In this section we look at some tax words. We explain what they mean and where you can get more information on them.

A B C D E F G H I K L M N O P Q R S T U V W

A

AMAP (see Approved Mileage Allowance Payment)

Accounting date

• Your accounting date is the last day of your accounting period (see below).



• You can have any day in the year as your accounting date or you can choose whatever date is most suitable to your business or you may just use the anniversary of your start date if you prefer.



• You normally keep the same date each year although you can change the date if you want.

Accounting period

• Your accounting period is the period that your accounts cover.



• If you make up your accounts to 31 October each year, this is your accounting date and the 12 months to 31 October is your accounting period.

Additional State Pension (see State Second Pension)

Additional Voluntary Contribution (AVC)

• If you are in a pension scheme provided by your employer, you can also make extra payments of your own to the employer's scheme. These are called Additional Voluntary Contributions (AVCs) and you can pay in up to 15% of your earnings from that employment in any tax year.

Adjudicator

• The Adjudicator investigates complaints about the Revenue.



• Their services are free and they can look at issues such as mistakes, delays, misleading advice and staff behaviour. However firstly you must take your complaint to the Revenue and only if it proves impossible to sort out directly with them, can you then take the complaint to the Adjudicator.

Administrator

• The person appointed to handle the estate of someone who has died intestate.

Age related payments

• An age related payment is a one-off tax-free lump sum of £50 or £100 to be made to households with occupants who normally live in the UK and are aged 70 or over no later than the end of the relevant week - the last payment was made for 2005 but the law gives the government the option to make similar payments in later years



• The payment is not linked to any other social security payment or tax credits and it is not income or capital for social security or tax credits purposes.



• It is intended that the payment will be made automatically with winter fuel payments. A qualifying individual can claim if they have not automatically received a payment by 31 December in the year of payment.
  
  
• You can find more details on this topic here

Annual exemption

• The first £9,600 of your gains on sale or gift of an asset for 2008/09 (£9,200 for 2007/08) is exempt from tax.

Annual Investment Allowance (AIA)

• For the 2008/09 tax year, all businesses have an Annual Investment Allowance (AIA) on the first £50,000 of expenditure on plant and machinery. An AIA is available for expenditure incurred on or after 6 April 2008. It replaces the First Year Allowance which was available on purchases of new plant up to 2007/08.

Appropriate personal pension (APP) (also called rebate only personal pension)

• If you work for an employer you can take out a personal pension to replace the Additional State Pension .These personal pensions are 'rebate only' which means that normally the only money being paid into the scheme is the National Insurance rebate from the Revenue.



• The amount of the rebate from the Revenue to your APP scheme depends on your age and your earnings and will be paid once your earnings are known at the end of the tax year. You can also make additional payments of your own to an APP.

Approved Mileage Allowance Payment (AMAP)

• Many employees will be paid an allowance for using their own vehicle for business travel. Usually they will be paid so much per mile.



• You can receive up to a maximum amount per mile without having to pay any tax. This is the Approved Mileage Allowance Payment (AMAP). This allowance is also used to see if you will need to pay tax and NIC on your expenses.


Click here for a table of the current rates of AMAP

Assets

• Assets are things you own such as your house, shares or other possessions.
• If you own an asset jointly, your gain will be based on what share of the proceeds you received. For example if husband and wife equally own an asset, each will have a gain on the sale based on half the proceeds.

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B

Balancing allowance & balancing charge

• When you sell an asset on which you claimed capital allowances you will have an adjustment to make.



• If your capital allowances claimed to date on the asset are more than the actual difference between that expenditure and the sale proceeds, you may make a balancing charge, which you will need to add to your profits.



• If the amount written off is less than the difference between what you spent on the asset and the sale proceeds, you will get a balancing allowance, which you take off your profits.

Basis period (for self employed profits)

• Apart from your first few years of business and any year in which you change your accounting date - your basis period for any tax year is usually the 12 months up to your accounting date ending in that tax year.



• So for example if you have been in business for a few years and your accounting date is 31 January - your basis period for 2008/09 (the year to 5 April 2009) will be the twelve months ended on 31 January 2009 as this is the end of the accounting period falling in the tax year.

• A beneficiary is a person who you name in your will as someone who will receive assets or cash from your estate.
• There is more information on this here

Benefits (see State benefits)

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C

CGT (see Capital Gains tax)

Capital Allowances (see also Annual Investment Allowance (AIA), plant & machinery)

• A capital allowance is a tax allowance you can claim on the purchase of plant and machinery, or equipment you use in your business such as the cost of vans and cars, machines, scaffolding, ladders, tools, equipment, furniture, computers and similar items. You can also claim capital allowances on items you used privately before using them in your business.

• The allowance is available on the cost of converting space above shops or other commercial premises for renting out as flats.

• The allowances that can be claimed on industrial or agricultural buildings are now being phased out.

• For the 2008/09 tax year onwards, all businesses have an Annual Investment Allowance (AIA) on the first £50,000 of expenditure on plant and machinery.The measure will have effect for expenditure incurred on or after 6 April 2008.

• On and after 6 April 2008, the rate of writing down allowances (WDAs) will be 20% a year for general plant and machinery, and 10% a year for long life assets - these are assets reasonably expected to have a useful life of at least 25 years when new. New means unused and not second hand.

Capital Gains tax (CGT)

• A tax on profits made on the sale or disposal of an asset. See also Annual exemption.
• Sales of some assets are free from CGT

Capital loss

• A capital loss occurs when the amount you originally paid for the asset (or its value when it was given to you) is less than the proceeds you get when you sell it (or its market value if you give it away). There is an example of this here

Cash Equivalent (redundancy payments)

• Your redundancy package can include items such as use of a car, fuel, accommodation or a loan at a reduced rate of interest. You will be taxed for any year on the 'cash equivalent' of the goods concerned.

Category A & B state pensions

• A Category A pension is based on basic pension and an add-on of additional pension. Basic pension depends on the number of years you have worked and additional pension on the amount of your National Insurance contributions.
• A Category B pension is a type of pension based on your spouse's contributions.

Centre for Non Residents (See HMRC Residency)

Certificate of Exception (including Foster carers)

• If your taxable profit falls below £4,825 for 2008/09, you need not pay any Class 2 NIC for that year - this is the small earnings exception. You should still register for Class 2 NIC as normal but you can apply for a certificate of exception if you wish. The form you will need is CF10 - Self-employed people with small earnings which can also be obtained from the Revenue.

Child Benefit

• Child benefit is a tax free benefit for people bringing up children. It is paid for each child and the amount you get is not affected by income or savings.

Childcare costs (for tax credits)

• You may be able to claim extra Working tax credit (WTC) to help with the cost of registered or approved childcare.



• Childcare is one of the elements that makes up WTC.



• You can get help with up to 80% of your childcare costs up to a maximum of £175 costs per week for one child or £300 for 2 or more children (i.e. a maximum of £140 or £240 a week respectively).

Children (gifts from parents)

• If you are under 18 and unmarried and your parents (gifts from grandparents are unaffected by these rules) make a gift of money to you which is invested and produces income of over £100 (before any tax is taken off) each year (looking at the total gifts they make to you and not each gift separately) - then for tax purposes this entire income (not just the excess over £100) will be treated as your parents' and not your income.



