Tax 1 Flashcards
(37 cards)
What is the tax personal allowance?
£12,570
What is the income band for 20% income tax?
£0–£37,700
What is the income band for 40% income tax? (higher rate)
£37,701–£125,140
What is the income band for 45% income tax? (additional rate)
Over £125,140
What is the income limit for personal allowance?
£100,000
How is the personal allowance reduced over £100K limit?
reduced by £1 for every £2 of income over the £100,000 limit until it is fully exhausted
What are the personal savings allowances? (PSA)
Basic rate taxpayers: £1,000
Higher rate taxpayers: £500
Additional rate taxpayers: £0
What is the dividend allowance?
£500
What is the marriage allowance? Who is eligible?
£1,260
allows one person in a marriage or civil partnership to transfer up to 10% of their personal allowance (rounded up to the nearest £10) to their partner. The annual allowance is 10% of £12,570, rounded up to the nearest £10 to give £1,260.
Maximum Tax saving = 20% of $1,260 = £252
Only eligible for basic rate tax payers
What is the starting rate for savings and how does it work?
- You do not have to pay tax on up to £5,000 of interest on savings.
- This starting rate reduces by £1 for every £1 of other income (such as wages, pension, benefits and savings interest) above their personal allowance, meaning that it is zero if other income is £17,570 or more (ie, £12,570 personal allowance + £5,000 savings allowance).
What are the tax rates for dividends?
Div income falling below the basic rate tax limit = 8.75%
Div income over the basic rate tax limit and below £125,140 = 33.75%
Div income above £125,140 = 39.35%
What is the tax treatment for trustees for an income in possession trust?
- If the income is paid to the beneficiary via the trust, the trustees are responsible for declaring and paying income tax on income received by the trust, AT THE BASIC TAX RATE (ie, 8.75% for dividends and 20% for all other income).
- If the income is paid directly to the beneficiary, the trustees do not need to report it on the trust tax return
- The personal allowance, PSA, savings rate band and DA are not available to the trustees.
What is the tax treatment for benficiaries for an income in possession trust?
- If the income is paid directly to the beneficiary, then it is taxed at the beneficiary’s marginal rate on the gross distribution.
- Beneficiaries can use the personal allowance, PSA, savings rate band and DA against trust income, where available.
What is the tax treatment for trustees for discretionary & accumulation & maintenance trusts?
- Trustees are responsible for declaring and paying income tax on income received by the trust.
- If total income is above £500, then the whole amount (not just the amount over £500) will be taxed at the ‘trust’ rate of 39.35% for dividends and 45% for all other income (eg, rental income and savings interest) ADDITIONAL RATES
What is the tax treatment for benficiaries for for discretionary & accumulation & maintenance trusts?
A beneficiary is taxable only on income that has been distributed to them by the trustees, or applied by the trustees for their maintenance, education or benefit, at their own marginal rate on the gross distribution
What is the tax treatment for trustees in a bare trust?
NONE
What is the tax treatment for benficiaries in a bare trust?
Any income tax liability falling on the beneficiary at their own rates, subject to their own personal allowances
How are charities taxed?
Exemptions, if used for charitable pruposes, trading in goods
- Registered charities qualify for a number of exemptions, reliefs and allowances against income tax, capital gains tax (CGT), Stamp Duty Land Tax and tax on profits from certain activities
- In terms of income tax, most of the income received by charities is exempt from tax as long as it is used for charitable purposes. Charities can also claim tax relief on donations made by UK taxpayers under the Gift Aid scheme. However, they are unable to reclaim any tax deducted at source on dividends they receive.
- If charities trade in the provision of goods and services, they may be subject to tax on profits. Also, if the level of income from trading activities exceeds £85,000 (until 31 March 2026), they will need to become VAT-registered and account for VAT in the usual way.
How is Commercial Property taxed?
Rental profits from commercial property are taxed in the same way as any other rental income
What are is the definition and tax treatment for OEICs Paying Interest?
- If the OEIC holds 60% or more of its assets in fixed-interest securities, it pays interest.
- Income will be paid gross and individuals will pay any tax due on this at the applicable rate for savings income via their tax return
What are is the definition and tax treatment for OEICs Paying Dividends?
- If the investments comprise less than 60% in equities, the OEIC pays dividends.
- Dividends will be paid gross and individuals will pay tax at the applicable rate for dividends via their tax return
What is an equalisation payment?
A payment made to compensate the buyer of a fund for paying accrued interest imbedded into the NAV price of the fund on purchase
How are equalisation payments taxed?
- It is not liable to income tax.
- The payment is deducted from the cost of the holding when calculating any chargeable gain on an eventual disposal.
How are investment trusts taxed?
Divs, O/S Divs & other income
- Domestic dividends are received and the investment trust has no further liability. This is known as franked income.
- Overseas dividends may be received net of foreign withholding tax. The investment trust is liable for corporation tax on the grossed-up income. Depending on any double taxation agreements (DTAs)
- The investment trust is liable for tax on other income at the applicable rate of corporation tax.
