Talk:UK income tax
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[edit] I do not think this should redirect to the wikipage = Taxation in the UK
Dear fellow editors,
I do not think this should redirect to the wikipage = Taxation in the UK
The reason is that the wikipage = Taxation in the UK is an overview page.
Ideally this page = UK income tax should have detailed information.. e.g. ..
Sanjiv swarup 13:31, 24 March 2007 (UTC)
[edit] Residence and domicile
UK source income is generally subject to UK taxation no matter the citizenship nor the place of residence of the individual nor the place of registration of the company.
For individuals this means the UK income tax liability of one who is neither resident nor ordinarily resident in the UK 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 UK and tax on rental income from UK real estate.
Individuals who are both resident and domiciled in the UK are additionally liable to taxation on their worldwide income and gains. For individuals resident but not domiciled in the UK, foreign income and gains are taxed on the remittance basis, that is to say, only income and gains remitted to the UK are taxed (for such people the UK is sometimes called a tax haven).
Domicile here is a term with a technical meaning. Very roughly (and this is a considerable simplification) an individual is domiciled in the UK if it is his or her permanent home.
A company is resident in the UK if it is UK-incorporated or if its central management and control are in the UK.
Double taxation of non-UK income and gains is avoided by a number of bilateral tax treaties.
See IR20 - Residents and non-residents.
[edit] Income tax
Income tax forms the bulk of revenues collected by the government. Each person has an income tax allowance, and income up to this amount in each tax year is free of tax for everyone. For 2006-07 the tax allowance for under 65s is £ 5,035.[1] Above this amount there are a number of tax bands - each taxed at a different rate:
| Rate | Dividend Income | Savings Income | Other Income | Band (above any personal allowance) |
| Starting rate | 10% | 10% | 10% | 0 - £2,150 |
| Basic rate | 10% | 20% | 22% | £2,151 - £33,300 |
| Higher rate | 32.5% | 40% | 40% | over £33,300 |
Figures for 2006-07.[1]
Note that these rates only apply to income within that tax band. Thus in 2006/07 someone with an income of £7185 per year would only pay £215 in tax, as they pay nothing from their tax allowance and ten per-cent from the next £2150 of income.
Savings income (for instance, interest received from investments, and/or capital gains) is taxed at a lower rate of 20% (instead of 22%) within the basic rate band, and at 40% above it (over £33,300 in 2006-07).
Income from share dividends is taxed at 10% up to the basic rate limit (£33,300) and at 32.5% above that.
ISAs: Everyone aged 16 or over can put up to £3,000 a year into a cash ISA. Over-18s have more choice. They can either put £7,000 into a stock market Isa or split the money, putting £3,000 into a cash Isa and £4,000 into a stock market ISA. Cash ISAs pay tax-free interest. Stock market-based ISAs give protection from capital gains tax and higher-rate taxpayers avoid paying an extra 25% tax on dividends paid on share-based investments. Those opting for corporate bond Isas receive taxfree income.
Broadly speaking, the taxpayer is entitled to apply these bands to their income in the order which produces the lowest liability, but with capital gains always being taxed as the top "slice". In practice this means that ordinary income will be taxed first, using the personal allowance and starting rate, interest income second, dividends third, with capital gains being taxed last as the highest "slice" of income.
[edit] The tax year
The Tax Year in the UK, which applies to income tax and other personal taxes, runs from 6 April in one year to 5 April the next (for income tax purposes). Hence the 2005-06 tax year runs from 6 April 2005 to 5 April 2006.
The odd dates are due to events in the mid-18th century. The English quarter days are traditionally used as the dates for collecting rents (on, for example, agricultural properties). The tax system was also based on a tax year ending on Lady Day (March 25). When the Gregorian calendar was adopted in the UK in September 1752 in place of the Julian calendar, the two were out of step by 11 days. However, it was felt unacceptable for the tax authorities to lose out on 11 days' tax revenues, so the start of the tax year was moved, firstly to 5 April and then, in 1800, to 6 April.
The tax year is sometimes also called the Fiscal Year. The Financial Year, used mainly for corporation tax purposes, runs from 1 April to 31 March (hence Financial Year 2005 runs from 1 April 2005 to 31 March 2006).
[edit] History
The income tax was first implemented in Britain by William Pitt the Younger in his budget of December 1798 to pay for weapons and equipment in preparation for the Napoleonic wars. Pitt's new graduated income tax began at a levy of 2d in the pound (0.8333%) on incomes over £60 and increased up to a maximum of 2s (10%) on incomes of over £200. Pitt hoped that the new income tax would raise £10 million, but actual receipts for 1799 totalled just over £6 million.[2]
Income tax was levied under five schedules—income not falling within those schedules was not taxed. The schedules were:
- Schedule A (tax on income from UK land)
- Schedule B (tax on commercial occupation of land)
- Schedule C (tax on income from public securities)
- Schedule D (tax on trading income, income from professions and vocations, interest, overseas income and casual income)
- Schedule E (tax on employment income)
Later a sixth Schedule, Schedule F (tax on UK dividend income) was added.
Pitt's income tax was levied from 1799 to 1802, when it was abolished by Henry Addington during the Peace of Amiens. Addington had taken over as prime minister in 1801, after Pitt's resignation over Catholic Emancipation. The income tax was reintroduced by Addington in 1803 when hostilities recommenced, but it was again abolished in 1816, one year after the Battle of Waterloo. The UK income tax was reintroduced by Sir Robert Peel in the Income Tax Act 1842. Peel, as a Conservative, had opposed income tax in the 1841 general election, but a growing budget deficit required a new source of funds. The new income tax, based on Addington's model, was imposed on incomes above £150.
UK income tax has changed over the years. Originally it taxed a person's income regardless of who was beneficially entitled to that income, but now a person only owes tax on income to which he or she is beneficially entitled. Most companies were taken out of the income tax net in 1965 when corporation tax was introduced. Also the Schedules under which tax is levied have changed. Schedule B was abolished in 1988, Schedule C in 1996 and Schedule E in 2003, though the Schedular system and Schedules A, D and F still remain. The highest rate peaked in the Second World War at 99.25% and remained at about 95% till the late 1970s.
The Finance Act 2004 introduced an income tax regime known as "pre-owned asset tax" which aims to reduce the use of common methods of inheritance tax avoidance.[3]
[edit] Notes
- ^ a b Rates and Allowances - Income Tax. HM Revenue & Customs. Retrieved on January 24, 2007.
- ^ A tax to beat Napoleon. HM Revenue & Customs. Retrieved on January 24, 2007.
- ^ REV BN 40: Tax Treatment Of Pre-Owned Assets
[edit] References
- Taxation of Foreign Domiciliaries, by James Kessler QC, Key Haven Publications, 5th edition (2005) - discusses taxation of individuals who are UK resident but not UK domiciled.
[edit] External links
- Salary Calculator This source shows the list of net salaries per month and week for gross salaries from £12,000 to £60,000.
- Guide to personal taxation, from UK government site Directgov
- Yahoo tax, UK tax portal
- Tax World, wide ranging UK tax portal