• If the income is below £100 it is treated as your own income and you may be entitled to a tax repayment.

Children's Tax Credit (CTC) (2002/03 claims only)

• Children's tax credit has now been replaced by Child tax credit but is still available to claim for 2002/03 if you are eligible.



• If you forgot to claim your children's tax credit in 2002/03, you can make a back-claim at any time up 31 January 2009.



• CTC was available where single parents, married couples and couples living together as man and wife, have one or more qualifying children under 16 living with them.



• More information is available from your tax office or you can simply download the relevant form 11CTC you need to claim the credit.

Child Tax Credit

• Child Tax Credit, along with Child Benefit, is the way that families get welfare support for their children, and for 16-18 year olds in education. The new system is based on the level of your income.



• It replaced the former Working Families' Tax Credit, Disabled Person's Tax Credit and Children's Tax Credit with a single system - so all families with children, with an income up to an annual maximum will be able to claim in the same way. It also includes the former New Deal 50 Plus credit.

Class 1 National Insurance Contributions

• These are the contributions you pay if you work for an employer and your earnings are above the lower limit of £105 a week or £453 monthly for 2008/09. Your employer also has to pay contributions based on your earnings.



• The actual amount you pay depends on what you earn up to the maximum earnings limit (£40,040 for 2008/09). NIC is taken off your wages before they are paid to you.



• For 2008/09 the weekly rates of Class 1 NIC for employees are as follows:
  
  • On first £105 - Nil
  
  
  • On income between £106 to £770 - 11%
  
  
  • On amount above £770 - 1%

Class 1A & Class 1B National Insurance Contributions

• Class 1A contributions are paid by your employer if they provide you with a car for private use. The employer pays the contributions on the car and any petrol provided for it.



• Class 1B contributions are paid by employers who enter into a special arrangement with the Revenue.

Class 2 National Insurance Contributions

• These contributions are paid by the self employed. The amount you pay (£2.30 a week for 2008/09) is the same no matter what level of your profits are. There are various methods of payment.



• If your profits are below £4,825 for 2008/09, called the Small Earnings Exception , you will not need to make the payment.

Class 3 voluntary National Insurance Contributions

• These are voluntary contributions called Class 3 NIC you can pay if you do not pay Class 1 or Class 2 but you want to protect your rights to some state benefits.



• The contributions can be paid using the same methods as Class 2 or you can pay a lump sum at the end of the year. For 2008/09 the rate is £8.10 a week.

Class 4 National Insurance Contributions

• Class 4 contributions are paid by the self employed in addition to Class 2 but they do not count towards any benefits.



• You will be liable to these contributions which amount to 8% of your profits, if your profits are over a certain level (£6,035 for 2008/09). There is also an upper limit of £40,040 above which you pay further contributions of 1%.



• Class 4 contributions are collected together with any income tax payable on profits through self-assessment.

CNR (See HMRC Residency)

Coding notice (also called PAYE coding notice)

• Your employer knows how much tax & NIC to take off your wages because the Revenue tell him to operate a specific code number on your wages. The code tells the employer what allowances he can set against your pay.



• The Revenue let you know what code your employer should be operating by sending you both a form called a Notice of Coding (form P2). This form sets out your allowances and takes off any amounts that reduce those allowances. The balance is then available to be set off against your pay or pension.

Coding letters (see also K code)

• BR

  • This code means that basic rate tax of 20% will be deducted from all your income received from this particular source.
  
  
  
  • It is usually used where someone who pays tax at basic rate overall has a second pension or employment or other source of income and where they have used their allowances on their main source of income.

• 0T

  • 0T operates the same as any other code except that instead of having allowances to reduce your taxable income, you have nil allowances and your pension or wages are taxed at 20% or both 20% and 40% depending on the amount of income involved.

• NT

  • This code means that no tax will be deducted so it is normally applied where tax will be paid from another job.
  
  
  
  • The other job will have a different code number and will take account of the tax that the NT job will be due to pay so that the correct amount of tax gets deducted overall.
  
  
  
  • This code number is often applied in cases where someone does not live permanently in the UK.

• D0

  • Where this code applies all income from the source concerned will be taxed at the higher rate of 40%. It will normally only apply where you are already taxed at the 40% rate as a result of other pensions or employment you have.

Commonwealth

• The Commonwealth is a voluntary association developed gradually out of what was the old British Empire. It is now made up of 54 nations spread all over the world. Click here for a complete list.

Community Amateur Sports Clubs (CASC)(see also Gift Aid)

• When you give money to a registered Community Amateur Sports Club (CASC) under Gift Aid, the CASC can reclaim the tax that you've paid on that money.



• A lot of local sports clubs covering a large variety of different sports will be able to or may already have registered as CASCs.



• Check with the club receiving your donation to ensure that the payment will qualify as Gift Aid. Bear in mind that to qualify as a Gift Aid payment your donation must be an outright gift to the club - it does not apply to any other payments such as your membership subscription.

Consolatory payments

• If the Revenue have made a mistake they may be able to pay you an amount to recognise your particular circumstances.



• A difference of opinion between you, even when later the Revenue are shown to have been wrong, is not the reason for a payment unless they took an unreasonable view of the law or had failed you in some other way.



• In addition if the Revenue handle your complaint badly, they may pay you a further sum.



• All such consolatory payments are tax-free and you need not show them on your tax return.

Contracting out (of State Second Pension)

• You can choose to opt out (called contracting out) of the State Second Pension (S2P); if you do so, the Revenue pay part of your National Insurance contributions directly to the pension provider of your choice to fund a separate pension scheme with them instead of increasing the amount in the Government S2P scheme.

Contribution benefits

• For some UK benefits you need to have paid NIC contributions - these are called Contributory Benefits . There are other benefits where provided the rules for claiming apply to you, it does not matter whether or not you have paid any NIC.

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D

Deed of Variation

• If all the beneficiaries agree, it is possible to vary the way an estate is distributed or for some beneficiaries to disclaim their legacy provided they do so within 2 years of the date of death - the variation then takes effect as if it were made at the date of death.
• There is more information on this topic here

Deferring NIC

• If you are both employed and self employed you can defer payment of NIC on your profits until after the end of the tax year. You will need to make a claim to defer your payments.

Determinations

• If you do not send in your tax return by the deadline on 31 January, so that it is not clear how much tax you need to pay - the Revenue may issue you with a 'determination of tax'. This is an estimate of your tax bill for the year and you cannot appeal against the figure.



• Any statements of account you get will include the determination of tax as a basis for your payments on account if you need to make them.



• The only way to get your tax reduced or amended to the correct figure is to send in your tax return for the year.

Dispensation

• When the expenses that your employer pays you are fully covered by your tax relief, your employer can ask their tax office to issue a 'dispensation'.



• If your employer has a dispensation you will get tax relief automatically. Your tax code will not show the expense payments and you should not include them on your tax return if you get one.

Disregards

• These are the weekly amounts of income that are ignored when working out certain benefits such as pension credit, tax credits and council tax benefit. The amount of the disregard depends on your own personal circumstance but usually varies between £5-20.

Dividends

• These are amounts paid by companies on their shares and are a way of passing the profit of a company to its shareholders. The dividend the company actually declares and pays to its shareholders is the net amount after a tax credit of 10% has been taken off.



