Tax Introduction

As the saying goes, the only things certain in life are Death and Taxes. Like them or not (I’d be worried if you did like tax!), here is your guide to most of the taxes you will be paying.

Income Tax

This is the tax you pay the government on the income you earn. You pay a certain percentage on all the income you earn. The more you earn the more you pay. The highest earners have to work from January to May to cover their tax bill. Everybody gets an allowance, depending on their circumstances, of around £5,000 – a little more if you are over 65. You don’t pay any tax on your income up to this amount. The next £2,090 attracts a 10% income tax. 22% must be paid on the next £30,310. And anything over this you must pay 40% on.

Value Added Tax

Value Added Tax, or VAT, is the tax you pay when you buy things. At the moment 17.5% of the money you pay for most things goes to the government. There are however some exceptions – you don’t pay VAT on books, children’s clothes, public transport or ‘non-luxury’ food. The classification of foods makes for some amusing examples, e.g. chocolate biscuits attract VAT, but Jaffa cakes do not, as they are classes as cakes, not confectionary like the biscuits.

Council Tax

Council Tax is the tax you pay for living in your house. The amount you pay is based on how much your house is worth. This tax generally covers local amenities such as rubbish collection.

Capital Gains Tax

This is the tax you pay on any gain in value of assets such as property or shares when you sell them. It is only payable when you sell an asset. Like other taxes, you have an allowance, currently £8,500, and anything over this is added to your income for the year, and you pay 20% up to the basic rate limit, and 40% on anything over it. You do also have some exceptions, for example you don’t have to pay capital gains on your primary residence.

Inheritance Tax

If you are left anything in somebody’s will, then you may have to pay tax on the inheritance. Anything over £275,000 is currently taxed at 40%. There are however ways to avoid this tax, and they may be worth looking into.

Savings Tax

The tax you pay on income from your savings. You normally pay 20%, but will pay 40% on anything over the basic rate limit.

Stamp Duty

Stamp Duty is the tax you pay on buying assets such as property and shares. Currently you pay 1% on property from £120,000 to £250,000, 3% on property from £250,000 to £500,000 and 4% on anything over half a million. Stamp duty on shares is normally 0.5%, rounded up to the nearest £5.