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Types of taxes (Income tax (The amount of income tax charged depends on…
Types of taxes
Income tax
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Individuals and other entities such as trusts are usually required to comply an income tax return on an annual basis, which declares the amount of income received during the previous fiscal year
In the UK, income tax is a progressive tax, meaning that the amount of income tax payable increases with the level of income of the tax payer
The tax band that an individuals earnings fall into determines the rate of income tax that they are subject to
There is a basic rate, a higher rate and an additional rate
The amount of income tax charged depends on whether the income is earned or unearned. The two types are taxed at different rates
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Unearned income: income received from sources other than from employment, trade or profession
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Tax on bank interest and dividends are usually taxed at source, so the tax had already been deducted from the amount received
Where income is taxed at source, basic rate taxpayers will have no further tax to pay however higher rate taxpayers will have more to pay
Dividends are taxed at three different rates, depending on the overall taxable income
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Inheritance tax
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Can also payable during a person's lifetime when trusts are settled or gifts are made, ie when setting up a trust, IHT is payable at half of the death rate
Payable by the person or persons who inherit a deceased person's assets where the estate is valued over a certain threshold (known as a nil rate band)
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In the UK, each person is allowed to make gifts worth up to a certain value in each tax year
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Capital Gains Tax
A tax on profits or gain that made when a chargeable asset is disposed of if it had increased in value and a gain has been made
Items that attract CGT
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Personal possessions worth more than £6,000
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Individuals who are UK resident but not UK domiciled are liable for CGT on gains arising from the disposal of UK assets and are liable to CGT on forge in gains if the proceeds are remitted to the UK
Wealth taxes
Some jurisdictions impose an annual wealth tax on individuals whose assets are valued above a predetermined level on a specific date
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Also present in Argentina,Portugal and Spain
Withholding taxes
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Investors country of residence may give some relief against these deductions when it assesses the individual for taxes due
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In the US and UK, there is no withholding tax on interest paying investments for non-residents, as jurisdictions want to encourage overseas investors to purchase government debt and to deposit funds with banks and other interest paying institutions
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Stamp duty
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Also payable on the purchase of shares if the transaction is paper based (or stamp duty reserve tax if it is a paperless transaction)
VAT
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Calculated at each level that value is added to an article or service as it progresses to an end user
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Wasting asset: An asset that has a limited life and therefore decreases in value over time (eg car or factory machine
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IHT nil rate band 18/19: £325,000
