Income & Capital Gains Tax
Income tax is paid by individuals on their taxable income during a tax year.

Self-Assessment

In the UK the tax year runs from the 6th April to following 5th April which is referred to as a tax year. While most individuals that work will pay income tax at source via their employers PAYE scheme (Pay As Your Earn), there are many situations when tax has not been automatically deducted. 

If any of the following apply to you, then you must register for self-assessment and file a tax return.

  • You are self-employed (you work for yourself and any an employer)
  • You are a director ​of a UK company.
  • You rent out property either in the UK or overseas and earn over £2,500
  • You rent out a room in your home and earn over £7,500
  • You earn over £100,000 a year from your employment.
  • You get dividends over £10,000 ​during the tax year.
  • Your savings or investment income is over £10,000 before tax.
  • Your income (or your partner's) is over £50,000 and one of your claimed Child Benefit.
  • You made profits from selling shares, a second home or other chargeable assets, these are charged to Capital Gains Tax.
  • You have overseas income
  • You were in a partnership
  • You live abroad but had UK income.
  • You are a trustee of a trust or registered pension scheme.

If would still be required to inform HMRC of any untaxed income, even if this was below the threshold for filing a tax return and in this case HMRC can adjust your tax code so you can pay the tax via PAYE.


Contact us now to discuss if you need to register for self-assessment

Income Tax rates and bands

Band                                                                     2017/18                                     2018/19                                              Tax rate

Personal Allowance                                          Up to £11,500                           Up to £11,850                                            0%

Basic rate                                                      £11,501 to £45,000                  £11,851 to £46,350                                       20%

Higher rate                                                   £45,001 to £150,000               £46,351 to £150,000                                      40%

Additional rate                                               over £150,000                            over £150,000                                            45%

Capital Gains Tax rates and allowances

 Allowances & rates                                          2017/18                                     2018/19                                            

Tax-free allowance                                              £11,300                                     £11,700

Basic rate (none property)                                     10%                                            10%

Basic rate (property)                                               18%                                            18%

Higher or Additional rate (none property)          20%                                            20%

Higher or Additional rate (property)                    28%                                            28%                                 

Dividend tax rates and allowances

 Allowances & rates                                          2017/18                                     2018/19                                           

Tax-free allowance                                               £5,000                                        £2,000

Basic rate                                                                 7.5%                                            7.5%

Higher rate                                                              32.5%                                          32.5%

Additonal rate                                                         38.1%                                          38.1%
                           

Tax on Property Rental

  If any of the following apply to you then you must declare your income to HMRC

  • You let out a room in your own home.
  • You let out your home or another owed property (not as a holiday home)
  • You let out a property as a holiday home.
  • You owe an overseas property and rent it out.

The Rent a Room Scheme lets you earn up to a threshold of £7,500 per year tax-free for letting out furnished accommodation in your home while you are also living there. This is halved if you share the income with your partner or someone else.

If you rent out your home while you live elsewhere or have purchased a buy to let property then you will need to declare your rental income to HMRC.

You can offset various costs against your rental income, for example, mortgage interest, agency and management costs, insurance and repairs and maintenance costs. You cannot offset the costs developing or extending the property, these will be taking into account when you come to sell the property and calculating any Capital Gains Tax.

From April 2017, new rules with apply for individuals with rental income, these will be phased in over 4 years and effectively start to limit the amount of tax relief given on finance costs. These include mortgage interest, overdraft fees and other fees and charges for arranging or repaying a mortgage on a rental property. If you are unsure if these will affect you, please contact us.

If you run a rental property business, that is being a landlord is your main job, you rent out more than one property and you've buying new properties to rent out the you will also have to pay Class 2 National Insurance if your profits are over £5,965 a year.

If you let out a furnished holiday let (FHL) that is located in the UK or the European Economic Area (EEA) then there are special tax rules that relate to FHL. The property must be available for letting for at least 210 days in the year and the total of all lettings that exceed 31 continuous days is not more than 155 days during the year. 

When you sell your rental property any gains are then subject to Capital Gains Tax, however you may be able to claim Private Residence Relief if you lived in the property, you may also qualify for Letting Relief to further reduce your taxable gain.
  

Contact us so we can help you with your rental property taxes

Capital Gains Tax

  
If you sell or dispose of something (an asset) that has increased in value then you may need to pay Capital Gains Tax.

