01 July 2014

Financial Jargon Buster

If you don’t know your CGT from your IHT don’t worry; you’re not alone. We take a closer look at some of the financial jargon you may commonly hear.

Capital Gains Tax

Capital Gains Tax (CGT) is a tax on the “gain” or profit you make when you sell, give away, or otherwise dispose of something. It applies to assets that you own, such as shares or property. There's a tax-free allowance and some additional reliefs that may reduce your Capital Gains Tax bill. Sometimes you may have no tax to pay. 

CGT is currently paid at a rate of between 18% and 28% for individuals, depending on the level of the gains, and any other taxable income.

As an individual you are also entitled to an annual Capital Gains Tax-free allowance of £11,000 for the 2014/15 financial year.

Inheritance Tax

Inheritance Tax (IHT) is payable on the value of an individual’s estate (including any gifts made in the last seven years) upon their death, if it is valued at more than the current threshold of £325,000. Inheritance tax is currently payable at a rate of 40% on amounts above the threshold.

There are some exemptions to IHT; for example, you don’t normally pay on any assets left to a spouse or civil partner.

Income Tax Personal Allowance

Nearly everyone who lives in the UK is entitled to an Income Tax Personal Allowance. This is the amount of income you can receive each year without having to pay tax on it. Your personal allowance depends on your age and the total income received in the tax year. For the majority of people working today, who were born after April 5 1948, it is £10,000 as of the 2014/15 financial year.

However, if your adjusted net income is over £100,000 a year, your Personal Allowance is reduced.


Individual Savings Account (ISA)

An Individual Savings Account (ISA) offers people a tax-efficient way to save and invest. There are three types of ISA: a cash ISA, in which you can put your savings without being taxed on any interest earned, a stocks & shares ISA, which isn’t subject to Capital Gains Tax on any gains, and a Junior ISA.

Each tax year there is an annual ISA allowance. This current tax year 2014/2015, the allowance is £15,000 which can be put into either a cash or stocks & shares ISA, or a combination of both. The limit for a Junior ISA is £4,000.

Find out more about the types of ISAs we offer by visiting our ISA section.

Gifting

Each financial year individuals get an annual gifting allowance which allows them to gift a certain amount of money to others in the tax year, without any Inheritance Tax implications, even if they die within seven years of the gifting. Individuals can gift up to £3,000 for the 2014/15 tax year, either as a single gift or multiple smaller gifts of over £250. If you don’t use your allowance one year, you can carry it forward to the next tax year. You can also give gifts to people getting married or entering a civil partnership, however these gifts will only be exempt from Inheritance Tax if the marriage or civil partnership goes ahead.

Each tax year you can also gift up to £250 to an unlimited number of other recipients without there being any Inheritance Tax consequence.

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