Taxation in the United Kingdom may involve payments to a minimum of two different levels of government: the central government (Her Majesty’s Revenue and Customs) and local government. Central government revenues come primarily from income tax, National Insurance contributions, value added tax, corporation tax and fuel duty.Local government revenues come primarily from grants from central government funds, business rates in England and Wales, Council Tax and increasingly from fees and charges such as those from on-street parking.
Income tax forms the bulk of revenues collected by the government. The second largest source of government revenue is National Insurance Contributions. The third largest source of government revenues is value added tax (VAT), and the fourth-largest is corporation tax.
For individuals this means the United Kingdom income tax liability of one who is neither resident nor ordinarily resident in the United Kingdom is limited to any tax deducted at source on UK income, together with tax on income from a trade or profession carried on through a permanent establishment in the United Kingdom and tax on rental income from United Kingdom real estate.
- Exemptions on Investment
Certain investments carry a tax favored status including:
- National Savings and Investments
- Individual Savings Accounts
- Pension funds
- Venture Capital Trusts
- Enterprise Investment Schemes
- Insurance bonds
- Offshore trusts and companies
Trusts can be offshore if all trustees are non-resident. Such trusts can own foreign-operated companies. Corporation tax rates can be lower in some countries and where we still have double taxation treaties. However, since anti-avoidance rules have been introduced for taxation of trusts, these structures are not advantageous for someone who will remain resident.
- Inheritance Tax
Inheritance tax is levied on “transfers of value”, meaning:
- The estates of deceased persons;
- Gifts made within seven years of death
- “Lifetime chargeable transfers”, meaning transfers into certain types of trust.
- Value Added Tax (VAT)
VAT charges 20% on supplies of goods and services. It is therefore a tax on consumer expenditure. Certain good and services are exempt from VAT, and others are subject to VAT at a lower rate of 5% , such as domestic gas supplies or 0% such as most food and children’s clothing.
- Corporate Tax
Corporation tax is a tax levied in the United Kingdom on the profits made by companies and on the profits of permanent establishments of non-UK resident companies and associations that trade in the EU.
Business rates are the commonly used name of non-domestic rates, a United Kingdom rate or tax charged to occupiers of non-domestic property. Business rates form part of the funding for local government, and are collected by them, but rather than receipts being retained directly they are pooled centrally and then redistributed. Business rates are a property tax, where each non-domestic property is assessed with a rateable value, expressed in pounds. The rateable value broadly represents the annual rent the property could have been let for on a particular valuation date according to a set of assumptions. The actual bill payable is then calculated using a multiplier set by central government, and applying any reliefs.
- Capital Gains Tax
The basic principle is the same for individuals and companies – the tax applies only on the disposal of a capital asset, and the amount of the gain is calculated as the difference between the disposal proceeds and the “base cost”, being the original purchase price plus allowable related expenditure. Individuals are taxed at a flat rate of 18% (or since 22 June 2010, 28% for higher rate taxpayers) with no indexation relief. However, if claiming Entrepreneurs’ Relief the rate remains 10%. Capital losses from prior years can be brought forward. Expenditure on a business (such as a property business) made by an individual can be claimed as an allowance against Capital Gains.