National insurance contributions (NICs)
Social security payments are termed 'national insurance contributions' (NICs) in the United Kingdom. These are payable by employers, employees, and those that have their own trades (the self-employed).
The main rate of NIC applies to employees’ salaries (excluding benefits in kind) up to GBP 962 per week for 2020/21 (the 'upper earnings limit') (GBP 962 in 2019/20). No contributions are payable on the first GBP 183 per week (GBP 166 in 2019/20); thereafter, between GBP 183.01 and GBP 962 per week, contributions amount to 12%. Earnings above the upper earnings limit attract a 2% charge.
Employers pay NIC on their employees’ salary at 13.8%. Employer NIC at 13.8% also applies to benefits in kind provided to employees (such as accommodation) as well as salary.
Employers are not required to pay Class 1 secondary NIC on earnings paid up to the upper earnings limit to any employee under the age of 21. This also applies to employers of apprentices under the age of 25.
The employer (secondary) NIC threshold and the employee (primary) NIC threshold are aligned. Both employees and employers start paying NIC on weekly earnings above GBP 183.
All individuals who are self-employed pay contributions at 9% on earnings between GBP 8,632 and GBP 50,000 per annum. Profits above the upper limit attract a 2% contribution. Self-employed individuals also pay a flat-rate, Class 2 contribution of GBP 3 in 2019/20 (2.95 in 2018/19) per week.
Relief against income tax is not generally available for NIC.
Child benefit is a non-contributory social security benefit which is generally payable for children or qualifying young people for whom an individual is responsible. Child benefit is no longer available for wealthier families.
Capital gains tax (CGT)
There is an annual exempt amount for capital gains that are not taxable. This is GBP 12,300 for the 2020/21 tax year (GBP 12,000 in 2019/20), after which gains falling into the basic rate band up to GBP 37,500 in 2020/21 (GBP 37,500 in 2019/20) are taxable at a rate of 10%. Most gains above the higher rate threshold are taxed at a rate of 20%. The CGT exemption is lost if a non-UK domiciled individual claims to be taxed on the remittance basis.
Chargeable gains on UK residential property and carried interest are subject to CGT rates of 28% (higher rate) and 18% (basic rate). These rates apply to disposals made on or after 6 April 2016.
Gains and losses are calculated by reference to the cost of the asset plus allowable costs of subsequent improvements (although there are special rules in the event that the asset was acquired before 31 March 1982). Deductions in computing a gain or loss will include the cost of acquisition (including the purchase price, incidental costs of purchase, and any capital enhancements) and incidental costs of disposal (including legal fees, costs of advertising, etc).
There are a number of additional CGT exemptions available, depending on the type of transaction or the nature of the asset disposed of. For example, relief may be available on the disposal of an individual’s main home (i.e. their principal private residence [PPR]). It may also be possible to defer gains on gifts of certain types of assets.
In relation to shares, there are special rules for identifying shares disposed of from other shares of the same class held by the taxpayer. There are also special provisions that effectively prevent sale and short-term repurchasing of shares ('bed and breakfasting').
For trustees and personal representatives of deceased persons, the normal rate of income tax is a flat 20%/7.5% for dividends. For most trustees, however, the annual exemption is half that of individuals.
From April 2020 UK residents must report and pay the CGT due 30 days after completion in respect of UK residential property disposed of which results in a chargeable gain. See below for the tax rules regarding non UK resident disposing of UK property interests.
Taxation of gains on UK resident and UK domiciled individuals
An individual who is resident and domiciled in the United Kingdom will pay CGT on their worldwide taxable gains.
Taxation of gains on UK resident, non-UK domiciled individuals
The rules relating to non-domiciled individuals changed from 6 April 2017. Please see the Significant developments section for a summary of the changes.