Disposing of an asset includes:

  • Selling it
  • Giving it away as a gift (unless you gift it to your husband, wife, civil partner or a charity).
  • Swapping it for something else
  • Getting compensation for it - this could be an insurance pay-out if it has been lost or destroyed

Some assets are tax free and you don't have to pay Capital Gains Tax if all of your gains in the year are under your tax free allowance, this is currently £11,300.

You also don't pay Capital Gains Tax on certain assets, including gains you make from;

  • ISA's or PEP's
  • UK government gilts or Premium Bonds
  • Betting, lottery or pools winnings.

If your asset is overseas you will still have to pay Capital Gains Tax. If you live abroad you will still need to pay Capital Gains Tax on your UK residential property even if you are non-resident for tax purposes. You don't pay Capital Gains Tax on other UK assets, e.g. shares in UK companies, unless you return to the UK within 5 years of leaving.

To calculate your Capital Gains Tax your first need to establish if in fact you have made a taxable gain, this is done by taking the sales proceeds of each asset or the value of the asset upon disposing it (if you didn't sell it) and deducting the costs incurred in acquiring and then disposing the asset, for example for property you can deduct estate agent’s fees and solicitor’s costs that were incurred when you purchased and sold the property. If you made a loss you may be able to offset these losses against other gains.

If your gain is over £11,100 then you will need to report this to HMRC and pay Capital Gains Tax accordingly.
  

Tax Refunds

If any of the following circumstances relate to you then you may be due a tax refund from HMRC:

  • You stopped working during the year and didn't work again for the rest of that tax year.
  • You stopped working in the UK and moved overseas.
  • You had more than one job during the tax year.
  • You were on the wrong tax code.
  • You did not claim tax deductible employment expenses as you were not aware of them.
  • You work in the UK and used your own car to travel as part of your job and were not reimbursed mileage at the official HMRC rates

The PAYE (Pay As You Earn) tax collection system is based on the assumption you are going to work for an entire tax year, so if this was not your case you probably paid too much tax and can reclaim this back.

Frequent Questions

WHEN CAN I RECLAIM MY TAX BACK FROM HMRC?

You can reclaim your tax back after the end of the tax year (5th April) if you are still working in the UK, however if you become a student, are unemployed, retired or were made redundant during the current tax year then you may be able to reclaim the overpaid tax back now. In addition, if you have left the UK or are leaving, you may also make a claim during the current tax year.

If you claim relates to a previous tax year, then you can make a claim anytime up to 4 years.

HOW DO I GET MY TAX BACK?

We will receive your refund directly from HMRC and deduct our fees (12.5%) and pay the balance over to you, we can arrange this even if you have moved overseas, subject to additional bank charges.

WHAT IS A TAX YEAR?

In the UK a tax year runs from 6th April to the following 5th April, so if we take the 2017/18 tax year, this started on 6th April 2017 and finishes on 5th April 2018. Your income for this period is taxed according to the tax rates, thresholds and personal allowances for that particular tax year.

I NEED A UNIFORM FOR MY JOB SO CAN I GET A TAX REFUND?

In the UK a tax year runs from 6th April to the following 5th April, so if we take the 2017/18 tax year, this started on 6th April 2017 and finishes on 5th April 2018. Your income for this period is taxed according to the tax rates, thresholds and personal allowances for that particular tax year.

Tax on Pensions

Income from a pension is treated the same as if it were employment income so is subject to the same tax rates, this also includes your state pension. If your total pension income exceeds your annual personal allowances then you will pay income tax but not national insurance contributions.

You can usually take up to 25% of the amount built up in any pension as a tax-free lump sum, this doesn't affect your personal tax allowances.

For example, if your pension pot was worth £60,000 and your wanted to take the entire amount as a lump sum, then £15,000 of this is tax free and the balance of £45,000 will be taxed. Your pension provider will deduct tax at source and pay the net amount over to you.

You could however end up having to pay further income tax on your pension if the amount you take puts your total income for that year into the additional income tax bands. This will be collected via your self-assessment tax return.

Just as an employer, a pension provider must also send you a P60 at the end of each tax year in which you have received some pension income, please ensure you keep your P60 in a safe place as it will usually be required to ensure you only pay the correct amount of tax.
Contact us so we can assist you with any of the above