Please enable JavaScript.
Coggle requires JavaScript to display documents.
INCOME TAX, CAPITAL GAINS TAX - Coggle Diagram
INCOME TAX
INCOME AND CAPITAL
Income
Receipt > money paid TO business
- Receipt = Money received on regular basis: profits / interest on savings
- Expenditure = Money spend for day to day trading: bills and general repairs
Capital
Expense > money business pays OUT
- Receipt = Money from one off transaction: sale of premises
- Expenditure = Money used to buy capital asset for business infrastructure / benefit of business
Tax assessment
HMRC collects tax from individuals and businesses
- Individuals are assessed to income tax and capital gains tax on tax year: 6 April - 5 April
- Companies pay corporation tax on income profits and chargeable gains that arise in each financial year: 1 April - 31 March
Methods HMRC uses to collect tax
- PAYE SYSTEM = deduction at source
- Payer of taxable sum that is taxable in hands of recipient deducts tax + accounts it to HMRC on recipient's behalf > recipient receives money after tax
- SELF-ASSESSMENT = individual calculates tax bill
- Comples tax return + sends it to HMRC (self-employed people)
-
-
-
-
-
STEP 6: Apply tax rates
Tax band > Taxable Income > Non-Savings > Savings > DividendsBASIC > £0-37,700 > 20% > 20% > 8.75%
HIGHER: > £37,700-125,140 > 40% > 40% > 33.75%
ADDITIONAL:> < £125,140 > 45% > 45% > 39.35%
- Nil rate band applies to dividends before they are taxed
Each tax bracket is used in turn
-
CAPITAL GAINS TAX
-
-
1. Chargeable Disposal
Occurs on:
- sale of an asset
- gift of an asset during the tax payer’s lifetime.
NOT on death
2. Chargeable Asset
All forms of property are asset UNLESS specifically excludedExclusions:
- Principal private residence (‘PPR’): NO CGT if they have occupied the PPR as their only or main residence during the whole period of ownership, also for last 9 months even if not in actual occupation.
- A married couple can only have one PPR between them
- Motor cars for private use, incl vintage cars
- Certain investments: government securities, National Savings certificates, shares + securities in ISAs) and life assurance policies
- UK sterling + any foreign currency for personal use.
3. Chargeable Gain
Starting point = consideration received > appropriate rate of CGT is applied to the chargeable gain
NO GAIN + NO CGT for disposal to charities and between spouses
Consideration
- Disposals at arm’s length = consideration received is price paid by the buyer when the asset is sold.
- Disposals between connected persons = HMRC deems seller to have received market value irrespective of the actual sale proceeds
- ‘Connected Persons’ include:
- individual’s relatives and spouses of their relatives + lineal descendants + brothers and sisters + common control companies + partners in business
NOT include:
- uncles, aunts, nephews, nieces
- Disposals at an undervalue = transaction between unconnected persons and at undervalue, for CGT = sale is deemed at market value at the date of disposal.
- Gifts = donor deemed to have received the market value of the asset at the date of the gift.
-
5. Deduct capital losses
IF disposal results in loss NOT capital gain as
cost of an asset > consideration received for it on disposal
CGT is only charged on gains SO any capital losses made by individual in the same tax year are carried across + deducted from any gains made in that tax year
If insufficient gains against which to offset the losses in the same tax year = unrelieved losses are set against gains in future tax years
-
-
-
Investors’ Relief (‘IR’)
Benefit to investors in unlisted trading companies who hold their shares for at least 3 years by reducing CGT to 10% for gains from disposals of qualifying sharesQualifying shares:
- Fully paid ordinary shares + issued to the individual for cash consideration on / after 17 Mar 2016
- The company is / has been trading company or HC of a trading group
- When shares were issued, none of the company’s shares were listed on a recognised stock exchange
- Shares held by the individual for at least 3 years from 6 April 2016
- The individual / connected person is not officer or employee of company
Taxing profit that a person might make from disposing of a capital asset which has increased in value during their period of ownership.CGT is charged where there is
1. a Chargeable Disposal
2. of a Chargeable Asset
3. by a Chargeable Person
4. which gives rise to a Chargeable Gain.CGT is charged on all gains made in the relevant tax year (6-5 April).
- The tax is payable on or before 31 January following the tax year in which the disposal occurs