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Capital Allowances | Capital Gains Tax (CGT) | Furnished Holiday Lettings | Income Tax | Inheritance Tax (IHT) | Personal Allowances | Rent-a-room Relief | Self-Assessment | Stamp Duty Land Tax (SDLT) | Taper Relief (CGT)
- Capital Allowances (added July 2002)
Fixed assets (such as fixtures and fittings), depreciation and amortisation are not generally allowable deductions from business profits. Instead, Capital Allowances are given as a trading expense. The main tax rules are contained in the Capital Allowances Act 2001. Allowances are available on a variety of expenditure (ranging from Plant and Machinery to Industrial Buildings and Hotels), and various rates (ranging from 4% to 100%)
Capital Gains Tax (CGT) (added July 2002)
Capital Gains Tax (CGT) was introduced in 1965. Individuals, trustees and personal representatives are potentially liable. Most of the CGT rules apply to Companies. However, Companies do not pay CGT, but instead pay corporation tax on chargeable gains on the disposal of assets. It is charged on total chargeable gains in the tax year, after certain deductions (if available), e.g. allowable losses, taper relief and the annual exemption. The main CGT rules are contained in the Taxation of Chargeable Gains Act 1992. UK residents and ordinary resident individuals are liable on all gains, wherever they arise. However, if they are also non-UK domiciled, they are generally only liable to CGT on gains brought into the UK.
Furnished Holiday Lettings (added July 2002)
Furnished holiday accommodation which is commercially let in the UK is treated as a trade for the purposes of certain reliefs (e.g. income tax loss relief and personal pension relief), which are not generally available on the letting of other types of land and buildings. To qualify for furnished holiday lettings tax treatment, certain conditions must be satisfied, i.e.
- The UK holiday accommodation must be available to the general public for commercial letting for at least 140 days in the tax year;
- It must be actually so let for at least 70 of those days; and
- Must not normally be let to the same person for more than 31 consecutive days during a 7 month period (which need not be continuous, but includes any period contained in (b) above).
A furnished holiday letting profit is taxable as property income (Schedule A) and not trading income taxable under Schedule D Case I.
Income Tax (added July 2002)
Individuals, trustees and personal representatives are potentially liable to income tax. Companies pay corporation tax on profits and gains, but may also pay income tax (e.g. on certain investment income). Income tax is paid on taxable income of the tax (or 'fiscal') year, which runs from 6 April to the following 5 April. Individuals (men, women and children) are broadly chargeable to income tax, on UK and overseas income if they are UK resident, subject to certain exceptions if they are not ordinarily resident or non UK domiciled. Non-residents are generally liable to income tax on income arising in the UK. Double tax relief may generally be claimed if the same income is taxable in the UK and a foreign country. Taxable income is broadly calculated by adding together amounts under different categories (known as 'Schedules' and 'Cases'), reducing this total by allowable deductions and personal allowances if appropriate, applying income tax rates to that taxable income, and reducing the tax so calculated by certain other deductions and allowances (if applicable).
Inheritance Tax (IHT) (added August 2002)
IHT is a tax on chargeable transfers made by an individual during his or her lifetime, and on the value of the death estate. IHT is also chargeable in respect of certain events relating to settlements without an 'interest in possession' (e.g. gifts to discretionary trusts). A 'chargeable transfer' is a 'transfer of value' made by an individual, which is not an exempt transfer. IHT is payable by domiciled individuals on chargeable worldwide property, and by non-UK domiciled individuals in respect of chargeable UK property. Many gifts are completely IHT exempt, and some lifetime and death transfers are also exempt. Most lifetime gifts are 'potentially exempt transfers' which are only subject to IHT if the donor dies within 7 years after making them. A cumulative total is kept of chargeable lifetime transfers, and no tax is payable on lifetime gifts or the death estate until a threshold (the 'nil rate band') is exceeded.
Personal Allowances (added July 2002)
Personal Allowances are available to UK resident (and some non-resident) individual taxpayers as a reduction from taxable income. The allowance depends on the taxpayer's age, i.e. a higher personal allowance is potentially available in the tax year in which he or she reaches the age of 65. It is further increased at age 75, although the higher 'age related' personal allowances are subject to an income limit.-
Rent-a-room Relief (added August 2002)
Rent-a-room relief is available to individuals who let furnished rooms in their only or main home. The landlord must occupy the property as his or her main home when it is being let to the lodger. No tax is payable if the gross rents do not exceed £4,250 a year. If the property is let by a couple, the relief is £2,125 each. If the gross rents exceed £4,250 a year, the landlord can choose to pay tax either on the excess over £4,250 or on gross rents less expenses (as for an ordinary lettings business). An election must be made to pay tax on the excess over £4,250, which then applies until the claim is withdrawn.
Self-Assessment (added July 2002)
Self assessment is the tax system which operates in the UK for the administration and collection of income tax, capital gains tax and corporation tax (a similar system also operates for inheritance tax purposes). Taxpayers are generally required to complete an annual tax return and submit it to the Inland Revenue before a statutory filing deadline. There is also a general requirement for the taxpayer to calculate (i.e. 'self-assess') his or her own tax liability (although in certain circumstances the Inland Revenue will calculate the tax liabilities of individuals, personal representatives or trustees, if requested). The tax liability so calculated must be paid by fixed payment dates in order to avoid interest charges accruing, and payments on account may also be required for the next tax year or accruing period.
Stamp Duty Land Tax (added August 2004 by mortgage4clients.com)
Stamp duty (SDLT) is a government land tax payable on the documents, which transfer ownership of an asset (e.g. on the sale of a house or disposal of shares). It is also payable on a grant of a lease. Previously stamp duty was a charge on documents and there was no legal obligation to have documents stamped. However, if they were not, they could not be used in a variety of situations such as registration of title to land and civil court action. In practice, stamp duty was 'voluntary' and the compliance regime that existed comprised of the ability to refuse to stamp documents in certain circumstances. SDLT introduced on 1 December 2003 is a 'process now, check later' system, requiring the completion and submission of a land transaction return (and payment) to the data capture centre in Netherton, for transactions in land and buildings in the UK, completed on or after 1 December 2003. SDLT was first levied in United Kingdom in 1694. It was found to be a very successful tool in raising income for the government, but at the same time most unpopular when collected. It has now become the oldest tax that the Inland Revenue administer.
Taper Relief (CGT) (added July 2002)
Taper relief is available to individuals, trustees and personal representatives (but not companies). It reduces chargeable gains according to the length of time an asset has been held after 5 April 1998, with more generous reductions for disposals of business assets than for non-business assets. The maximum rate of business asset taper relief for disposals after 2 complete years of ownership is 75%, leaving 25% chargeable. For non business assets, the maximum rate of taper relief is 40%, leaving 60% chargeable. There are specific categories of 'business asset' in the capital gains tax legislation. A 'non-business asset' is any asset which is not a business asset.
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