VIDEO- Watch first 4 minutes of this for good explanation of Capital Gains Tax.
Capital Gains Tax (CGT)
Capital Gains Tax is a tax on capital ‘gains’. When a person sells or ceases to own an asset or part of an asset, they may be taxable on the ‘gain’ (profit). The capital gains tax allowance for 2020/21 is £12,000. This is the amount of profit you can make from an asset this tax year, before any tax is payable.
People don’t have to pay CGT on:
- their car
- the main home – provided certain conditions are met
- ISAs or PEPs
- UK Government gilts (bonds)
- personal belongings worth £6,000 or less when sold
- betting, lottery or pools winnings
- money which forms part of a person’s income for Income Tax purposes
A person pays Capital Gains Tax through the Self Assessment system. The rate is between 10% and 28% of the Capital Gain, depending on circumstances.
VIDEO- Watch this for a quick outline of inheritance tax.
Inheritance Tax (IHT)
Inheritance Tax is usually paid on an estate when somebody dies. It’s also sometimes payable on trusts or gifts made during someone’s lifetime.
Inheritance Tax is only due if the value of an estate (after allowable deductions) – including any assets held in trust and gifts made within seven years of death – is valued over the current IHT threshold (£325,000). The tax is payable at 40% on the amount over this threshold (can be reduced to a rate of 36% if 10% or more of an estate is left to charity.) A couple can combine their tax free allowance making an overall threshold of £650,000. From 2017 onwards this is being increased yearly to £1million until 2020 on a main residence left to a direct descendent. Details of the rises can be found here.
Council Tax
Council tax is a tax paid directly to the local council to pay for services such as police, fire, recycling, refuse collection and removal, schools, leisure centres, parks and open spaces, street cleaning, housing and council tax benefits, facilities for young people, and many others.
The amount of council tax you pay is set by the local council and varies by the property band of the place you live in. The property band is based on the value of the property in 1991 and there are 8 bands in England; A (lowest) to H (highest). In 2014-15, the average council tax per dwelling in England was £1,468 (Source).
There’s one Council Tax bill for each home. Usually the person living in the property has to pay the bill, even if they are renting and do not own the property.
Your full Council Tax bill is based on at least two adults living in a home. If only one adult lives in a home (as their main home) or no one else living in the home counts as an adult then the Council Tax is reduced by 25%. The bill doesn’t increase if there are more than two adults in the home.
A property occupied only by full-time students is exempt from Council Tax. To get a student discount on your household’s Council Tax, you’ll normally need an official letter from your college or university giving details about you and your course (see here). If you’re a full-time student and you live with someone who’s not a full-time student, you may be able to get a 25% reduction in the Council Tax bill.
If you’re on a low income you may qualify for Council Tax Reduction ( former Council Tax Benefit ceased to exist on 1 April, 2013).
Although it is the only tax which is set by local government, the Council Tax contributes only a small proportion (25%, on average) to the local government revenue. The majority comes from central government grants and from business rates which are collected centrally and redistributed to local authorities. A significant proportion of local government services are stipulated by central government in the form of statutory provision. Local councils are obliged by law to provide these services. The remainder of services are discretionary and are determined by the local council (Source).
Vehicle Excise Duty (commonly know as Car Tax or Road Tax)
- All vehicles used or kept on the public road must pay car tax.
- The amount you pay depends on the date the car was registered and the amount of CO2 it emits – currently between £0 and £1,000 per year.
- Paper tax discs have been abolished and they do not have to be displayed on cars (people can remove and destroy them if they want to!)
- Car tax is paid through an electronic register system that will allow drivers to pay via direct debit on a monthly, 6-monthly or annual basis.
- Car tax can no longer be transferred on cars that are bought and sold. New owners have to get their own car tax and sellers will be automatically refunded for any unused months.
If your car is not in use and you are keeping it off the road then you do not have to pay tax but you do have to apply for a Statutory Off Road Notification (SORN). These last for one year, following this you must either tax the vehicle or apply for another SORN.
If you don’t tax your vehicle or make a SORN penalties could be:
- automatic penalty of £80, as well as paying for owed tax
- County Court Judgement against you, and be fined a minimum of £1,000
- maximum penalty for making a false SORN, when the vehicle is actually used or kept on a public road, is £5,000 and imprisonment
- clamped – you’ll need to pay to have your vehicle released as well as producing evidence that tax or SORN has been paid. If you fail to pay, your vehicle will be impounded, incurring storage charges. If you don’t pay the release or storage fees, your vehicle could be crushed or sold.
Note – Cycle campaigners object to the use of the term “road tax” as this is a tax on the amount of CO2 cars emit, not a tax to be able to use the roads!
Corporation Tax
Corporation Tax is a tax on the taxable profits of limited companies and other organisations including clubs, societies, associations and other unincorporated bodies.
The main rate of Corporation Tax in 2020/21 is 19% – but the rates are lower for companies who make smaller profits.