Domicile status is important because individuals who are domiciled outside the United Kingdom (and not deemed domiciled) can elect for the remittance basis of taxation, which means tax is only due on overseas investment income, capital gains, and certain offshore earnings to the extent that these are remitted to the United Kingdom. Overseas income and gains not remitted to the United Kingdom are not subject to UK tax.
Gains realised on UK assets owned by an individual who is a UK resident but not domiciled in the United Kingdom will be taxable as they arise (even if the non-UK domiciled taxpayer receives the sale proceeds offshore). However, if the individual has made a claim for the remittance basis of taxation, gains on non-UK assets will only be taxable if the proceeds are remitted to the United Kingdom (see The remittance basis of taxation in the Taxes on personal income section for more information).
If a taxpayer claims the remittance basis of taxation, the taxpayer will give up any entitlement to the tax free capital gains annual exemption. In addition, if an individual has been resident in the United Kingdom in at least seven out of the previous nine years, the individual will have to pay GBP 30,000 a year in order to claim the remittance basis. This charge is GBP 60,000 for those non-domiciled individuals that have been resident in the United Kingdom for 12 out of the past 14 years. The choice of claiming or not claiming the remittance basis can be made annually, so that a taxpayer can calculate each year whether claiming the remittance basis will cost more or less than being taxed on the arising basis on worldwide income and gains.
Taxation of gains on non-UK resident individuals and companies
If an individual is not resident in the United Kingdom, they will not be subject to UK tax on most gains even when the asset is situated in the United Kingdom (unless the gains arise on UK trading assets). The exception to this rule is UK property (residential and commercial and property rich companies) owned by non-residents. Since 6 April 2015, non-resident individuals and trustees who dispose of UK residential property crystallising a capital gain are subject to UK CGT on that gain in the year of disposal. Even if no gain arises, the disposal must still be reported to the UK tax authorities within 30 days of completion.
As from April 2019, gains on all UK property disposed of by non-residents and shares in property-rich, non-resident companies will all be subject to UK tax. The ATED CGT charge was abolished from April 2019, when these new provisions were introduced. Please see significant developments section for more information on these new changes.
Such disposals must normally be reported and the tax paid within 30 days of the disposal. Even if no tax is due the disposal must still be reported.
General information on the taxation of gains
Where the taxpayer has invested in assets that are denominated in a foreign (i.e. not sterling) currency, care is needed over foreign exchange gains realised on the disposal of the asset. There is an exemption for gains on foreign currency acquired by the holder for personal expenditure outside the United Kingdom, but it does not extend to foreign currency held for any other purpose.
An individual who leaves the United Kingdom for a period of non-residence of less than five full tax years and who was resident in at least four of the seven tax years prior to the departure will be taxed on a disposal while non-UK resident of any assets that were acquired before ceasing to be UK resident. The assets are treated as if they were disposed of in the year of return to the United Kingdom. Care is therefore needed when individuals come to and leave the United Kingdom.
Artwork and other chattels
There are no specific rules for artwork, and the taxation of income or capital gains will be applied under general principles.
The term 'chattel' means 'tangible movable property' and includes assets such as paintings and antiques. Assets such as buildings, land, leases, or shares are not chattels. A ‘wasting’ chattel is a chattel with a predictable useful life not exceeding 50 years, such as machinery (including antique clocks and watches). Wasting chattels are not taxable when sold. A non-wasting chattel is tangible movable property that will last for more than 50 years (e.g. paintings, antiques, jewellery). If a non-wasting chattel is disposed of for GBP 6,000 or less, any capital gain is exempt from CGT. If it is disposed of for more than GBP 6,000 (or is part of a set), further rules apply to calculate the tax due.
Value-added tax (VAT)
The standard rate of VAT is 20%.
See the Other taxes section in the Corporate summary for information on VAT returns and payments.
Net wealth/worth taxes
Tax is not charged on an individual's wealth each year in the United Kingdom.