• If you are a non taxpayer you cannot reclaim this 10% tax credit and if you pay tax at the basic rate - you will have no further tax to pay.



• But if you pay tax at 40% (higher rate tax) you will have to pay further tax of 22.50% on the gross dividend (dividend plus tax credit) you receive making a overall tax rate of 32.50% on dividends received by higher rate taxpayers.



• Another way to work out the extra tax for a 40% taxpayer is to say that you have to pay an additional 25% tax on the amount of the dividend you actually receive after the tax credit has been taken off.

Domicile

• Domicile means the legal system with which you are most closely connected. This will normally be a country, but it may be a State within a country if it has its own legal system.

• In a recent publication HMRC explained domicile as follows:

  Domicile is not the same as nationality or residence. Broadly speaking, you have your domicile in the country that is your 'real' or permanent home. Everyone acquires a domicile of origin at birth. This is generally the country that your father considered to be his 'home country' at the date of your birth. If you have a domicile of origin outside the UK, then this is likely still to apply unless you have chosen to remain in the UK permanently or indefinitely. In most cases an individual's domicile is obvious.

• So domicile can be loosely thought of as the place to which you will ultimately return even though you may be absent from it from time to time, or even for a very long time. Your own domicile will depend upon the application of detailed rules to your circumstances and you can find a lot more detailed information in the What do we mean by...? section on international topics - you can access the full section here.

Double taxation relief

• If you have income or capital gains which arise in a country outside the UK and are taxed there, the UK will allow you to deduct the foreign tax paid from UK tax on the same income or gains. If the foreign tax exceeds the UK tax, you cannot recover the excess from the UK.

Double Taxation Treaty

• This is an agreement between UK and another country. There are over 100 of these, and they affect persons who are residents, or sometimes nationals, of the parties. They normally:
  
  
  • Give the rules for double tax relief for specified income and gains;
  
  
  
  • Determine where you are to be regarded as resident for treaty purposes if you are otherwise dual resident;
  
  
  
  • Contain other rules relating to the persons affected by the treaty.
  
  
  
• HMRC produced a Digest of Double Tax Treaties in May 2007. This is very useful as it summarises the rules for each country in a table form for ease of reference.

Dual Residence

• You might be regarded as resident in the UK under UK law and resident in another country under that country's law. You are then said to be dual resident.

DWP

• Department for Work and Pensions, the Government department that administers social security benefits, including the state pension. Before June 2001 it was known as the Department of Social Security.

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E

EEA (see European Economic Area)

EMA (see Education Maintenance Allowance)

Earned income

• Income from your job or from self-employment or income you get from a pension. You need to bear in mind that some income is treated as earned income only for tax purposes and not for NIC - for example pensions.

Education Maintenance Allowance (EMA)

• This tax free benefit pays up to £30 a week directly into a young person's bank account if he or she stays on in education at school or college after they have taken GCSEs. Most young people will be able to claim EMA for two to three years depending how long their studies last.



• There is also a bonus of £100 in January and July with a further £100 bonus in October if they come back for a second year.



• EMA does not affect any other benefits the student's family might get and is paid on top of any earnings he or she might have from a part time or holiday job.



• Have a look here to see if you qualify.

Elements (for tax credits)

• Working tax credit (WTC) and Child tax credit (CTC) consist of a number of what are called 'elements' which a claimant may be entitled to depending on their circumstances.



• You can find more information on this in the section on tax credits

Employed (see also self employed)

• If you work for a company or a business which is not your own and in which you are not a partner, you are likely to be employed.



• You will usually be employed if you receive a regular pay packet each week or month from which your employer has deducted tax and NIC.



• It does not matter if you work part time or have flexible hours or if you are only on a short contract.



• The rules are quite complicated and you can find out more in the section on employed v self employed.

Employer sponsored courses

• Your 'pay' from your employer during college study time should be exempt from tax if it does not exceed £15,000 a year.



• You will also need to be enrolled for at least one academic year and your actual full time attendance during that period must amount on average to at least 20 weeks a year.

Entrepreneurs Relief (Capital Gains Tax)

• Entrepreneurs Relief will apply to individuals and trustees who dispose of the whole or part of a trading business, or of shares in a trading company in which they have a qualifying interest.



• The first £1 million of gains qualify for the relief which effectively taxes gains at 10%. Gains in excess of £1 million will be charged to CGT at the rate of 18%.

European Economic Area (EEA)

• Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, Irish Republic, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, United Kingdom. Iceland, Liechtenstein and Norway are not members of the European Union (EU) but citizens of these countries have the same rights to enter, live in and work in the United Kingdom as EU citizens.

European Union (EU)

• Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Irish Republic, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, United Kingdom.

Executor

• If you have made a will, you will have named one or more executors (also called personal representatives) in the will as the person or persons who will deal with your estate for you. This can be your solicitor or other professional person but is also quite often a member of your family or a family friend.
• You may also want to have a look here

Extra Statutory Concessions (ESC) (including A19)

• The Revenue say that an ESC is a relaxation which gives a taxpayer a reduction in tax liability that they would not be entitled to under the strict letter of the law. Most concessions are fairly minor but A19 is very important and is not very well publicised.



• In very simple terms ESC A19 can be claimed where the Revenue delay in using information about your tax affairs.

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F

FSAVC (see Free Standing Additional Voluntary Contribution)

Fast Track (for tax credits)

• For those disabled people who after a period of sickness have to change work to a job with lower pay or less hours, there are special rules for claiming tax credits called 'Fast Track' which can help you qualify for the disability element earlier than with the normal 'qualifying benefit test'.

Fixed Expenses Method (Adult Placement Carers)

• This method was designed with the adult placement carer in mind. It is based on a figure accepted by the Revenue as being the amount of expenses and capital allowances you are likely to incur per week per adult you have staying with you.



• The fixed expenses amounts at present are:
  
  
  • First resident - £400 per week
    
  
  
  • Second resident - £250 per week
    
  
  
  • Third resident - £250 per week



• To find out how the method works click here .

Foreign emoluments

• This describes your earnings from employment where you are not domiciled in the UK and your employer is not resident in the UK or the Republic of Ireland and is resident elsewhere.

Form NRL1 (see Non Resident Landlords Scheme)

Form P2 (see Coding notice)

Form P38(s) (for students only)

• If you think your total taxable income in the whole tax year is likely to be no more than your tax-free personal allowance (£6,035 for 2008/09) and you will be working only in the holidays - then ask your employer for form P38(S).



• This is a short form that you complete and sign and give back to your employer. It authorises your employer to pay you free of tax because you are a student.



• If your employer has deducted any tax, let him know before you return the form P38(S) to him and he will refund the tax deducted.

Form P45

• This is the form you receive when you leave a job - it is important that you get a P45 when you finish your employment . The form P45 shows your PAYE tax code, your total earnings and how much tax you have paid since the start of the tax year.



• The form is in 4 parts. When you leave your old employer will send the Revenue Part 1 the form and he will give you parts 1A, 2 and 3.



• You should keep parts 2 and 3 of your P45 safe and give them to your new employer when you start your next job and keep part 1A for your own records.

