Taxes are a significant source of revenue for governments around the world. Income tax and capital are the main forms of taxation in many countries, including the UK. There are several key differences between these two forms of taxation that should be considered when planning your tax affairs.

Read on to learn more about income tax vs capital tax gains—and whether these differences are worth paying attention to when deciding on your tax strategy.

Income Tax

As the name suggests, income tax is the form of taxation imposed on the earnings of a taxpayer. It is generally paid by individuals on their annual income, usually before deducting any allowances. Whether you’re full-time employed, self-employed, or earn through investment, you have to pay tax on your income. It can be deducted by your employer, or you have to pay through self-assessment.

Capital Tax Gains

Capital tax gains are a tax that you pay when you sell an asset for more than the cost you paid for it. For example, if you bought a house at £150,000 and sold it for £250,000, then you would pay capital gains tax on the difference between the sale price and the original cost of the house.

Tax Rates

Income tax is levied on a taxpayer’s annual income. The more you earn, the more you have to pay taxes. This is typically assessed on a rate basis. On the other hand, capital tax gains have a fixed rate. It is 20% for UK residents and 28% for non-UK residents.

Calculation Method

With income tax, your tax liability is determined by your taxable income minus your allowances. However, with capital tax gains, the taxable gain is calculated by deducting the original cost from the sale price of the asset, i.e., the profit that you made.

Payment Schedule

Income tax is paid on a yearly basis through PAYE (pay as you earn). If you are self-employed, you can choose to do this on a monthly or quarterly basis. Capital tax gains are paid only when you sell your assets with increased profit

Tax advisor doing taxes

If you’re having trouble filing your income tax or capital tax gains, you can hire some of the best tax accountants in London and Walsall at IBISS & CO. You can also consult with our team of qualified chartered tax advisers and HMRC corporation experts.

Reach out to us to get started today.

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