The main taxes in England are income tax, property tax, capital gains tax, inheritance tax and VAT. Many of these taxes are stratified: people with higher incomes pay at higher rates.
The UK tax system is applied throughout the United Kingdom: in England, Scotland (with some differences), Wales, Northern Ireland and the islands, including oil drilling platforms of international companies in territorial waters. The Channel Islands, the Isle of Man and the Republic of Ireland have their own tax laws that differ from the laws of the United Kingdom.
Tax year
The dates of the tax reporting period are set from April 6 of one calendar year to April 5 of the next year. The current tax year is indicated in the documents as 2019/20.
Tax resident status: who and how should pay taxes
Regardless of residence, the income of all individuals is taxed on a single tax progressive scale. The status of tax residency determines what income should be included in the tax base of a tax.
All income of an individual - a tax resident - will be taxed in the UK, regardless of the country of source of income, taking into account the benefits provided by the Conventions on the prevention of double taxation. Such conventions are signed by England with most countries.
Non-residents pay taxes to the treasury of England on income derived only from sources in the kingdom.
Determination of tax residency
An individual is recognized as a resident of the United Kingdom for tax purposes if one of the following conditions is met:
- resides in the country for at least 183 days during the tax year;
- has residential property in the UK and resides in it for at least 91 consecutive days, 30 of which must be in the reporting tax year;
- works in the UK for 356 days without a significant break, and at least 274 days must be in the tax year in question.
These are universal rules for determining tax residency, but there are exceptions to them. It is important to remember that the tax year in the UK does not coincide with the calendar year.
Domicile
In international legal practice it is used to determine national law or jurisdiction, according to the laws of which a specific case should be considered by a court. Domicile characterizes the status of legal relations and permanent residence in a particular jurisdiction and is to some extent an analogue of citizenship. In the tax laws of most countries, residency status is of primary importance.
The use of domicile status in UK tax law is probably a legacy of the colonial past of the British Empire and is an anachronism in modern times. But a citizen can be a tax resident if there are at least four sufficient obvious links with the UK and stay in it for 16 days in the tax year. This is not always a boon to the taxpayer.
Taxable income of residents and non-residents
Non-tax residents are taxed on income from sources in the UK. UK residents are taxed on all income, regardless of source, including foreign investment and savings, foreign rental income and foreign pension income, in accordance with UK tax regulations and rates.
Income tax
In the country, many of the taxes for which an individual is responsible are tied to income tax rates. The basic formula for calculating tax is to sum all personal income and taxpayer benefits, deduct personal allowance (tax-free minimum income exempted from taxation), and then pay tax calculated at the appropriate rate on this amount.
In the fiscal year 2018/19, the personal allowance was £ 11,850; in 2019/20 it rose to 12,500.
In the UK, a progressive income tax scale, rates are stepwise depending on income. The same income ranges are used to determine the rates of other taxes, for example, on capital gains.
Rental Income Tax
All landlords pay tax on rental income, regardless of their residency status. Special rules apply when renting single accommodation and vacation property. For foreign landlords, other rules for determining the amount of tax apply.
Net income is defined as gross rental income less allowable expenses. The United Kingdom prohibits the deduction of most of the capital costs of real estate, including the cost of purchase or major repairs, depreciation and some interest on the mortgage.
Property Taxes
The UK has the second largest property tax after the United States.
There are two forms of property tax in the state. When buying property in the UK, you must pay the Stamp Tax Tax (SDLT). SDLT applies only to residential properties worth more than £ 125,000. And to non-residential real estate properties, the acquisition price of which is more than 150,000 pounds.
Stamp duty is charged in England and Northern Ireland. Scotland and Wales levy their own land taxes and real estate transactions. In each of the autonomies, the rates for the purchase of investment objects and the purchase of a house in the presence of residential property are higher.
Like income tax, SDLT is progressive. The tax is payable within 30 days after the completion of the purchase-sale transaction. The duty to declare, calculate and pay tax is usually the responsibility of the lawyer who is completing the transaction, with the subsequent presentation of the invoice to the customer.
There are tax incentives that allow you to reduce real estate tax in the UK, for example, while buying several real estate at the same time.
Another form of UK property tax is the Council Tax. The tax reporting period for this tax is the year. Local municipal tax not related to sales transactions is also stratified.
Municipalities annually evaluate property in their jurisdiction and set tax rates at their estimated value.
Capital gains tax
Capital Gains Tax (CGT) is charged on the difference between the selling price and the purchase price of assets. CGT is levied on the profitable sale of a number of assets.
Taxable assets include:
- personal property valued at 6,000 or more pounds (excluding vehicles);
- Residential Properties;
- Shared resources that are not in the ISA or PEP
- business assets.
CGT must be paid for all UK assets, regardless of tax residency status.