Form P50

• Form P50 is a repayment claim which you can use if:
  • You are out of work or have given up work altogether and;
  
  
  
  • PAYE has been taken off your pay since last 5 April and;
  
  
  
  • You are not claiming Jobseeker's Allowance or taxable Incapacity Benefit



• You can download a form P50 using this link.

Form P60

• This is the end of year tax certificate which shows your total pay for the year from your current employment and past employments and the tax deducted. It also shows any tax credits or student loan payments and the amount of NIC you have paid.



• Keep the form safe as you may need to use it to claim a repayment or for other general purposes requiring evidence of your earnings.



• You can have a look at a copy of a form P60 .



• If you are receiving an occupational pension you should also receive a form P60 annually. This will show your pension before tax and the tax taken off but of course no NIC as this is not payable on a pension.

Form P87 (claim for expenses)

• You can claim your business expenses on your tax return or if you do not need to fill in a return - you can download a form P87 and use that instead.

Form R40

• Form R40 is used for claiming repayments where you have overpaid tax on bank and building society interest. If instead, you have a PAYE overpayment on your pension you should not complete form R40.
• You can download the form and find more information here

Form R85 and registration

• R85 is the form needed to register to receive bank or building society interest before tax is taken off. There is more information here

Form R105

• A form used by non-UK residents to enable them to receive UK bank and building society gross (without any tax taken off) .
• A word of warning! Be careful that you check with your bank first as to whether they will accept the form. Because of the admin involved a number of banks will not accept a form R105 and HMRC have told us that it is not mandatory for them to do so.
• You can download the form and find more information here

Form R185

• This is the tax certificate you will receive from either the trustee of any trust from which you receive income or from the executor of any estate which pays you income as a beneficiary. You can use the form to help you fill in your tax return or to support any repayment claim you might make.

Free Standing Additional Voluntary Contribution (FSAVC)

• You can pay Freestanding Additional Voluntary Payments (FSAVCs) to a pension scheme of your own choice as well as being in the employer's scheme but the maximum contribution limit is 15% of your earnings each year.

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G

Gift Aid

• This is a scheme for making gifts to UK charities whereby the charity can reclaim tax on the donation.
• Gift Aid also applies to gifts made to Community Amateur Sports Clubs (CASC). The relief only applies to gifts made to the CASC and not to any other payments such as membership subscriptions.
• Gift Aid is not always a good idea for non-taxpayers. For more information click here

Gifts to children by parents (see Children - gifts from parents)

Gifts with reservation (see Retaining an interest)

• If you give something away but then continue to enjoy a benefit in the asset or use it, you will be treated for IHT as if you had not made the gift in the first place. A good example of this is when you give away your house to your children - they live elsewhere because they have their own homes and you continue to occupy your home after you have given it away.



• The gift will only become potentially exempt - a PET when you stop having a benefit in it, so if you should die before this happens the full value of the gift will become part of your estate.

Grant of Probate (see also Letter of Administration)

• Grant of Probate is a legal acknowledgement of your estate and the amount of the estate. It also states the names of your executors and thereby recognises their legal entitlement to deal with your estate.

Great Britain

• This includes England, Scotland and Wales and the islands off their coasts which are in the UK.

Gross income

• Gross income is simply income you are entitled to receive before any tax is taken off.

H

HMRC Residency

• If you live outside the United Kingdom, but have income from a source in the United Kingdom, HMRC Residency, which is part of Revenue - International, may be able to help you with UK income tax matters.



• You can write to or e mail HMRC Residency or you can phone them - you can find their contact details here .

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I

IHT (see Inheritance tax)

Incapacity Benefit (IB)

• IB is paid if Statutory Sick Pay (SSP) has ended or you cannot get SSP. It is not paid if you were over state pension age when you became sick.



• If you became sick before reaching state pension age, you may be able to get Incapacity Benefit after state pension age. It can be paid at the Retirement Pension rate for up to one year of sickness.




• Depending on the type of IB you receive the payment could be either taxable or tax free:

  • Tax free
    The initial 28 week period of payment and benefit paid to those who were receiving the former invalidity benefit at 12 April 1995 for the same incapacity and who then transferred to long term IB which they have received subsequently without a break
  
  
  
  • Taxable All other IB payments


• Use this link for more information on Incapacity Benefit (IB)

Income

• Income for tax purposes includes dividends and bank interest but it excludes any tax-free income for example, interest from ISAs or Attendance allowance.
• Income also includes your gross wages before any tax or NIC has been taken off
• See also taxable income

Income period (foster carers)

• If you are a self-employed adult placement carer - we generally say that your income period is the 12 months up to the date when you make up your accounts.



• So if you make up your accounts to 31 December each year, the period from 1 January to 31 December is your income period.

Inheritance Tax (IHT)

• IHT is charged on gifts and other transfers of cash or assets that you make. Assets are things you own such as your house, shares or other possessions.



• Most gifts made during your lifetime will be tax-free if you live 7 years from when you make the gift.



• If your estate and all your PETs add up to less than £312,000 when you die usually no IHT will be payable. If it is more than this amount some tax may be due.



• The nil rate band will be increased to £325,000 for 2009/10 and £350,000 for 2010/11.

Individual Savings Account (see ISAs)

International terms

• Throughout this section we have included explanations of some international terms. These are intended to help you if you are coming to the UK to work or going abroad to work. For more detail on this generally use the link word above.

Intestacy

• If you have not made a will when you die, you are said to be intestate. The rules of succession in Scotland are different from those in England and Wales.
• You can find out more about this topic here

ISA

• An ISA or Individual Savings Account is a tax-free savings account.
• There is no minimum holding period but there is a limit to how much you can invest each year.
• If you move abroad you cannot take out any more ISAs but the existing ones remain tax exempt.
• You can invest £3,600 in a cash ISA or £7,200 in a stocks and shares ISA - the overall annual subscription limit is £7,200.

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K

K code

• Your allowances may not always be more than the deductions that are taken off on the right hand side of the yellow section of the coding notice. When this happens, the result is a minus figure for allowances.



• To collect the additional tax due a special code is operated. The minus allowances are treated as if you receive extra income of that amount. If this applies to you then you will have a code that starts with a K e.g. K456.



• The tax deducted each week/month using a K code cannot be more than 50% of your wages or pension for that period.

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L

Letters of Administration

• When someone dies intestate, the administrator will obtain Letters of Administration to enable him to deal with the deceased's estate. Grant of Probate is not used in these circumstances.

Letter of wishes

• As well as making a will you can also have a 'Letter of Wishes', which will make certain requests of your executor. This type of letter is useful for giving away your personal effects and other small items, as a Letter of Wishes will be treated as if it were part of your main will.

Letting property (see rents)

Life insurance policy gains (also called chargeable event gains)

• With some insurance policies - if you make a profit when you cash it in - the gain you make is taxable. You will make a profit on the policy if the amount you get when you cash it in is more than the amount of the premiums you have paid.



• When you cash in the policy, any profit you make is free of Capital Gains Tax.



• Have a look at the section on Life Insurance policy gains for more information.

Losses (see trading losses)

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M

Maintenance payments

• If you separate or divorce and either you or your spouse was born before 6 April 1935, then a husband or wife making maintenance payments by Court Order is entitled to claim a reduction to their tax bill. The payments must be made to the ex-husband or ex-wife. Payments to or for the benefit of children do not qualify.



