Chapter 3 (Lecture 2)

Personal taxation Company taxation Capital gains tax Other taxes Double taxation South African taxation

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

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

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

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

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!

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

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)

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)

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

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

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

Will be discussing the South African Taxation Comparison between the UK Taxation and South African Taxation

Monday 12 May 2014 Chapter 12