Inheritance, estate, and gift taxes
Inheritance tax (IHT) is payable on a taxpayer’s death on the value of assets (not covered by any reliefs or exemptions) that are above the available nil rate band (NRB). The NRB has been GBP 325,000 since 6 April 2009. IHT is also payable during life on certain 'chargeable lifetime transfers', the most common of which is transfers into most types of trusts. Where an individual makes a lifetime transfer that isn’t immediately chargeable, it may become chargeable if the donor dies within seven years of making the gift. This is referred to as a 'potentially exempt transfer' (PET).
Non-UK domiciled individuals are only charged to IHT on chargeable lifetime transfers of UK assets or assets situated in the United Kingdom on their death, including UK residential property (and some loans and collateral used in connection with UK residential property, even if owned via a non-UK company. Foreign situated property owned by a non-UK domiciled individual (and non-deemed domiciled) is called 'excluded property' for IHT purposes and will not form part of the non-UK domiciled individual’s UK estate.
Once a non-UK domiciled individual has been resident in the United Kingdom for 15 out of the previous 20 years, they will become 'deemed domiciled' in the United Kingdom for all taxes and will be liable to IHT on their entire worldwide assets unless this is overridden by an applicable tax treaty.
The rules relating to non-domiciled individuals changed from 6 April 2017. Please see the Significant developments section for a summary of the changes.
Usually, spouses and civil partners have unlimited spouse exemption in respect of assets passing between them during lifetime and on death, so no IHT arises on such gifts. However, the spouse exemption is limited to GBP 325,000 in respect of gifts from a UK-domiciled individual to their non-UK domiciled spouse or civil partner. There is no limit in respect of assets passing from a non-UK domiciled spouse/civil partner to a UK-domiciled spouse/civil partner or where both spouses/civil partners have the same domicile.
Individuals who are domiciled outside the United Kingdom who have a UK-domiciled spouse or civil partner can elect to be treated as domiciled in the United Kingdom for the purposes of IHT.
Local authorities are financed partly by the imposition of council tax, which is a property-based tax levied on the occupier of a domestic dwelling at a flat rate per dwelling. Unoccupied dwellings are also taxed on the property’s owner. The remainder of local authority finance comes from the imposition of the uniform business rate on business property and from central government grants.
Taxation of UK residential property
Further changes in relation to the IHT treatment of UK residential property held by non-UK structures owned by non-domiciled individuals were introduced in April 2017. Please see the Significant developments section for a summary of the changes.
A number of measures have been introduced in recent years to discourage the acquisition and holding of high-value residential property (originally this was aimed at property valued at over GBP 2 million) by non-natural persons (NNPs), broadly companies and other non-transparent entities. Over the years the threshold has been reduced from GBP 2m to residential properties valued in excess of GBP 500,000.
The purchase of residential property worth more than GBP 500,000 by NNPs is liable to stamp duty land tax (SDLT) at a rate of 15%.
In addition, there is an Annual Tax on Enveloped Dwellings (ATED) and, until April 2019, an extension to the CGT regime in respect of disposals of such properties. From April 2019, the ATED gains rules have been replaced by the new regime, which taxes non-residents on gains on direct and certain disposals of UK immovable property generally.
An NNP is defined as a company, partnerships with a corporate partner, and collective investment vehicles. The definitions of an NNP are aligned, as far as possible, so that the same definition applies in respect of the annual ATED charge, SDLT, and the historic ATED CGT extension.
Both UK resident and non-UK resident NNPs are within the scope of all aspects of these rules.
Trustees are not NNPs under any of these measures.
More recently, there have been a number of measures to discourage the holding of residential property as an investment.
A restriction on interest relief for buy-to-let landlords who are higher and additional rate taxpayers is being phased in over the four years from April 2017. From April 2020, there will be no higher (40%) or additional rate (45%) relief for mortgage interest, and, instead, landlords will be able to make a claim to reduce their income tax liability by an amount up to 20% of the finance costs.
On the acquisition of a buy-to-let residential property or second home, the purchaser has to pay 3% more in SDLT at each price banding (see Stamp taxes below).