• The deduction to be claimed is:
  
  
  • 10% of £2,540 or
  
  
  • 10% of the amount paid, whichever is the smaller



• Full relief, as well as Married Couple's Allowance, is available in the year of separation but not after the spouse remarries.

MAR (see Mileage Allowance Relief)

Mileage Allowance Relief

• If you are paid less than the AMAP rate you can get tax relief against your earnings for the difference.



• This relief is called Mileage Allowance Relief or MAR. To make a claim you will need to keep a record of your business miles and the mileage allowance payments made to you by your employer.

Minimum contribution (re S2P)

The amount of the National Insurance rebate from the Revenue to your appropriate pension plan (APP) depends on your age and your earnings.

The Revenue payment is called the 'minimum contribution' and will be paid once your earnings are known at the end of the tax year.

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N

NINO (see National Insurance number)

National Insurance Contributions (NIC) (See also Class 1, 1A & 1B, Class 2, 3, 4 NIC)

• NIC are deductions from your earnings to pay for certain State benefits.



• If you are employed, your employer will take your NIC from your salary before paying it to you - this is Class 1 NIC . Your employer may also need to pay Class 1A and 1B NIC on your behalf.



• If you are self-employed you pay two types of NIC - one is a weekly stamp - Class 2 NIC and the other is based on the level of your profits - Class 4 NIC



• You can also pay voluntary NIC - Class 3 NIC



• You may also be able to defer NIC or you may be able to claim an exemption if your profits are very low - small earnings exception .

National Insurance number (NINO)

• A National Insurance number is unique to you throughout your life but it is not a form of identity. It is made up of 2 letters, 6 numbers and a final letter for example ZY 98 76 54 A.



• Everyone who wants to work in the UK must have a National Insurance number. To obtain a National Insurance number you must be over 16 and resident in Great Britain or Northern Ireland.



• You can start work without one but you must then apply immediately. The law requires you to apply for a number if you do not already have one and you are working or are intending to work.



• Click here for further information.

National Minimum Wage

• This National Minimum Wage applies to nearly all workers and sets hourly rates below which pay must not be allowed to fall. You can find current and previous rates on the BERR (previously called DTI) website

Net Income

• Income paid after tax has been deducted

Net proceeds

• The amount you receive from the sale of assets or the market value of any asset you give away less any costs such as legal fees.

Net relevant earnings

• If you are employed - the term 'Net relevant earnings' means your earnings from employment including any benefits in kind but less any expenses you claim.



• If you are self employed - 'net relevant earnings' basically includes your taxable profits after taking off capital allowances and losses.

Non-business asset

• A non - business asset is something you own that you use personally and not in your business or employment.

Non-earner

• You are a non-earner if you do not have a job where you work for an employer or you do not work for yourself in your own business nor as a partner in a partnership.



• In simple terms it means that you do not work in any capacity and do not therefore have any income from that work.

Non-pensionable employment

• You are in non-pensionable employment if you are not in a pension scheme provided by your employer.

Non-resident Landlords Scheme

• If you are not resident in the UK, the Revenue operate a special scheme called the Non Resident Landlords Scheme on the rent you will get from letting out your house. Under the scheme your tenant will collect the tax due on the rent and then pay it over to the Revenue.



• UK rental income is always taxed in the UK no matter where you live.



• Provided your tax affairs are up to date you can apply to the Revenue to have your rents paid gross, that is with no tax taken off before you get them. If you own the UK property jointly with someone else - you will both need to fill in a form.



• You can download the application form NRL1 here.

Non-taxpayer

• This is someone whose income for any tax year is less than their personal allowance or less than their personal allowance together with any other allowances he may have such as blind person's allowance or married couple's allowance.
• There is a lot more information for non-taxpayers here.

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O

Occupational pensions

• Pensions you get from your previous employer's pension scheme. Also known as works or company pension. These pensions are taxable under PAYE.
• More information can be found here.

Ombudsman (also called Parliamentary Ombudsman)

• The Ombudsman investigates cases where bad administration by any Government department has led to an injustice that has not been remedied. It is one of the stages in the Revenue's complaints process.



• If you are thinking of making a complaint, the Ombudsman publish a leaflet that we suggest you read called How to complain to the Ombudsman



• You cannot contact the Ombudsman directly in the first instance but your MP will do this for you. The Ombudsman is entirely independent.

Ordinary Residence (OR)

• Being ordinarily resident in the UK means that you are resident from year to year as part of your normal life.

  
  For more detailed information in the 'What do we mean by...? section on international topics - you can access the full section here.

Overlap relief

• When you start up in business or when you have a change of accounting date you can have some profits that will end up being taxed twice because their basis periods overlap.



• When this happens you should keep a note of the amount of the overlap profit and what number of months it relates to.



• You will be able to use the relief if your business ceases or possibly if you change your accounting date.

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P

Parents - gifts to children (see Children - gifts from parents)

Partnership (business)

• This is where you and any number of other people (or sometimes companies) are in business together in what we call a partnership.

PAYE Coding notice (see coding notice)

Pay As You Earn (PAYE)

• PAYE is the way in the UK that amounts of tax and National Insurance contributions (NIC) due are collected from the wages and salaries of employees. It is also the way that tax on most pensions based on past employment are taxed.



• You can find more about PAYE here.

Penalties (self assessment)

• An automatic penalty of £100 is charged if the Revenue have not received your tax return in time.



• The penalty cannot be greater than the tax liability for the year in question so if you owed £50 tax for 2007/08 the penalty would be £50.

Pension credit

• Pension credit is a tax-free state benefit. It is in 2 parts, the guarantee credit and the savings credit and there are extra amounts for people with disabilities and carers. You have to be aged at least 60 to get the guarantee credit and at least 65 to get the savings credit. In a couple only one partner needs to be over 65 for savings credit to be available.



• The Pension Credit guarantees a minimum income of £124.05 for single pensioner and £189.35 for a couple.



• It is also intended to reward savings so if you have a second pension or modest savings you can get a cash addition of up to £19.71 a week for single pensioners and up to £26.13 for couples. From age 65 those people with incomes up to around £173 per week and couples up to around £255 will qualify for the top-up.

Personal pension

• Pensions from plans set up with insurance companies after July 1988. Taxable under PAYE.

Plant & machinery

• You can claim plant and machinery capital allowances for the cost of cars, machines, scaffolding, ladders, tools, equipment, furniture and similar items that you use in your business.



• The allowances are known as writing down allowances. These are worked out at 20% of the cost of the item or 'pool' of items for each year (unless you are claiming Annual Investment Allowance (AIA)).

• Gift which will become tax free if you live for 7 years after the date you made it. If you die within 7 years the gift becomes chargeable to Inheritance tax. See also Tapering relief.
• There is more information on PETs here

Pre owned assets

• An income tax charge applies where someone continues to use an asset that they have given away. The rules do not apply if the asset was a property and the person making the gift is living there because of old age or infirmity.



• There is also exemption from the new charge if the IHT gift with reservation rules apply.



• We will be putting more information on this shortly in the pensioner part of the website under Understanding IHT.

