Tax - TSR guide and questions thread

Thank you

I'm going to try get in contact with my employer again tomorrow and if not I'll send the original parts and my payslips with a letter explaining the situation. If I do get a new P54 before 5th April, should I just hand it to the job centre as I am on jobseekers? I'm guessing they will pass the information on then?

The seven-year rule - 'potentially exempt transfers'

Any gifts you make to individuals will be exempt from Inheritance Tax as long as you live for seven years after making the gift. These sorts of gifts are known as 'potentially exempt transfers' (PETs).

However if you give an asset away at any time, but keep an interest in it - for example you give your house away but continue to live in it rent-free - this gift will not be a potentially exempt transfer. Follow the link below to find out more.

If you die within seven years and the total value of gifts you made is less than the Inheritance Tax threshold, then the value of the gifts is added to your estate and any tax due is paid out of the estate.

However, if you die within seven years of making a gift and the gift is valued at more than the Inheritance Tax threshold, Inheritance Tax will need to be paid on its value, either by the person receiving the gift or by the representatives of the estate.

If you die between three and seven years after making a gift, and the total value of gifts that you made is over the threshold, any Inheritance Tax due on the gift is reduced on a sliding scale. This is known as 'Taper Relief'.

Apologies for the randomness!

My Dad gave me the deposit for the house I am buying.
This money does not have to be repaid and the deposit is £12,000.

The solicitor is now asking is there any repayments on this? Does this mean gift tax and if so how does gift tax work?

Thanks.

Apologies for the randomness!

My Dad gave me the deposit for the house I am buying.
This money does not have to be repaid and the deposit is £12,000.

The solicitor is now asking is there any repayments on this? Does this mean gift tax and if so how does gift tax work?

Thanks.

The above posters are correct to point out inheritance tax implications if your dad is unfortunate enough to die in the next 7 years.

I think your solicitor was probably getting at Capital Gains Tax. Basically, the £12,000 gift is treated as a capital gain and gets taxed at 18%. However, it "rolls over" into the house you use the deposit for: so you don't pay anything right now, but you will become liable for the tax when you sell the house.

It would be more tax efficient to pay back the money over time. This is because you have an annual allowance of £10,100.
When you sell your house, you will almost certainly make a gain of above £10,100, so you will have already used your annual allowance for that year. If tax liability for the capital gain you made when your dad gave you the gift arises on the same date, you will pay 18% of the deposit as tax. No such tax would arise on a loan. Your Dad could give the money back to you as incremental gifts as you pay it back: for example, if he paid you £1,000 per year for 12 years, that would all be covered by your annual allowance. That is the principle, but you do need to have a genuine reason other than avoiding tax for structing your arranagements in that kind of way... ask your solicitor

How much do you expect your total income to be for the tax year (6 APril 2009 to 5 April 2010)? If it's less than your 'personal allowance' (£6,475 for most people) then you should be able to reclaim any Income Tax that you've paid. To do so after the end of the tax year, write to your tax office (contact details here) enclosing a copy of the form P60 (if you're employed at the end of the year) or form P45 (if you left employment before the end of the year). In each case, your employer should provide you with the relevant form as a matter of course.

Note that student status does not automatically entitle you to a refund.

Is there any way to get taxes back without getting any sort of form from my employer? We left the job because the employer was not a very good person, so we ended not on the best terms, and I doubt they are going to give me any kind of form. What should I do in this kind of situation? I've got my payslips.

The above posters are correct to point out inheritance tax implications if your dad is unfortunate enough to die in the next 7 years.

I think your solicitor was probably getting at Capital Gains Tax. Basically, the £12,000 gift is treated as a capital gain and gets taxed at 18%. However, it "rolls over" into the house you use the deposit for: so you don't pay anything right now, but you will become liable for the tax when you sell the house.

It would be more tax efficient to pay back the money over time. This is because you have an annual allowance of £10,100.
When you sell your house, you will almost certainly make a gain of above £10,100, so you will have already used your annual allowance for that year. If tax liability for the capital gain you made when your dad gave you the gift arises on the same date, you will pay 18% of the deposit as tax. No such tax would arise on a loan. Your Dad could give the money back to you as incremental gifts as you pay it back: for example, if he paid you £1,000 per year for 12 years, that would all be covered by your annual allowance. That is the principle, but you do need to have a genuine reason other than avoiding tax for structing your arranagements in that kind of way... ask your solicitor

I can't really help on the tax front (all I know is when a friend did some extra work on the side of his regular work he had to list himself as self employed and pay separate NI contributions, even though it was only for a few hundred a month) but I'm just curious as to what the company is.

