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Topic 5 - Coggle Diagram
Topic
5
What is direct tax?
Direct Tax is the money taken straight from you bank account.
A common example would be income tax (money immediately removed from your income) or National Insurance Contribution (money taken from you to make you eligible to claim certain benefits.)
The government then takes this money and uses it to:
Fund Schools
Free Healthcare
Build roads
Provide Benefits
Pensions
Police and Defence
What is indirect tax?
Indirect Tax is the money the government adds onto the price of all goods and services.
Say you bought a packet of crisps for £1.20, you would have payed 20p in indirect tax as VAT (Value Added Tax - 20%) is added to the price of all shop products.
There are 3 main bands on people's income, what are they?
The first band (Tax Free Personal Allowance) is where you get up to £12,570 of money free from taxes.
The second band gets the money up to £50,270 deducted 20% (non inclusive of the first £12,570.) In other words, the £37,700 after £12,570 will be taxed on by 20% (£7540 dedcuction.)
The third band gets the money up to £150,000 deducted 40% (non inclusive of the first £12,570 or £50,270.) In other words, the (roughly) £100,000 after the £50,270 will be taxed on by 40% (£40,000 deduction)
What is IHT?
IHT stands for inheritance tax. The standard Inheritance tax rate is 40%
There’s normally no Inheritance Tax to pay if either:
The value of your estate is below the £325,000 threshold
You leave everything above the £325,000 threshold to your spouse, civil partner, a charity or a community amateur sports club
Say the value of my estate is £500,000 and I was able to inherit £1,000,000 from my grandfather, the IHT on this money would be worth £400,000. This means I would get £600,000 net.
What is capital gains tax?
Capital gains tax (CGT) is the money you owe the government if the value of anything you own (assets - house, car) increases and you sell it.
In other words, if I bought a car last year for £100,000 and sold it this year for £200,000; I would have to pay CGT on the additional money I earn.
5 products that are exempt from VAT.
Funeral costs
Charitable events
Gambling and lotteries
insurance and financial services
Children’s clothing
How inflation can impact on a personal budget?
Inflation is the slowly decreasing value of money that is caused by the banks printing more money than is lost. In this way, people want to spend their money quicker to not loose value and this is what keeps the economy running. A person with a personal budget is impacted negatively by inflation as on one hand, they don't want to spend too much money to go over their budget but on the other hand if they hold their money then it is losing its value.