Probate (see Grant of Probate)

Purchased annuity

• An annuity purchased with any capital not compulsorily directed to the purchase of an annuity.
• Purchased annuities are treated for tax purposes as savings income. Part of the annuity is treated like a return of your capital and only the part that relates to income is taxed at 20% as savings.

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Q

Qualifying amount (foster carers)

• This is the amount which you can receive for your caring activities free of tax. It is made up of two amounts:
  
  
  • A fixed amount for each household of £10,000 a year and;
  
  
  • An amount per foster child placed with you (have a look at the weekly amount you can claim)

Qualifying remunerative work (foster carers/APC claiming Working Tax Credit (WTC))

• To be able to get WTC you need to be in qualifying remunerative work. In a nutshell this requires you to be working or about to start paid work, to be of a certain age and to work for a certain number of hours a week. There is more information here



• The work you do as a foster carer will qualify under this heading if you are paid under a contract of employment as an employee or you are paid for your foster care services as a self-employed carer.



• Similarly, adult placement carers are regarded as self-employed and their caring activities are treated as 'qualifying remunerative work'.

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R

Rebate only pension (see Appropriate personal pension)

Redundancy payment (see also Statutory redundancy)

• Your employer may make a payment to you when you become redundant. This is called a redundancy payment and is to compensate you for being made redundant.



• You can find more information on redundancy payments here.

Remittance basis

• This refers to the method of calculating UK tax on the amounts of income (for income tax) and capital gains (for capital gains tax) which you bring to the UK, rather than the amounts of income and gains arising.

  For more detailed information in the 'What do we mean by...? section on international topics - you can access the full section here

Rents

• This is the income you get from letting out property whether the property consists of rooms in your house or other houses that you own.
• The income is treated as though you are running a rental business and is taxed at 20%.

Rent a room relief

• If you rent out a room in your house - the rent a room system works so that:
  • If your total receipts are under £4,250 there will be no tax to pay
  
  
  
  • If your total receipts are over £4,250 per year you have two options:
  
  
  
  • You can be taxed on the excess over £4,250 without claiming any expenses or capital allowances; or
  
  
  
  • You can be taxed on the full amount of your receipts but you can claim your expenses and capital allowances

Residence

• For detailed information on residence in the 'What do we mean by...? section on international topics - you can access the full section here

Retaining an interest

• If you give something away but then continue to enjoy a benefit in it or use of the asset.



• You can find out more about this topic here

Retirement Annuities

• If you paid into a personal pension set up before July 1988 this was called a retirement annuity scheme. When you retire you receive an annuity and not a pension. This type of policy was called a Section 226 policy and could be linked to a life insurance policy.



• From 6 April 2007 retirement annuities are now taxed under PAYE in the same way as personal pensions.



• You can find out more about this topic if you are a taxpayer here and for non-taxpayers here.

Revenue Account

• You may be asked to fill in a Revenue Account. This is a summary of the assets and liabilities including funeral expenses of the person who has died. The Revenue will then advise you whether any IHT is due and when this will be payable.

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S

Sampling period (adult placement carers)

• It is now possible for you to keep records of recurring expenses such as food, clothing, toiletries, etc. for a sampling period of one to three months and you then multiply these figures by twelve (for a one month sampling period) or four (for a three month sampling period) to reach an estimate of expenses for the year.

Savings income

• Income from savings includes interest from banks, building societies, interest on UK government investments called gilts or company dividends.

Second state pensions - S2P and SERPs

• The State Second Pension scheme S2P (previously known as SERPs) is an add-on to the basic state pension and is based on the level of National Insurance contributions made.
• You can find out more information on S2P here

Self-assessment

• You are responsible for completing a tax return if required and for paying any tax due.
• You can find more information on this here

Self employed (see also employed)

• Generally we say that you are self employed if you work for yourself or are a partner in a partnership rather than working for an employer.



• However the rules are quite complicated and you can find out more in the section on employed v self employed .

SERPs (see State Second Pension)

Simplified method (foster carers)

• If your total foster care receipts for your income period are more than the qualifying amount - there is a new simplified way of working out your profits that you can use as an alternative to the standard method.



• Your profit will be the difference between your total foster care receipts and your qualifying amount. You will not get any capital allowances if you elect for this method of assessing your profits.

Small earnings exception

• If your taxable profit falls below £4,825 for 2008/09 you need not pay any Class 2 NIC for that year - this is the small earnings exception. You should still register for Class 2 NIC as normal but you can apply for a certificate of exception if you wish. The form you will need is CF10 - Self-employed people with small earnings which can also be obtained from the Revenue.

Statement of Account - SA300 (self assessment)

• Every so often under self assessment, the Revenue will send you Statements of Account (SA300) and these forms tell you how much tax is due for payment and when, or how much they need to repay to you if you have overpaid tax.

Stakeholder pension

• Stakeholder pensions are a type of personal pension and were introduced as low charge schemes for anyone who does not do paid work or is in non-pensionable employment (i.e. does not have access to a works pension).



• If you are not earning - £3,600 is the gross amount you can contribute to a stakeholder scheme from any source during a tax year (this means that you actually pay £2,880 - which is £3,600 net of 20% basic rate tax).



• The limit on annual contributions to all registered pension schemes is your earnings in any tax year up to a limit of £235,000 (2008/09 limit).

Standard method (foster carers)

• If your profits are assessed on the standard method they will be worked out based on your total income receipts from foster caring less allowable expenses, capital allowances and current year losses. This is the standard method of working out your profits.

State benefits

• These are benefits paid by the government which may be either tax free or taxable. They include benefits such as Incapacity Benefit, Council Tax Benefit and Attendance Allowance. You can find out more information on each benefit by going to the Department for Work & Pensions (DWP) website and looking at their a-z index.

State Second Pension (S2P) (previously called SERPs)

• When you are working you can choose to build up an extra state pension as well as the basic pension. This is now called the State Second Pension (previously called SERPs).



• It is based on your National Insurance contributions record and the level of your earnings.



• You can choose to opt out (called contracting out) of S2P; if you do so, the Revenue pay part of your National Insurance contributions directly to the pension provider of your choice to fund a separate pension scheme with them instead of increasing the amount in the Government scheme.

Statutory redundancy (see also redundancy payment)

• If you were dismissed on grounds of redundancy you may be entitled to a statutory redundancy payment. One important condition for receiving a redundancy payment is that you must have had at least two years' continuous service with your employer since the age of eighteen. The amount of your lump-sum redundancy payment depends on:
  
  
  • how long you have been continuously employed by your employer;
  
  
  
  • how your years of continuous service relate to a particular age band; and
  
  
  
  • your weekly pay, up to a statutory limit.

Student loan repayments

• You will normally start repaying your loan at the start of the tax year after you finish or leave your course but only if your annual income is above £15,000 and £2,000 for any unearned income(i.e. income from savings).


There are basically four ways of repaying your student loan
• through your wages if you are in Pay As You Earn employment;



• through self-assessment if you are self-employed;



• through your wages and self-assessment if you are a higher rate taxpayer or are a person with both employment and self-employment;



• direct to the Student Loans Company if you want to send them a cheque at any time.

Subsistence costs

• You can normally claim costs for meals and accommodation - called subsistence costs when you are away on business.



