This is a question we get almost on a daily basis. The simple answer is that it will always depend on your particular circumstances and whether you are referring to your personal ones, those of your business, or both. To help put things into some context, we are focusing on the key tax requirements for any individual or business and looking at those that they are most likely to come across in any given year. This is a rough guide only and things may differ depending on you individual circumstances, so do consult a specialist for a more detailed assessment.
As an individual of working age and in employment, the chances are that will have to pay income tax. There are a number of bands that apply, which for the 2018-2019 tax year, are as follows:
- A personal allowance of up to £11,850 applies to everyone. Up to this amount you will not pay any tax.
- The basic rate tax of 20% will apply to all income between £11,851 and £46,350.
- A higher rate of tax of 40% will be levied on all income between £46,351 and £150,000.
- An additional rate of 45% will apply to any income above £150,000.
Within this, additional allowances such as the marriage allowance, rental or self-employed income allowance, dividends, or disability allowances could be added to your personal allowance increasing the amount you can earn before tax is applied.
Capital gains tax
Capital gains tax will apply if you sell something (known as ‘disposing of asset’). This could be a second home or shares that you own as part of an investment in a company for example. The tax that will apply is on the amount of money that you gained through that sale. For instance, if you bought a second home for £100,000 and sold it for £150,000 you would pay capital gains tax on the £50,000 profit that you made. A couple of things to keep in mind:
- If the profit falls within your tax-free allowance you need not pay tax on it
- A property that is your main home will not be affected
- Disposal of business assets will come under capital gains tax
If you inherit any part of an estate you may be liable to pay inheritance tax. While this can be a complex area of taxation, a few key things are worth keeping in mind:
- An estate with a value of up to £325,000 is not liable to inheritance tax
- Inheritance tax will not be applicable if the full value of an estate is left to a spouse, civil partner, charity, or community amateur sports club.
- An increased threshold of £450,000 will apply if a home is left to a child or grandchild – whether biological, adopted, foster, or stepchildren.
The standard inheritance tax rate is 40% and will only be charged to the portion of an estate that is above the relevant threshold – i.e. £325,000 or £450,000 as applicable. There are a number of relief options available which you should discuss with your advisor to ensure the advice is targeted to your personal circumstances.