Taxation

1. Taxation Chapter 3 (Lecture 2)

2. Taxation • Personal taxation • Company taxation • Capital gains tax • Other taxes • Double taxation • South African taxation

3. 3. Capital Gains Tax (page11) • Individuals and companies pay capital gains tax on chargeable gains • Chargeable gains fall into tax year during which gain is realised • Chargeable gain = sale price – purchase price

4. 3. Capital Gains Tax (page11) • Sale price can be reduced to reflect any cost associated with sale • Purchase cost can be increased with any cost associated with purchase • Also expenditure made to increase value of asset • Normal circumstances: Purchase cost = original cost

5. 3. Capital Gains Tax (page11) Exceptions: • Private motor cars • A main private residence • Foreign currency obtained for personal use • British Government securities and other qualified fixed interest stocks • Small tangible moveable assets less than £6 000 (i.e. furniture, jewellery, paintings, antiques etc.) • Also transactions between a husband and wife

6. 3. Capital Gains Tax (page12) Indexation allowance • Some countries have allowances to remove inflation element of any gain or to encourage individuals to retain assets • Since April 2008 in the UK, for individuals, sole traders and partners, no allowances are made for inflation • But, for companies normally offset inflation by deducting a further indexation allowance and calculated using Retail Price Index (RPI) • RPI table published monthly by HMRC

7. 3. Capital Gains Tax (page12) Capital losses • Chargeable gain can be negative = “capital loss” • Capital losses can be offset against capital gains realised in same year! • …… But not against any other taxes! • “Unused” capital losses may be carried over and offset against any future capital gains • ….. But rules do not apply if loss is caused by the indexation allowance!

8. 3. Capital Gains Tax (page13) Allowances • Most countries, individuals are given allowance and pays capital gains tax on chargeable gains in excess of the allowance • UK 2013/2014 annual exempt amount (AEA) is £10 900

9. 3. Capital Gains Tax (page13) 3.2 The rates of tax From 6 April 2008 flat rate of 18% or 28% will apply to all capital gains - depending on person’s taxable income (according to sliding scale)

10. 4. Other Taxes (page 15) • Other categories of tax: • Stamp duty on contract documents. (Example: if you buy a house you pay stamp duty tax based on value of house) • Inheritance taxes • Property taxes • Levying tax on expenditure either: • General expenditure (i.e. sales tax) • Specific types of expenditure (i.e. customs duties and excise taxes)

11. 4. Other Taxes (page 15) continue… Sales tax • In the US it is collected only at point of final sale to consumer • Where Value Added Tax “VAT” (EU and South Africa) is collected at each stage of the production process • UK standard rate for VAT is 20%, but fuel and power is taxed at 5% and some items like foods and books are zero rated

12. 4. Other Taxes (page 15) continue… Customs duties (invoer) • Taxed on imported goods • Differs from country to country • Often flat rate based on either value, weight, size etc. Excise duties (aksyns) • Taxes levied goods produced and sold within country • Example petrol, alcohol and cigarettes

13. 5. Double taxation relief (DTR)(page 16) • Agreement between countries • Prevent the same income being taxed in the country of origin as well as the UK • DTR means local authority will allow companies and individuals with overseas income to offset tax already paid overseas against liability to local tax on that income or capital gains • Maximum offset = rate of tax payable locally on grossed-up income

14. Thursday 8 May 2013 • Will be discussing the South African Taxation • Comparison between the UK Taxation and South African Taxation

15. CLASS TEST 2 • Monday 12 May 2014 • Chapter 12