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Newsletter issue – October 2024
Q:I earn £62,000 and have been offered a bonus that would increase my total income to £95,000. How will this affect my tax, and are there any higher tax bands I should be aware of? Am I right that bonuses are taxed more than normal income
A: No, bonuses are taxed just like your regular salary. It's not taxed at a higher rate but neither is there an exemption for them. So, if you get a bonus, it's added to your total income and taxed at the same rates.
When your income rises to £95,000, here's how it will affect your tax:
You'll pay no tax on the first £12,570 due to the personal allowance. You'll then pay 20% tax on the next £37,700 (the portion of income between £12,570 and £50,270). Any amount between £50,270 and £95,000 will be taxed at 40%.
Since your income is under £100,000, you won't lose any of your personal allowance. If your income were to exceed £100,000, you would start losing your personal allowance, thereby increasing your effective tax rate. The additional 45% tax rate applies only to income over £125,140.
Q: I'm a long-term non-domiciled resident in the UK - how will the 2025 changes impact my tax status?
A: Firstly, you're right to say there are changes coming next year that will affect you and any others who are classified as non-domiciled. The issue of 'non-doms' - referring to a person's tax status, not nationality, citizenship or resident status - has been highlighted politically for several years. Former Chancellor Jeremy Hunt surprisingly announced changes at the Budget earlier this year, in an attempt to steal Labour's thunder after they had signalled they would scrap the status. The new Government is going ahead with the plans Mr Hunt laid out, with a few changes. The existing system will be replaced by a new 4-year foreign income and gains (FIG) regime for individuals who become UK tax resident after a period of 10 tax years of non-UK residence.
The rule changes set for April 2025 will significantly alter your tax situation. Currently, you may be taxed only on UK income and any foreign income you bring into the UK (remittance basis). However, from 2025, you will only be able to use this remittance basis for the first four years of UK residence. After that, all your worldwide income will be taxed, regardless of whether it's remitted to the UK. This will likely increase your tax liability substantially, so it's important to review your financial arrangements now.
It's also worth noting that the previous Government's plan offered a 50% reduction in foreign income subject to tax for individuals who lose access to the remittance basis in the first year of the new regime. But the new Government has axed that element.
And for any UK resident individuals ineligible for the new scheme or who choose not to make a claim for a tax year will be 'subject to Capital Gains Tax (CGT) on foreign gains in the normal way', the Government has said.
Q: My company is considering paying me in cryptocurrency. What are the tax implications for me?
A:If your employer pays you in cryptocurrency, it's treated as taxable income by HMRC. This means you'll owe Income Tax and National Insurance Contributions (NICs) just as you would for regular salary payments.
However, the type of cryptocurrency is important because it can be either classified as a 'readily convertible asset' (RCA) or not.
It will be deemed RCA if the crypto can be easily exchanged for cash. In this case, it will be subject to Income Tax and National Insurance Contributions (NICs) via PAYE, just like regular salary. The value of the cryptocurrency at the time of payment will be calculated in GBP, and tax will be deducted via PAYE.
However, if the cryptocurrency is not considered an RCA, the responsibility to report and pay the appropriate tax to HMRC may fall to you rather than your employer. PAYE deductions might not apply. So, tax is still owed, it's just a question of how and when it is paid. It's a question of the method of collection (PAYE vs. self-reporting) that differs.
Later, if you decide to sell or convert the cryptocurrency, you may also be liable for Capital Gains Tax (CGT) if its value has increased. Cryptocurrency's volatility means it's important to carefully consider how these tax liabilities may fluctuate before agreeing to be paid this way.
