‘Academic’ Intelligence: A (Very) Brief Overview of Taxation, Part Two

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Today’s article is a continuation of last week’s entry on the various types of taxes that an individual may be required to pay in the United Kingdom.

Last week, I focused on Value Added Tax, i.e. VAT, Income Tax and National Insurance Contributions through looking at some simplified tables and examples.

I shall now, in turn, look at the Capital Gains Tax and Corporation Tax.

Capital Gains Tax (‘CGT’)

CGT is applied on the profit that a person might make from disposing of a capital asset which has increased in value during the period of their ownership.

The above is best illustrated by an example.

Let us say that John, a banker, bought a painting in 1999 for £ 5, 000. Note that buying the painting is in no way connected to the nature of his employment. The painting had since increased in value to £ 12, 000. If he chose to sell the painting, he would be liable to pay CGT on the £ 7, 000 profit that he had made.

Further to the above, the CGT personal allowance for individuals in 2013/ 2014 is £ 10, 900. This means that CGT will only be payable on profits above the £ 10, 900 threshold. It must be noted the personal allowance is halved for trustees.

The rates at which CGT is applied are as follows:

Basic rate individuals- 18% (i.e. individuals earning less than £ 32, 010)

Higher rate individuals- 28% (i.e. individuals earning £ 32, 010 or more)

Where Entrepreneurs’ Relief applies: 10%

( ‘Entrepreneurs' Relief allows individuals and some trustees to claim relief on qualifying gains made on the disposal of any of the following:

• all or part of a business
• the assets of a business after it has stopped trading
• shares in a company
•  

The relief applies for the years 2008-09 onwards. There is a maximum lifetime limit of Entrepreneurs' Relief you can claim.’

See <<  http://www.hmrc.gov.uk/cgt/businesses/reliefs.htm#1 >> )

Corporation Tax (‘CT’)

As you might have probably guessed, corporation tax is paid by private and public companies and not individuals.

Nevertheless, you might have to deal with it if you are a company director or even a shareholder (if, for instance, you want to know a bit more about the tax obligations of the company that you want to invest in).

CT is payable on a company’s profits.

The current rates are:

Rate			2013	2014
Small profits rate*			20%*
Small profits rate can be claimed by qualifying companies with profits at a rate not exceeding			£300,000
Marginal Relief Lower Limit			£300,000
Marginal Relief Upper Limit			£1,500,000
Standard fraction			3/400
Main rate of Corporation Tax*			23%*	21%*
Special rate for unit trusts and open-ended investment companies			20%*

( See << http://www.hmrc.gov.uk/rates/corp.htm >)

For more on how Marginal Relief is applied and calculated, see <<  http://www.hmrc.gov.uk/ct/forms-rates/claims/marginal-rate.htm >>)

As CT is a lot more complex that the other types of taxation, I shall not go into any further detail at this point.

Next week, I will endeavour to provide the reader with a brief overview of how and when Inheritance tax is applied and becomes due.