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11 Cards in this Set
- Front
- Back
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Income Tax - Who pays and when |
Paid by - individuals and beneficiaries of trusts PR's administering estates Trustees Paid on - salaries, pensions and savings Exempt income - ISA'S, Lottery, and Premium Bonds |
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How is income tax calculated? |
UK residents and domiciled ppl are liable to income tax on WORLDWIDE INCOME Individuals have a personal allowance Trustees have NO personal allowance Per All 2017/ 18 is £11500 2016/17 is £11000 For every £2 over £100,000 Per All is reduced by £1. |
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Income Tax Rates |
Up to personal allowance - nil Next £33500 Basic Rate - 20% Dividend Rate -7.5% Next £33,500 to £150,000 Higher rate - 40% Higher div rate - 32.5% Over £150,000 Higher rate 45% Higher div rate 38.1% In addition B R taxpayer savings allowance £1000 H R Taxpayer savings allowance £500 All taxpayers have a dividend allowance of £5000 |
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How to calculate income tax |
Add up relevant income Take off relevant Allowance = taxable income 20% of first £33,500 40% of income between £33,500 and £150,000 45% of income over £150,000 equals total tax. Care - if over £100,000 to reduce personal allowance |
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Income Tax- Personal Representatives |
Deceased person is taxed as an individual until date of death Still gets full PA for whole year Tax refunds will attract IHT if payable Income arising after death PR's responsible on estate income No personal allowance No savings allowance No dividend allowance Tax is 20% on savings and rental income 7.5% on dividends No higher rates PR's can pay income less the tax to appropriate beneficiaries. Beneficiary declares income in tax year they receive it - this could push them into higher RATES! If RESIDUARY BENEFICIARY receives residuary income- any distribution even chattels will count - it is treated as income PR's should provide an R185 to beneficiaries |
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Income Tax and Trustees - Lifetime trusts |
Treated as settler interested if beneficiaries include spouse and/or unmarried minor children Income of a settler interested trust is assessed on the settler. |
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Income Tax and trustees- Bare trusts |
Both the capital and interest belong to the individual beneficiary The trust is not taxed as a separate entity The individual declares the income on their own tax return |
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Income Tax and trustees - IPDI's |
7.5% on dividends received 20% on other income Trustees have NO personal allowance Trustees cannot deduct trust management expenses |
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Income Tax and trustees- Disc Trusts |
First £1000 is taxed at Basic Rate Then 45% on income or 38.1% n dividends Non or B R taxpaying beneficiaries can recover difference Trustees can deduct trust management expenses like accountancy fees from income charged |
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Income Tax and trustees - difference between estate administration and ongoing trusts |
Cash legacies If paid within a year - no income If paid outside a year - pay beneficiary the legacy plus gross interest and beneficiary declares the income for tax Gift of let property Rental income goes to beneficiary not the estate Income declared on beneficiaries tax return from outset. Residuary income PR's need to calculate income for residuary estate and include rental income to date of death Expenses can be offset against income- agents fees, internet on loan taken to pay IHT PR's charged tax on income less expenses. Income streaming If residuary income is split between various beneficiaries- income net of Basic Rate tax is allocated. Each beneficiary gets an R185 do he can claim back tax if necessary. |
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Income Tax and trustees - ongoing will trusts |
If trustees now holding money for at children - no longer PR's Usually have discretion to give income to kids or accumulate it. Now treated as trust income so first £1000 is tax free then 45% Any tax paid goes into a tax pool at HMRC and the beneficiary gets the income less 45% tax and an R185 to recover tax if applicable based on own tax position. Tax cannot be recovered was already in the tax pool Avoidance of paying 45% Trustees can invest for growth ( care with chargeable event gains) Trustees could allocate specific income to beneficiaries as it arises- becomes property of beneficiaries not the trustees- charged at beneficiary applicable rates |
