The guidance and/or advice contained within this website is subject to the UK regulatory regime and is therefore primarily targeted at consumers based in the UK.

Taxation is a complex subject and only some rules and circumstances are covered here. CAPITAL GAINS TAX (CGT) INCOME TAX     ...Rates & Allowances     ...Tax Credits     ...Income Tax Deducted at Source INHERITANCE TAX (IHT) NATIONAL INSURANCE PENSION-PLANNING INVESTMENT STAMP DUTY (Residential) TAX RETURNS & TAX YEARS   The FSA do not regulate some forms of tax planning.     CAPITAL GAINS TAX   2007-2008 2008-2009 Annual Exemption (for individuals): £9,200 £9,600 Tax Rate (taxed as if savings income): 10% or 20% or 40% - Tax Rate (flat rate): - 18% What is liable to Capital Gains Tax? In short, the profit made when selling an asset is liable to Capital Gains Tax (CGT) unless it's taxed in another way or is covered by a CGT exemption. The tax is payable by the person who profits. What are the exemptions? The most common exemptions are: Annual Exemption: An amount of taxable gain which is not taxed. It's only the value of taxable gain (if any) above this limit which is taxed. Exempt Assets: Some assets are exempt from CGT, such as ISAs, National Savings Certificates, pension scheme tax-free cash sums, your home and (usually) your chattels. Inter-Spousal Transfers: Transfers of ownership between UK-Domiciled husband and wife (and legal Civil Partners) are free from CGT. Deferral Relief: Taxable gains can be rolled-over (to be taxed at a later date) if reinvested into shares of a qualifying unquoted trading company or Enterprise Investment Scheme. Entrepreneurs' Relief: Gains made by business-owners when selling (e.g. at retirement) are taxed more favourably than other capital gains. Up to £1 million may, in effect, be taxed at a rate of 10% (instead of at 18%). Is CGT payable on death? Usually not. This prevents a potential double-taxation care of CGT and Inheritance Tax. <Top of Page> INCOME TAX RATES & ALLOWANCES   2007-2008 2008-2009 Starting Rate (for any type of income): 10% - Starting Rate Tax Ceiling (for any type of income): £2,320 - Starting Rate (for unearned income, in some circumstances): - 10% * Starting Rate Tax Ceiling (for unearned income, in some circumstances): - £2,320 * Basic Rate: 22% 20% Basic Rate Tax Ceiling: £34,600 £34,800 Higher Rate: 40% 40% Personal Allowance (to age 65): £5,225 £6,035 Personal Age Allowance (age 65 - 74): £7,550 £9,030 Personal Higher Age Allowance (age 75+): £7,690 £9,180   Age Allowance (Lower) Threshold: £20,900 ^ £21,800 ^ * savings income is treated as being the 'top slice' of income, and can be taxed at the Starting Rate only if earned income does not shift the savings income up to above the Starting Rate Ceiling. ^ Age Allowances (Personal and Married) are reduced by £1 for every £2 of gross income in excess of the Age Allowance (Lower) Threshold ... until reduced to the ordinary Personal Allowance and to the Married Couple's Allowance Minimum. Blind Person's Allowance: £1,730 £1,800 Married Couple's Allowance (born after 05/04/1935): N/A N/A Married Age Allowance (born pre-06/04/1935 - age 74): £6,285 * £6,535 * Married Higher Allowance (age 75 +): £6,365 * £6,625 * Married Couple's Allowance minimum (born pre- 06/04/1935): £2,440 * £2,540 * * Married Couple's Allowance is given at 10%. <Top of Page> TAX CREDITS   2007-2008 2008-2009 Working...     Basic Element: £1,730 p.a. £1,800 p.a. Couple's / Lone Parent Element: £1,700 p.a. £1,770 p.a. 30-Hour Element: £705 p.a. £735 p.a. Disability Element: £2,310 p.a. £2,405 p.a. Severe Disability Element: £980 p.a. £1,020 p.a. 50+ Element (working 16-29 hours p.w.): £1,185 p.a. £1,235 p.a. 50+ Element (working 30+ hours p.w.): £1,770 p.a. £1,840 p.a. Child Care (max. cost for 1 child)*: £175 p.w. £175 p.w. Child Care (max. overall cost)*: £300 p.w. £300 p.w. * Child Care (cost covered): 80% 80% Child...     Family Element: £545 p.a. £545 p.a. Baby Addition: £545 p.a. £545 p.a. Per Child: £1,845 p.a. £2,085 p.a. Disability Element: £2,440 p.a. £2,540 p.a. Severe Disability Element: £980 p.a. £1,020 p.a. Restrictions...     