The profit from the sale of assets is summed up with other taxable income of an individual in the reporting tax year. The capital gains tax rate in the UK depends on the amount of annual income:
- If the total taxable income is less than £ 46,350, the capital gains tax rate is 18% on real estate and 10% on other assets.
- If the amount of capital gains plus other income exceeds 43,350 pounds, the rate will be 20% of the amount of income from the sale of other assets and 28% of the amount exceeding 46,350 pounds.
In a country, any tax with a progressive taxation scale is calculated in the same way: at a higher rate, tax is paid on income that exceeds the maximum threshold for applying the previous rate.
Inheritance tax
Inheritance tax is a one-time payment that is charged upon receipt of the inheritance in an amount higher than the tax-free amount, which currently amounts to 325,000 pounds. The tax is calculated at a rate of 40% of the amount exceeding the threshold maximum. A 4% tax exemption is granted if the taxpayer gives to charity over 10% of the inherited property.
Transport tax
In England, as in all countries, the amount of transport tax depends on the size of the engine, the type of fuel used, emissions of toxic substances into the environment and the date of release of the car.
Tax rates for alternative fuel vehicles are 10 pounds lower than for gasoline and diesel vehicles.
Corporate tax and individual entrepreneurs tax
Sole proprietors must register with the HMRC. Most corporations in the UK are taxed at a rate of 20% of net profit, and are required to file a company tax return. Eligible costs include normal operating expenses and, if companies are managed from a separate office in the owner’s or CEO’s private home, may include a proportionate share of household expenses.
Individuals are entitled to a proportional amount of expenses for a vehicle if they use a personal car in entrepreneurial activity.
One of the advantages of operating certain business structures, such as a limited liability company, is the ability to receive money from the company in the form of dividends. The dividend tax rate is lower than the income tax rate.
The applicable corporate tax rate in the UK depends on the level of profit of the company, and the legal form of doing business:
- as a limited liability company;
- as a foreign company with a British branch or permanent establishment;
- as a club, cooperative or other unincorporated partnership (for example, a public or charitable foundation).
Dividend tax
UK stockholders pay dividend tax. There is a tax exemption of a minimum of GBP 2,000 in a tax year.
UK dividend tax rates are as follows:
- 7.5% - base rate;
- 32.5% - higher tariff;
- 38.1% is an additional rate.
VAT
VAT, or sales tax, is sometimes referred to as UK commercial tax. It applies to almost all goods and services, so the answer to the question of who is the VAT payer is obvious. It can also be applied to goods and services from abroad if the company exceeds certain limits. In fact, it is an analogue of the VAT familiar to non-residents under Russian law.
The standard VAT tax period is a quarter. But there are a number of simplified methods of calculating the budget for this tax. The company may choose an advance payment method. Their size is determined by the activity for the previous year. Advances to the budget are paid monthly or quarterly. In this case, the tax period for VAT will be a year.
A feature of tax legislation is a large number of tax accounting methods for tax purposes. It is very convenient for the taxpayer. Accounting can be optimized by two parameters: both minimizing the cost of payment, and the cost of keeping records. Many companies that are VAT payers take this opportunity.
The standard VAT rate is 20%. Some goods and services are taxed at lower rates.
Current value added tax rates in the country:
- 20% - standard, applies to most goods and services;
- 5% - preferential tariff for medical equipment, small cars, hygiene and sanitation items, etc.
- 0% - zero rate. Applies to products with a low rating: baby food, clothing, books, periodicals, etc.
As in Russian jurisdiction, a number of goods and services are exempt from VAT. How many companies are not VAT payers is not clear, except for banks, insurance companies, medical and educational centers, and there are others. Sale of commercial real estate and land are not taxable turnover.
If, in terms of business, it is economically feasible, the company has the right to refuse exemption and switch to using standard VAT rates. How many companies exercise this right is not known.
Tax declaration by individuals
The taxes of an individual employed in the UK are withheld, paid and declared by the employer, as are national insurance contributions. Tax residents receiving income from other countries are required to declare them on their own.
With online declaration, the deadline for submitting the declaration is January 31 of the year following the reporting period. The paper declaration is submitted to the tax office no later than October 31. Preliminary information on foreign income should be brought to the attention of the fiscal authorities at the end of the tax year, that is, no later than April 5.
Tax refund
Under certain conditions, the taxpayer is entitled to rebate (refund) the tax in England for the reasons provided for in tax law.
The application for refund is submitted to the fiscal authorities online no earlier than October. The terms of consideration of such applications and the refund do not exceed one and a half months.
Tax avoidance
As in any jurisdiction, it is punishable by a fine, which can reach 100% of the amount of hidden tax. Sanctions for violation of the deadlines for tax reporting are not tied to the amount of taxes, a fixed fine - 100 pounds.