• You can claim your expenses on your tax return or if you do not need to fill in a return - you can get form P87 - Expenses claim from your tax office. You will normally get any relief in your tax code.

Surcharge (self assessment)

• Where you have a balance of tax due on 31 January for the previous tax year - if this tax is not paid by 28 February in that year, you will be liable for a surcharge of 5% of the amount still outstanding.



• This will be included on your statement of account but the Revenue will also notify you separately of the charge. The surcharge is not imposed on any payment on account also due on 31 January.



• A further 5% will be due on any tax still not paid by 31 July.

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T

Tapering relief (Inheritance Tax relief)

• When you make a gift and die within the seven years since the date of the transfer, there may be some Inheritance Tax to pay. Tapering relief works so that the longer the time since the gift was made the less tax you pay.
• The relief reduces the tax due by 20% per year from 80% if the gift was made in the period 3 & 4 years before the death to 20% between 6 & 7 years before the death.
• There is more information on tapering relief here.

Tax Allowances

• There are two types of tax allowance but both reduce the amount of tax you pay:
• Allowances you take off your income before you work out your tax - a Personal allowance and Blind person's allowance
• Allowances you take off your tax bill -
Married couple's allowance and Maintenance payments

Taxback

• Taxback is a Revenue initiative which enables you to register to receive your bank and building society gross (that is without any tax taken off).



• For more details see the Taxback section of the Revenue website.

Tax credits (see Child tax credit and Working tax credit)

Tax calculation (self assessment)

• When you send your self-assessment tax return to the Revenue before 30 September they will process the form and send you a tax calculation.



• The calculation sets out how they have worked out your tax and also explains what payments on account are due for that tax year and the current year. It is not a record of what tax you have paid - just what tax is in fact due.



• You should check the calculation and let the Revenue know within 30 days of issue of any amendments that are necessary.

Tax free lifetime and on death gifts

• You can make the following types of tax-free gift during your lifetime:

o Small gifts to the same person

o Annual Gifts of up to £3,000

o Gifts in consideration of marriage

o Normal expenditure out of income

o Family maintenance

• For more information click here
• You can make the following types of tax-free gift during your lifetime and on death:

o Gifts to your husband or wife (or civil partner)

o Gifts to most UK charities

o Gifts to political parties

• For more information click here

Tax rates

• These are the different rates of tax that will be applied to your income. You can find more information on this here

Tax year

• A tax year starts on 6 April and finishes on the following 5 April. The tax year 2008/09 starts on 6 April 2008 and finishes on 5 April 2009.

Taxable income

• Taxable income is the total of the income that you receive (before any tax has been taken off) less your allowances. To work out taxable income we always look at the gross amount of your income. From this total you then take off your allowances to come to your taxable income.

Terminal losses

• A loss in the year your business finishes is called a Terminal loss. You can also make this type of claim in addition to a normal claim for loss relief if you have other income. You do not need to claim terminal loss relief if it would be better for you to claim the normal type of loss relief.



• Basically you can claim to set a loss for the last 12 months of trading against trading income (after capital allowances) of the tax year in which the business finishes and then the previous three tax years - latest first. You will be able to use your overlap relief (if you have any) as part of your terminal loss.

Trading losses

• If you are self-employed or a partner in a business, you will make a loss in your business, whenever your expenses and capital allowances are more than your income or turnover for your accounting date.



• You work out your loss the same way as you would work out your profits for the year.



• The trading losses section of the website provides detailed information about how to use your loss.

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U

UK

• This includes England, Scotland, Wales and Northern Ireland and most of the islands around the UK coast, including the Shetland Islands, but not the Isle of Man or the Channel Islands or Eire (Republic of Ireland).

Unilateral relief

• This means double taxation relief allowed under specific UK laws in cases where there is no double taxation treaty with the country concerned or where the treaty does not cover the case.

Untaxed income

• Untaxed income is income that is not taxed before you get it e.g. rents from letting property and interest from National Savings Income Bonds.
• There is more about rents and untaxed interest here

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V

VAT

• VAT is a tax charged on most business-to-business and business-to-consumer transactions in the UK. There are a number of rates charged depending on the goods and services involved and rates vary between zero rated goods and services to those charged at the standard 17.5%.

• If you are VAT registered business, VAT is a tax on the difference between the value of your sales and the value of your purchases. If you are a non VAT registered businesses or organisation, or a consumer, VAT is a tax on your purchases.

• You may find it useful to have a look at the HMRC Introduction to VAT and there are link to a lot of other VAT issues in the main VAT section

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W

Working tax credit (WTC)

• WTC is a payment to top up the earnings of low paid working people whether employed or self employed. It includes those people who do not have children.



• You can find out about WTC in the tax credits section of the website.

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What do we mean by these international terms?

D

Domicile

• Your liability to UK taxes may be affected by your domicile. Your domicile is different from both your nationality and residence, and in very broad terms means:



• the place, with its own independent legal system, which you think of as your permanent home, for example, England & Wales, Poland, Scotland or Texas in the USA;



• from which you might be absent from time to time and even for a long time;



• but to which you intend ultimately to return to live permanently.



• It is not possible to give a actual definition of domicile covering all cases because a number of rules have grown up to deal with all the different kinds of personal circumstances in which individuals might find themselves.



• However, it is probable that a lot of users of this website will have certain things in common and will fall into one of two specific classes. These are:
  
  
  • You were born outside the UK, have come to the UK for the first time and your parents and remoter ancestors were born and lived all of their lives outside the UK;
  
  
  
  • You were born in the UK and your parents and ancestors were also born in the UK and lived all of their lives here;
  
  
  

  And in both cases you lived with your parents until you were aged 16 years or later.

• Taking each of the above classes in turn:
  
  

  You were born outside the UK, have come to the UK for the first time and your parents and ancestors were born and lived all of their lives outside the UK

  • Although you might, at some stage, have to establish with the UK Revenue where you are domiciled, you will not be domiciled here, unless you intend to settle here permanently and never return to your former home.
  
  
  
  • However, have a look at the rules for deemed domicile for inheritance tax.
  
  
  
  • If you do intend to settle permanently in the UK and never return to your former home, and there is evidence to support this, you will have become domiciled in the UK.
  
  
  

  • If you were a married woman on 31 December 1973 you will need to satisfy an additional test:

    Your husband (or the man who was then your husband if he has died or you are no longer married to him) was born outside the UK; and

    • his parents and ancestors were born and lived all of their lives outside the UK and;
    
    
    
    • he had not come to the UK to settle here permanently before 1 January 1974.
  
  
  

  You were born in the UK and your parents and ancestors were also born in the UK and lived all of their lives here

  • If you intend to return to live in the UK at some time in the future you will remain domiciled here;
  
  
  
  • If you emigrate from the UK and you can show clear evidence that:
    • you have cut all of your ties here and intend never to return, and
    • you establish permanent residence in another country (or a State in a federal system such as the USA)
    - you will cease to be domiciled in the UK and become domiciled in your new country or State.
  
  
  
  • However you might also need to have a look at deemed domicile for inheritance tax.
  
  
  

  • If you were a married woman on 31 December 1973 you will need to satisfy an additional test:

    Your husband (or the man who was then your husband if he has died or you are no longer married to him):

    • was born in the UK; and
    • his parents and ancestors were born and lived all of their lives in the UK: and
    • he had not left the UK permanently and established permanent residence in another country or State before 1 January 1974.

