General Tax info

 Don’t gross up dividends anymore

 Otherwise with savings or in inheritance tax gross up formula is:

o 100/100-Rate x Net amount

 Savings income (interest made on bank money) is tax generally by bank and you receive net
amount. Banks tax at the net basic rate of 20%

 Unlike on dividends, tax credits on bank and building society interest is repaid where it
exceeds the tax liability

 Inheritance tax – transfers made within 7 years of death are taxed under IHT act. The amount
received in transfer is treated as the net figure so when working out value to the estate need to
gross up. Taxed at basic rate of 20% as well.

 If a quote or estimate fails to mention if VAT included it is assumed to be included.

 When working out taxable income for persons the order you work tax out is as follows:

o Non-savings income (ie salary, pensions & certain security benefits etc)

o Plus benefits in kind (ie car allowance, private health insurance etc)

o Savings income grossed up (interest etc)

o Dividends (investment income ie (payments from shares, capital gains etc) don’t gross
up anymore

o Less charges on income

o Total income

o Less personal allowance (over £100,000 reduced by £1 for every £2 above £100,000)

o Taxable income

 Then when working out tax payable must be done in this order:

o Work out tax on Salary/business profits first

o Once completed then savings income

o Then finally investment income.

o The last 2 amounts are taxed according to the bracket which the salary ends in. Ie
savings income gets charged at same rate and investment income, though having a
different rate, will be charged at the rate based on bracket which the 1st two ends in.

 Trading income for self-employed people. Tax is calculated on profits they make in their
accounting year that ends in the current income tax year for individuals. Ie if books end 31
January his trading income (for personal tax purposes) will be profits on his accounting year
not profits up to 5 April.

 Capital Gains Tax – Every asset has potential CGT unless it is exempt. Exempt assets are:

o Private motor vehicles

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 o Cash

o Wasting assets, assets with life span of less than 50 years

o Chattels disposed for less than £6,000

 CGT not due until disposal of asset occurs. Ways to dispose:

o Sale

o Gift – gain based on Markey value

o Loss – compensation/insurance indemnity forms basis of calculation of gain

o Death – deemed disposal on death but no CGT payable

o Between spouses (no CGT payable)

 Way to calculate CGT is as follows:

o Disposal price - (Initial expenditure + subsequent expenditure + incidental cost of

disposal) = gain/loss

 Initial expenditure means purchase price plus incidental fees such as legal fees, stamp duty
etc

 Subsequent expenditure means expenses incurred in improvements to assets but NOT costs
of repairs and maintenance.

 There is also an annual allowance of £11,100 for CGT

 Exemptions to CGT are:

o Entrepreneur’s relief – first £10million only charged at 10%. Following assets

qualify:

 Dispose of whole or part of business

 Disposal of assets used for business purposes in business which ceased within
3 years of sale of asset

 Disposal of shares in a company, where tax payer owns at least 5% of ordinary

shares, has at least 5% voting rights and is an officer or employee of company

o Annual Exemption - £11,100

o Spouse Exemption – no CGT until spouse disposes of property. Then difference in

value calculated based on original acquisition cost.

 Roll-over relief on CGT –

o Rollover relief on replacement of qualifying business assets - where taxpayer

disposes of business assets and then invests proceeds in purchase of new qualifying
business assets. CGT charge postponed until disposal of replacement asset.
Replacement asset must be purchased period between 1 year before and ending 3
years after disposal of original asset.

o Rollver on incorporation of business – where unincorporated business transferred

to a company

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 o Hold over relief – applicable to disposals of business assets by individuals undervalue.
Ie gift etc, donor and donee must elect to apply relief. Donee then pays CGT when
disposes of asset.

 Corporations Tax

 All income in company comes under same tax rate of 20%

 Even capital gains however, capital losses can be used to reduce this income and only this type
of income.

 There is also no annual allowance or entrepreneur’s relief for companies on CGT.

 There is roll-over relief on qualifying business assets for companies however.

 Corporations tax is paid no later than 9 months after the end of the companies’ financial
year.

 Inheritance Tax

 Calculated on value transferred by a chargeable transfer.

 If a person gives away, for example, a vase to son. Vases came as a pair and pair worth
£300,000. Each vase separately only worth £100,000. Loss to estate will be £200,000 even
though disposed of asset only worth £100,000.

 Above point illustrates the point that you need to work out value of estate both before and
after disposition.

 There are 2 types of transfers during life:

o Lifetime chargeable transfers – transfers into companies and trusts (except for
disabled).
LCT’s bear reduced rate of IHT during lifetime with further IHT payable on death. This
is worked out on LCT’s made within 7 years of death.

o Potentially exempt transfers – lifetime transfers of value to another individual or to

trustees of a trust for the benefit of disabled.
PET’s are ignored until death. All PET’s made within 7 years prior to death become
relevant in calculating IHT.

 IHT cumulative tax and rate payable dependent on cumulative total of all transfers of value in 7
years prior to death.

 Whenever LCT made, necessary to look back 7 years and add up all transfers of value in 7 year
period to work out tax rate on latest transfer. LCT’s charged at 20% if nil rate already used up
in previous 7 years of that transaction.

 PET’s aren’t charged until death so ignore when working out tax on LCT’s.

 There is tapering relief on lifetime gifts depending on how many years the deceased lived since
the lifetime gift was made. You work out tax on transfer first and then reduce it by appropriate
tapering percentage.

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 If someone’s esate is less than IHT threshold of £325,000, remaining threshold can be
transferred to spouse or civil partner. This means spouse’s estate could be worth up to
£650,000 before any tax due.