
3
Class 4 NIC’s are paid to the HMRC:
1) Annually
2) Half-yearly
3) Quarterly
2) Half-yearly
They are paid to HMRC in half-yearly instalments by self-assessment.
When does the starting-rate savings band kick in?
£17,570 = PSA + Starting rate for savings = £12,570 + £5,000
