Tax mitigation

Income tax is payable in respect of taxable income arising during a tax year (year ending 5th April).

An individual’s liability to UK income tax depends on residence and domesticity. Once a person’s taxable income has been calculated, the amount chargeable to tax may be reduced by any reliefs and allowances the taxpayer is entitled to. The eventual tax rate charged will vary according to the source of the income and an individual’s total income and allowances.

Capital Gains Tax (CGT) is payable by an individual when a chargeable gain arises from the disposal of a capital asset if the disposal proceeds exceed the allowable expenditure. A capital loss will arise where the proceeds are less than the allowable expenditure.

A person, who is not exempt and is resident in the UK, is liable to CGT. However, the extent of an individual’s liability to CGT depends on their residence and domesticity.

An individual’s net taxable gain may be reduced by their annual CGT allowance and any losses bought forward from earlier years. An individual is only liable to CGT if their chargeable gain less losses in the tax year exceeds their annual CGT allowance plus any losses bought forward from earlier years.

Inheritance Tax (IHT) is a tax on a transfer of property by an individual either during lifetime or on death. It can also be charged on property held in a trust or owned by a closed company.

Individuals who are domiciled in the UK are liable to IHT on their worldwide assets. Non-UK domiciled individuals are only subject to IHT on property located in the UK.

There are a number of reliefs available which either reduce the amount of a transfer value or the amount of IHT due. IHT is a cumulative tax, which means that at the date of each transfer (or date of death) any transfers in the pervious 7 years must be taken into account. For each tax year there is a nil rate band and the excess over that amount is subject to IHT.

A company is liable to Corporation Tax (CT) if it carries out a business activity which produces income or chargeable gains, and it is either UK resident or Non-UK resident, but carrying on a UK trade through a permanent establishment.

The definition of a company includes any corporate or unincorporated body or association, partnerships are specially excluded.

The type of tax due on a company’s chargeable profits differs depending upon whether the company is resident in the UK or outside the UK.

A company’s’ tax liability for each period is based on its chargeable profits, from whatever source, after relief is given for allowable losses. Investment companies are subject to special rules for determining the chargeable profit.