Annual tax on enveloped dwellings (ATED)
The chargeable period runs from 1 April to 31 March.
- The ATED is levied on and paid by the NNP.
- The relevant valuation date to determine whether the value is greater than GBP 500,000 is 1 April 2012, and this value forms the basis of calculating the ATED for five years from 1 April 2013.
- ATED was originally based on property values at 1 April 2012, but a new valuation was required at 1 April 2017, to be used from 2018.
- The return and payment must be submitted to HMRC by 30 April at the start of each year.
- If a property comes within the ATED part way through the year, then a return will be required within 30 days if the NNP has acquired a chargeable interest in a dwelling, or within 90 days if because of another reason, for example the completion of conversion work.
- The return requires details of the chargeable person, the address of the property, the Land Registry title, and the self-valuation of the relevant property, among other things.
- Where residential property is part of a larger mixed use property, only the value of the residential parts will be relevant for these purposes. There are also provisions to aggregate the value of connected party interests and to combine values where properties are linked.
The amount of the annual charge on properties valued above GBP 500,000 owned by NNPs for the 2019/20 tax year is as follows:
|Property value (GBP)||Annual charge (2020/21) (GBP)|
|500,001 to 1 million||3,700|
|1,000,001 to 2 million||7,500|
|2,000,001 to 5 million||25,200|
|5,000,001 to 10 million||58,850|
|10,000,001 to 20 million||118,050|
|More than 20 million||236,250|
The ATED charges increases in line with CPI each year and is pro-rated where the property is not held for the whole period. However, the property value bands are not indexed linked. ATED is also pro-rated when a property comes in and out of one of the reliefs during the charging period.
Luxury and excise taxes
There are no luxury and excise taxes applicable to individuals in the United Kingdom.
Acquisitions of land and buildings (other than by a NNP) are charged to SDLT at graduated rates of up to 12% (or 5% for non-residential or mixed property).
With respect to residential property, no stamp duty is payable on the first GBP 125,000. Then the purchaser pays 2% on the portion up to GBP 250,000, and 5% on the portion up to GBP 925,000. Between that point and GBP 1.5 million, it’s 10%, then 12% on anything over GBP 1.5 million.
The SDLT rates for residential property in England and Northern Ireland are set out in the table below.
|Purchase price of property (GBP)||Stamp duty (%) paid on the part of the property price within each tax band|
|0 to 125,000||0|
|125,001 to 250,000||2|
|250,001 to 925,000||5|
|925,001 to 1,500,000||10|
|More than 1,500,001||12|
The UK government introduced various pieces of legislation to disincentivise the acquisition and holding of residential property through a company or other NNP as opposed to the individual acquiring that property directly. If a company or other NNP acquires high-value residential property, the rate of SDLT is 15%, subject to relief if the property is used commercially.
Since April 2016, on the acquisition of a buy-to-let residential property or second home, the purchaser has to pay 3% more in stamp duty at each price banding. On a home worth GBP 250,000, this increases the SDLT liability by GBP 7,500 to a total of GBP 10,000.
Land and buildings in Scotland are subject to Scottish land and building transactions tax (LBTT) in place of SDLT. Rates are graduated up to 12%, which applies to a transaction value for residential properties in excess of GBP 750,000 (or up to 16% where the additional 4% for second homes or buy-to-lets applies), and up to 5% for non-residential properties.
Land and buildings in Wales are subject to Welsh Land Transactions Tax in place of SDLT. Rates are graduated up to 12%, which applies to a transaction value for residential properties in excess of GBP 1.5 million (or up to 15% where the additional 3% for second homes or buy-to-lets applies), and up to 6% for non-residential properties.
Air passenger duty
Individuals leaving the United Kingdom by air are obligated to pay a duty, which in practice is invariably included in the cost of the air ticket. Rates of duty are based on a system of geographical banding and class of travel.