First Income Threshold*: £5,220 p.a. £6,240 p.a. *Or if entitled to Child Credit only: £14,495 p.a. £15,575 p.a. First Withdrawal Rate: 37% 39% Second Income Threshold: £50,000 p.a. £50,000 p.a. Second Withdrawal Rate: 6.67% 6.67% Income Disregard: £25,000 £25,000 <Top of Page> INCOME TAX DEDUCTED AT SOURCE   2007-2008 2008-2009 Most Savings Income: 20% is deducted by the payer 20% is deducted by the payer Dividends from shares: 10% tax is notionally deducted by the payer 10% tax is notionally deducted by the payer Shares - Starting Rate and Basic Rate taxpayers: No further tax to pay No further tax to pay Shares - Higher Rate taxpayers: An extra 22.5% tax is payable An extra 22.5% tax is payable Shares - Non-taxpayers: No refund of tax is available No refund of tax is available Example of the taxation of dividends <Top of Page> INHERITANCE TAX   2007-2008 2008-2009 Annual Gift Exemption: £3,000 £3,000 Nil-Rate Band Threshold: £300,000 £312,000 Tax Rate above Nil-Rate Band: 40% 40% What is liable to Inheritance Tax? Gifts - either on death or during lifetime - are liable to Inheritance Tax (IHT) unless covered by one or more exemptions. The tax is payable by the recipient(s) of the gift. What are the exemptions? The main exemptions are: Nil-Rate Band: (see above). The first part of taxable estate on death is taxed at 0%. For married couples / legal civil partners . . . since 9 October 2007 the second-to-die can have their Nil-Rate Band increased by any unused percentage of the first-to-die's Nil-Rate Band. (If more than one previously-deceased spouse / partner, the maximum uplift is 100%). Annual Gift Exemption: (see above). We may give away up to this amount per tax-year. If it's not used in the previous tax-year, then the exemption may be carried forward to the next one (no further) if the full exemption for the next tax-year is used first. Small Gifts: We may give away gifts worth up to £250 per tax-year to as many recipients as we like. This is to cater for birthday presents etc. The exempt amount is PER RECIPIENT - not per donor. Normal Expenditure Relief: Gifts which are regular (e.g. monthly); repetitive (e.g. over 3+ years); are from the donor's income (not capital); and which don't materially reduce his/her standard of living may be covered by this exemption. An example is the premiums paid into life insurance under trust. Gifts in Consideration of Marriage: A gift made by a relative to individual(s) for their marriage. The limits are: up to £5,000 per parent; up to £2,500 per remoter relative or between the fiancé and fiancée; up to £1,000 from anyone else. Inter-Spousal Transfers: Gifts or transfers of any size between UK-Domiciled husband and wife (or legal Civil Partners) are free from IHT. Works of Art: Exemption from IHT might be granted for works of art, books, scientific collections etc. of national / scientific / historic / artistic interest. The owner has to agree to keep the items in Britain, preserve them, and allow reasonable public access. Gifts to Charities or to Political Parties: These are immediately free from IHT. Agricultural Property Relief and Business Property Relief: (Some relief may also apply to woodlands). Such property may be given either full or partial exemption to IHT. Death-in-Service Pension Benefits: Usually, these do not incur an IHT charge. Potentially Exempt Transfers ('PETs'): Gifts in lifetime to individuals (or to some trusts, such as for a disabled person) remain in the donor's taxable estate FOR ONLY 7 YEARS. On death during this period, they become 'chargeable' (unless covered by an exemption) ... and any other chargeable gifts made within the 7 years prior to the date of the gift in question are also brought into the equation. On death, chargeable gifts are cumulated and taxed chronologically: the oldest one forming the first part of the Nil-Rate Band ... then the next oldest ... and so on until the transfer made on death. Chargeable Lifetime Transfers ('CLTs'): Gifts in lifetime to MOST types of trust (prior to 22/03/2006 only ones of a 'discretionary' nature) remain in the donor's taxable estate FOR ONLY 7 YEARS. (See PET section for taxation on death). A CLT can suffer IHT charges: (i) when the gift is made, if it (plus any non-exempt gifts within the previous 7 years) exceeds the Nil-Rate Band; (ii) later on if the value of the trust exceeds the Nil-Rate Band. Taper Relief: (see below) applies if a lifetime gift incurs an IHT liability because