Capital Gains Tax (CGT)
Capital Gains Tax is the tax you pay on the profit when you sell or dispose of an asset (e.g., property, shares, or other investments) that has increased in value since you acquired it.
Key Points for CGT:
CGT Rate: For individuals, the tax rate depends on your total taxable income:
Basic rate taxpayers: 10% on gains (or 18% for residential property).
Higher rate and additional rate taxpayers: 20% on gains (or 28% for residential property).
Annual Exempt Amount: You can make a certain amount of capital gains tax-free each year:
£6,000 for the 2024/25 tax year (down from £12,300 in previous years). This means the first £6,000 of your total capital gains in the year is tax-free.
Exemptions:
Private residence relief: If you sell your main home and meet the requirements, you may qualify for private residence relief, which can exempt you from CGT on the sale of your property.
Gifts to charity: Gifts to charity may be exempt from CGT.
Losses: If you sell an asset for less than you paid for it, you may be able to offset losses against gains made in the same tax year, reducing your overall CGT liability.
Entrepreneurs' Relief: If you're selling a business or shares in your company, you might qualify for Business Asset Disposal Relief (formerly known as Entrepreneurs' Relief), which could reduce CGT to 10% on the first £1 million of gains (subject to qualifying criteria).
Inheritance Tax (IHT)
Inheritance Tax is the tax applied to the estate of a person who has passed away. It applies to the value of their property, money, and assets, and can also apply if you are gifting assets while alive.
Key Points for IHT:
IHT Rate: The standard rate of inheritance tax is 40% on the value of an estate above the nil rate band.
However, IHT is only charged on estates over the threshold, and only the value over the threshold is taxed at 40%.
Nil Rate Band: The amount of an estate that is exempt from inheritance tax is £325,000 (for 2024/25).
If the value of the estate exceeds this amount, the excess is taxed at 40%.
Residence Nil Rate Band (RNRB): If you leave your main residence to a direct descendant (e.g., children or grandchildren), you can get an additional £175,000 of exemption (for 2024/25), increasing the total potential IHT-free amount to £500,000 for individuals. This rises to £1 million for a married couple or civil partners.
Gifts: If you give away assets during your lifetime, these may be subject to IHT if you pass away within seven years. The value of the gift is added to your estate, and IHT may apply depending on the total value of your estate at the time of death.
If you live for more than seven years after giving the gift, no IHT is due.
Exempt Gifts: There are some exceptions, such as annual exemptions (currently £3,000 per year), gifts to charities, and small gifts.
Spouse or Civil Partner Exemption: Transfers of assets between spouses or civil partners are IHT-free (both during life and upon death).
IHT Planning: To reduce potential IHT liability, people often use strategies like setting up trusts or making lifetime gifts
Minimum Wage Income
The National Minimum Wage (NMW) and National Living Wage (NLW) set the minimum hourly wage an employer is legally required to pay workers. This is important because workers earning at or near the minimum wage need to understand their rights and obligations regarding pay and taxes.
Key Points for Minimum Wage:
National Living Wage (NLW): This applies to workers aged 23 and over. For 2024, the NLW is £11.00 per hour.
National Minimum Wage (NMW): The NMW applies to younger workers and is set at different rates depending on age and whether the worker is an apprentice. For 2024, the rates are:
21–22 years: £10.18 per hour
18–20 years: £7.49 per hour
Under 18 years: £5.28 per hour
Apprentices (under 19 or in the first year of an apprenticeship): £5.28 per hour
Living Wage vs Minimum Wage:
The National Living Wage is the legal minimum for those aged 23 and over and is generally higher than the National Minimum Wage.
The Living Wage Foundation also sets a Living Wage that is higher than the government’s minimums, based on what is considered to be a “real living wage” that covers the basic cost of living.
Taxation of Minimum Wage Income: If you're earning the minimum wage, your income will still be subject to income tax and National Insurance (NI) contributions, but depending on your total income, you may not pay tax if you earn below the personal allowance threshold (£12,570 for 2024/25). You will still be liable for Class 1 NICs (employer and employee contributions) if your income exceeds the Lower Earnings Limit (£12,570).
National Insurance Contributions (NICs):
If you are earning above the primary threshold (£12,570) for NICs, you will pay Class 1 NICs on your earnings at 12% for income between £12,570 and £50,270 and 2% on earnings above that.
Impact on Benefits: Minimum wage earners may be entitled to certain benefits (like Universal Credit or Child Tax Credit) depending on household circumstances. There are also tax credits for lower-income individuals, though many of these have been replaced by Universal Credit.
Adhoc Summary:
Capital Gains Tax (CGT):
Rates: 10% (basic rate taxpayers), 20% (higher rate taxpayers), 28% for residential property.
Annual Exemption: £6,000 for 2024/25 (down from £12,300).
Exemptions: Private residence relief, gifts to charity, losses carried forward.
Inheritance Tax (IHT):
Nil Rate Band: £325,000, with additional Residence Nil Rate Band (RNRB) of £175,000 for main residences.
Tax Rate: 40% on estates above these thresholds.
Gifts: Lifetime gifts may be subject to IHT if you pass away within seven years.
Minimum Wage:
National Living Wage (NLW): £11.00 per hour for those aged 23+.
National Minimum Wage (NMW) varies by age and apprenticeship status.
Income Tax and NICs: Minimum wage income is still subject to tax and NICs depending on earnings.
These areas are important for individuals at different stages of their financial life, and staying aware of the thresholds, rates, and planning opportunities (such as exemptions or deductions) can help with tax efficiency and overall financial strategy.
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