Deemed domicile

There are special rules which can treat you as domiciled in the UK but only for UK inheritance tax, even though you would not be domiciled here under the general law which decides your domicile.

Rule 1
You are treated as domiciled in the UK for three years after you actually stop being domiciled here, for example, when you emigrate without any intention of coming back.

Rule 2
You will be deemed to be domiciled throughout a tax year (A tax year starts on 6 April and finishes on the following 5 April. The tax year 2007/08 starts on 6 April 2007 and finishes on 5 April 2008.) if you have been resident in the UK in at least seventeen out of the twenty years ending with that year.

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O

Ordinary residence (OR) in the UK - coming to the UK

Like residence, there is no definition of ordinary residence. The Revenue apply practical guidelines which are based upon decisions of the courts and which cover the circumstances of most people. We briefly explain these guidelines below.

You intend to stay permanently or for 3 or more years

• If you come to the UK to remain here permanently you are ordinarily resident (OR) from the date you arrive.
• If you come to the UK and intend to remain here for 3 years or more you are ordinarily resident (OR) from the date you arrive.

You do not intend to stay for 3 years or permanently

• If you come to the UK without intending to stay for at least 3 years or permanently, and you do not own any property here or lease any property for a period of three years or more, you would be regarded as not ordinarily resident. However:
  
  
  • if you then decide to stay for at least 3 years from the date you originally arrived, you will be ordinarily resident from the date you arrived in the UK if this is in your first year here.
  
  
  
  • If the decision is made in a later tax year you will be ordinarily resident from 6 April in the tax year you make your decision; or
  
  
  
  • if you do actually continue to live here beyond the 3 years without specifically taking a decision at any time to do so you will be ordinarily resident from 6 April following the third anniversary of your arrival in the UK.

Effect of owning property

• If none of the above situations apply to you but you have come to live here in such a way that you leave the UK only for for occasional holidays or short business trips, you will be ordinarily resident here from the day you arrive if:
  • you already own property in the UK or
  • you buy property here in the tax year you arrive or
  • you lease property in the UK for 3 years or more in the tax year of arrival.

Short term visitors

• We have looked so far at a situation where a person comes to live in the UK in such a way that any absences from the UK would only be for occasional holidays and business trips



• Alternatively, your position might be that you are a visitor to the UK who normally comes here for short periods only and goes away again.



• If this does accurately reflect your time spent in the UK, you will be treated as ordinarily resident here if your visits average 91 or more days over a four year period.



• This test works in the same way as the corresponding test for residence. Have a look at the paragraphs below and the examples of Takuma and Claudio.

Ordinary residence(OR) in the UK - retiring abroad

Like residence there is no definition of ordinary residence. The Revenue apply practical guidelines which are based upon court cases and cover the circumstances of most people.

• Ordinary residence is normally taken to mean the way a person lives his or her life year by year. If you have lived in the UK for the whole of your life, or at least for the last three or more years before leaving to live abroad, you will have been ordinarily resident in the UK.



• Have a look at a flowchart which should make this easier to follow.



• If you are not resident in the UK, you will also be not ordinarily resident here, apart from the rare case where the only reason that you are not resident is because you have not set foot in the UK during the year and that is an exception to your normal way of life of normally living in the UK. Even then, you may be not ordinarily resident in some circumstances.



• If you remain resident in the UK, you will also be ordinarily resident.

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R

Remittance basis

• The remittance basis means that you pay UK tax only on the amounts of income or capital gains which are brought into or remitted to the UK in money or similar.



• This is different from the normal situation where you pay tax on income or gains as they arise, irrespective of where you keep the proceeds.

What is a remittance?

• The most obvious and straightforward way to remit income or gains to the UK is to transfer or bring cash or bank notes here, but bringing other recognisable forms of money such as promissory notes and bills of exchange will also count.



• If your income is employment income or you have capital gains, it is not always clear whether merely receiving a cheque in the UK is a remittance if you send it abroad to be paid into your overseas bank account. If you do not want to remit and you do not need the money here, it would be wise not to have such cheques sent here.



• If your income is investment income such as overseas dividends or interest, the funds represented by a cheque are not regarded as brought into or remitted to the UK until they are credited to your UK bank account or you receive value for it in some other way.




• You will also be treated as bringing into the UK or remitting money to the UK if you do any of the following:

  • You bring money here to pay to third parties. For example, if you send money to people In the UK to whom you owe debts such as suppliers of goods or a UK credit card company for their bills;
  
  
  
  • You purchase investments or other assets link overseas, such as a painting, out of your overseas money and you sell the assets in the UK;
  
  
  
  • If you are ordinarily resident in the UK, you use money overseas to repay overseas a loan made to you in the UK, or interest on such a loan, or loans to repay such loans and interest. This could apply, for example, if you use an overseas credit card in the UK;
  
  
  
  • If you are ordinarily resident in the UK, you use money overseas to repay overseas a loan made to you overseas which you brought or bring to the UK, or loans to repay such loans This could apply, for example, if you use an overseas credit card in the UK;
  
  
  
  • Where the overseas money represents earnings from employment or capital gains the meaning of remit to the UK is wider and includes money paid or used in the United Kingdom, or brought to the United Kingdom in any manner or form.
    
    
  • Earlier, we explained that bringing an asset to the UK which was purchased out of overseas money would not be a remittance until you dispose of it, but in these circumstances, merely bringing the asset here is likely to be treated as a remittance.



• This is not an exhaustive list but it shows some of the more common ways that overseas money can be brought into the UK.

How can you determine what has been remitted?

• This can be quite complicated, but some guidelines should cover the most common situations:

  • If you have earnings from an employment and your wages or salary are paid directly into your bank account in the UK, you will clearly have remitted those earnings.
  
  
  
  • Similarly, if they are paid into an overseas bank account and no other money is paid or credited to that account, it will be clear that any amounts transferred from that account will be part of those earnings. In other words, you have to trace back to find the source of money.
  
  
  
  • The same applies, for example, to interest or other investment income or capital gains. If you sell an asset overseas and arrange to have the seller pay you directly in the UK, there will be no doubt that your receipt in the UK will be traced to that disposal.
  
  
  
  • If a relative overseas left you a sum of money in cash when he died and you had held on to the cash as cash before bringing some of it to the UK, the remittance would be traced to your inheritance.



• Tracing in this way becomes more difficult when overseas funds are merged or invested.

Residence (R) in the UK - coming to the UK

• Residence normally means physically living somewhere. If you live in the UK for a certain period of time, you will be treated as being resident here.



• It is possible to be treated as resident in two or more countries at the same time.



• When you come to the UK to live, the Revenue will need to know whether you have come here to work and if so for how long. Perhaps you have come to live with family and do not yet have a job planned. Your circumstances affect whether you are resident in the UK.



• If you come here with the intention of working here for 2 years or more then you will be treated as resident here from the start of your stay.




Example Pablo comes to work in the UK on a three-year contract starting on 01 September 2007. He will be treated as resident from that date.




• If you come to the UK for any other reason that will mean you will be living here for 2 years or more, then you will be resident from the day you arrive.