Osborne 1: General bits of info Flashcards
Main categories of income?
- Employment, Pension & Social Security Income
Amounts rec’d in TY + value of benefits - allowable exp - Property Income
Rental Income - exp (Normally CASH Basis for TY) - Trading Income (Self employed & partnerships)
For YE that falls within TY - Savings & Investment Income (UK Inc & Invs)
Gross Interest rec’d in TY; Divs rec’d in TY
Tax Planning
Involves
Looking at an Individual or Company’s finances from a tax perspective.
The purpose of TP is to see how to achieve all the elements of the financial plan in the most tax-efficient way.
TP should only use LEGAL and ETHICAL methods of minimising tax liability.
Tax Avoidance
Tax avoidance uses legitimate tax rules and allowances to minimise tax.
The difference to Tax Planning lies in the INTENT.
If ‘Aggressive’ could be caught by GAAR
General Anti Avoidance Rules
TP
TA
TE
TP:
- Seeks to pay the correct amount of tax.
- Seeks to follows the SPIRIT of the law
TA:
- Seeks to exploit unintended loopholes or conflicts in laws to avoid paying correct amount.
- But seeks to follow the LETTER of the law.
TE:
- Uses ILLEGAL methods to escape paying.
- Risks criminal prosecution
Examples
TP
TA
TE
- Interest
TP - Put savings in ISA
TA - Put savings in Wife’s ISA (intent)
TE - Not declaring Interest on SA
UK Resident
- Determined by specific tests
- Applied each tax year
- Based on time spent living & working in UK
(complex tests outside scope of PTAX)
Domicile
- Domicile - Broadly where person has permanent home and where he intends to stay.
- Domicile of Origin - is based on domicile of persons father or mother and will become person’s domicile unless action is taken to change it.
It’s only possible to have one domicile country at any time.
‘Deemed domicile’ (from April 2017)
(If meet either ALL Condition A OR B then treated as UK Dom for tax)
Condition A
- BORN in UK
AND
- have UK as DOMICILE of ORIGIN
AND
- were RESIDENT in UK for 2017 to 2018 or later years.
(ie. from when new rules came in)
‘Deemed domicile’ (from April 2017)
(If meet either ALL Condition A OR B then treated as UK Dom for tax)
Condition B
Have been UK resident for at least 15 of the 20 tax years immediately before the relevant tax year.
If established as ‘UK Dom’ how does this affect?
Cannot claim the ‘Remittance’ Basis
(ie. Taxed on Arising basis)
(tax applied only to proceeds brought in to UK)
If UK Resident but NOT UK Dom (or deemed dom)
Taxed in full on UK income/gains
For overseas income/gains will be taxed either:
- On an “arising basis”
Taxed on WORLDWIDE income/gains regardless of where take place. (Just like Dom) - On a “remittance basis”
UK tax only applied to proceeds brought into UK.
Must pay ‘remittance basis charge’ of either 30K/60K each Tax Year. (So only makes sense if individual has substantial OVERSEAS income/gains which were not being brought in)
(Get the UK/Overseas/Worldwide terms correct ie. WW is Overseas + UK)
Think about IHT
Need to go over chapter 1 again & get some points memorised to deal with T1 eg. GAAR
.
Tax avoidance
Uses legitimate tax rules & allowances to minimise tax
Tax evasion
Uses illegitimate methods to escape paying correct tax.
How to distinguish TA/TA
HMRC has said (about avoidance schemes) If it involves concealment, pretense, non-disclosure or misrepresentation of the true facts this is illegal tax evasion.