Dear All,

I'm a student and have a part time job which pays around £5k. I don't pay any tax as I think the personal allowance is around the £6k mark.

Since October I have also been involved in a number of ventures with a friend and hitherto we have only been investing money in the business. Since we haven't made any money and the sums invested have been small we've seen no reason to formalise the arrangement.

We are set to start turning a profit very shortly however and I am concerned that my income will exceed the personal allowance. I would prefer to formalise the business as a partnership (rather than LLP) to avoid submitting paperwork and accounts.

With regard to my personal tax status I am concerned as to whether I should be registered as self-employed or employed, as I am both.

We have landed a deal that will eclipse my personal allowance and I am also concerned that we will be paying more tax as self-employed individuals rather than paying corporate tax as an incorporated body. Bearing in mind we have no employees I'm not sure incorporating our business is strictly necessary.

Its all very confusing. Perhaps we should just get an accountant?

Ok no worries, good luck with your venture. I wish I had the marbles to do business

The annual personal allowance is currently £6,475, so you're correct that an income of £5k would usually mean that you have no Income Tax liability. Note that being a student/in full-time education has no bearing on this.
Note that as a partnership, while you may not have to submit formal accounts to a central body in the way that companies and LLPs do, you will still have to draw up accounts, e.g., to support your tax return. Agreed that there are less formalities involved in a 'straight' partnership than with an LLP.
I assume that you way this because you'll be continuing your existing part-time job? Your employment income will continue to be taxed at source (if appropriate, depending on your level of earnings) under the 'Pay As You Earn' (PAYE) system. However, you'll also need to register with HMRC as self-employed and complete a self-assessment tax return. Read more about this here


There can be tax advantages from structuring a business as a company rather than as a partnership/sole trader, depending on you level of profits. Corporation tax at the small companies rate is 21% on profits of up to £300,000; by contrast, higher-rate Income Tax is 40%. Company profits are also not subject to National Insurance in the way that income from employment or self-employment is.

However, this can leave difficulty in extracting cash from the business (if dividends are taken, Income Tax may be chargeable on company profits that have already been subject to Corporation Tax), and if the business profits are relatively low (such that your personal income doesn't exceed the higher-rate Income Tax threshold) then the differential between corporate and personal tax rates becomes less favourable. I'd also add that the reasons for structuring a business in a certain way should not be completely governed by tax considerations. As you've already highlighted, there's a not insignificant compliance burden associated with a corporate structure, for example.

There's no need to incorporate a company in order to take on employees, so that's not a relevant consideration here. Sole traders and partnerships can employ people just as a company can.

I would agree that if you're unsure about this it would be good to get yourself an accountant, if only for some initial advice. Whatever structure you use, you'll need to draw up accounts for the business to support your tax return, and the apportionment of partnership profits between partners for tax purposes is often not straightforward. Both a partnership return and individual income tax self-assessment returns will need to be submitted to HMRC.

Thank you for the extremely comprehensive reply, I never thought I'd get all my questions answered in one go!

Being taxed twice (for corporation tax and then on dividends) seems slightly troublesome. 21% on the initial profits followed by 45% on the dividends?

Potentially, yes, though bear in mind that dividends are only taxed when extracted from a company. You can leave them within reserves for as long as you like before paying them out. Even then, I'm not sure where you got the 45% figure from. Basic-rate Income Tax on dividends is 10%, though there's actually a notional 'tax credit' which offsets this such that no Income Tax is payable within the basic rate band. Within the higher-rate band, dividends are taxed at 32.5%, though again this tax credit comes into play such that the Income Tax liability works out as 25% of the amount of the dividend.

As an alternative, you could pay yourself a salary from the company (which would be allowable as a deduction from the company's taxable profits), but you'd then have to take into account National Insurance Contributions (NICs). The most tax-efficient way to extract profits from a company tends to be to pay a salary up to the threshold at which NICs kick in, then a dividend for any further amount. I'd definitely suggest taking some formal advice if you want to look into this further.