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The calculations for the capital gains tax - Case Study Example

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We have made a review of the information provided by you on the status of your income and capital gains. For your review we have appended your income tax computation for the years 2007-08 and 2008-09. We write to advise you the following with respect to the applicability of the income tax and capital gains.
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The calculations for the capital gains tax
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Download file to see previous pages The calculations for the capital gains tax are shown in the appendix. From the calculations it may be observed that it is advisable to sell off the business building before 05th April 2008 as you can avail the indexation allowance and taper relief which are no more available. It may be noted that the indexation and taper relief are the allowanced granted by the government to provide for the increase in the asset value due to inflation (Chris Horne). In case you decide to sell of the property after 05th April 2008 you many have to pay higher CGT of 18,000. However in the case of the personal paintings since they have been acquired only in the year 2005 they do not stand eligible for any allowances and the capital gains will simply be the difference between the sale proceeds and the cost. Hence in this case it is advisable to sell the paintings after 05th April 2008 as the CGT on the chargeable gains can be paid at lower tax rate of 18 percent.
Income from employment is subjected to income tax as well as Class 1 National Insurance Contributions NIC). Payment of the Tax and NIC are normally undertaken by the employer through the PAYE system. However the employee who has other incomes subjected to tax and whose tax is not fully paid by the employer may complete a tax return and pay the NIC. Contributions to NIC are being made by both the employer and employee. The employee has to make contributions to NIC at 11percent or 9.4 percent between the primary threshold limit and the upper earnings limit. A charge of 1 percent is payable for earnings above the upper earnings limit. No NIC is payable by the employee or employer on the earnings up to the primary threshold limit. Depending on whether the employee is within the State Second Pension (S2P) or whether he has contracted out using a final salary (FS) or money purchase scheme (MP) the rates of NIC payable on earnings are determined.
Particulars
Contracted in
Within S2P
Contracted Out
Other than S2P
Primary Threshold to Upper Earning Limit
11.0%
9.4%
Above Upper Earning Limit
1.0%
1.0%
As per the calculations shown in the appended income statement assuming that you have contracted out of the state pension scheme, you may have to contribute 9.4 percent of 23,760 i.e. 2233.44 towards the National Insurance Contribution.
Additional Tax Burden on Cigarettes and Wines
We understand that you and your wife are both heavy smokers and drinkers. Beware that the budget for the year 2008 has put additional tax burden on the cigarettes, wine, and beer to the extent of 0.14p on a bottle of wine, 0.4p on a pint of beer and 0.11p on a pack of cigarettes and to this extent the cost of these items would go up. We do hope you will revise your consumption of these items in view of increased burden on your income.
Other Tax Credits
The budget for the year 2008 has made the following changes in other Tax Credits for which you are entitled.
Tax Credits
2007-08
2008-09
Child Tax Credit - Family Element
1,845
2,085
Working Tax Credit - Basic
1,730
1,800
Married Couple Allowance
2,440
2,540
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