the donor dies within 7 years: so the tax (if any) on the gift is reduced. How does 'Taper Relief' work? Taper Relief applies if a lifetime gift (PET or CLT) incurs an IHT liability on death. The donor must have died within 7 years ... and the cumulative value of the lifetime gift(s) must exceed* the Nil-Rate Band as at the date of death. Years ago the lifetime gift was made Percentage of the death rate payable 0 - 3: 3 - 4: 4 - 5: 5 - 6: 6 - 7: 100% 80% 60% 40% 20% Tax payable on death in respect of a lifetime gift is payable by the recipient of the gift. * If the cumulative value doesn't exceed the Nil-Rate Band (NRB), then it's still taken into account as far as use of the NRB is concerned - but Taper Relief wouldn't apply as there's no tax to reduce! Here's an example: In this example, the cumulative value of the non-exempt lifetime gifts doesn't exceed the NRB - but it does reduce the amount of NRB available for setting against the value of the gift on death. Can I give something away but still benefit from it? Generally speaking, if you make a gift but continue to enjoy some benefit from it, then it is a 'Gift With Reservation' (GWR). This, for Inheritance Tax purposes, effectively means that it is no gift at all. <Top of Page> NATIONAL INSURANCE   2007-2008 2008-2009 Employees     Earnings threshold: £5,225 £5,435 Upper earnings limit: £34,840 £40,040 Rate of contributions on earnings up to earnings threshold: 0% 0% Rate of contributions on earnings above earnings threshold up to upper earnings limit: 11% (or 9.4% if contracted out of SERPS/S2P) 11% (or 9.4% if contracted out of SERPS/S2P) Rate of contributions on earnings above upper earnings limit: 1% 1% Class 3 per week (voluntary): £7.80 £8.10 Self-Employed     Class 2 per week: £2.20 £2.30 Class 3 per week (voluntary): £7.80 £8.10 Small Earnings Exception: £4,635 £4,825 Class 4 lower and upper limits: £5,225 to £33,540 £5,435 to £40,040 Class 4 Rate on earnings between lower and upper limits: 8% 8% Class 4 Rate on earnings above upper limit: 1% 1% <Top of Page> PENSION-PLANNING INVESTMENT The maximum investment for tax-relief purposes is £3,600 p.a. or 100% of earnings (up to an Annual Allowance limit) if higher. (Figures are gross of tax relief).   2007-2008 2008-2009 Annual Allowance: £225,000 £235,000 Lifetime Allowance: £1.60 million £1.65 million <Top of Page> STAMP DUTY Stamp duty for purchases of residential land, buildings etc. (except for property in 'disadvantaged' areas). The duty payable for property is the appropriate band rate - applied to the total value. Purchase Price 2007-2008 2008-2009 Up to £125,000 *: 0.0% 0.0% £125,001 * - £250,000: 1.0% 1.0% £250,001 - £500,000: 3.0% 3.0% £500,001 and over: 4.0% 4.0% * From 3 September 2008 for 12 months the 0% band is £175,000. Since 1 October 2007, the first (not subsequent) sale of a zero-carbon home to individuals (not commercial transactions) is FREE of Stamp Duty on up to £500,000 of its value (a saving of up to £15,000). <Top of Page> TAX RETURNS & TAX YEARS TAX RETURNS WHY 5 APRIL? Tax years for individuals run from 6 April in one year to 5 April in the next year. Prior to the 1750's, it was normal to start the year on 25 March ('Lady Day', the 'Feast of the Annunciation'). 1 January was adopted as the formal start of the year, as a result of Great Britain wishing to change from the Julian Calendar to the Gregorian Calendar. This change required that the day following 2 September 1752 would be 14 September - a jump of 11 days. Not wishing to be accused of taxation by stealth (a more recent development!), the government extended the 1752-1753 tax-year by 11 days to end on 5 April 1753 instead of on 25 March. <Top of Page>   Levels and bases of, and reliefs from taxation are subject to change. The editorial here does not constitute personal advice. It reflects Bernas Coni Warren's understanding of current law and tax practice, and is without prejudice. No liability shall attach. Errors & Omissions Excepted.   © Copyright Bernas Coni Warren www.BernasConiWarren.com 01275 83 73 03 7 School Close, Whitchurch, Bristol, BS14 0DU Bernas Coni Warren is an appointed representative of Sesame Ltd, which is authorised and regulated by the Financial Services Authority. Sesame is entered on the FSA Register under reference 150427.