1. Income Tax

Question 1

Tax Year

Answer 1

6th April - 5th April

Question 2

Personal Allowance

Answer 2

£11,850

withdrawn at £1 for every £2 above £100,000 (£123,700 has no PA)

Non-domiciled tax payers cannot claim PA

Question 3

Transferable Allowance

Answer 3

Allows roughly 1/10 (£1,190) of PA to be transferred to spouse or partner

Potential saving of 20% * 1,190 = £238

Only applies when spouse / partner is not at higher or additional rates

Question 4

Income Tax rates (Excluding Scotland)

Answer 4

Savings | 0% | £0 - 5,000
Basic | 20% | £0 - 34,500
Higher | 40% | £34,501 - 150,000
Additional | 45% | £150,000+

Question 5

Savings Income

Answer 5

A person only qualifies for 0% savings income up to £5,000

If their non-savings income is below their personal allowance plus £5,000. (e.g. £16,850)

Question 6

Personal Savings Allowance

Answer 6

Savings income is paid gross, with a PSA available depending on tax rate:

Basic rate taxpayers - £1000
Higher - £500
Additional - £0

Question 7

Dividend Income

Answer 7

Dividend income is paid gross, with a £2,000 DA available

Basic rate taxpayers - 7.5%
Higher - 32.5%
Additional - 38.1%

Dividend income is taken as a taxpayer’s top slice of income, so is taxable at the highest rate

Question 8

Tax Relief on Interest from a Loan

Answer 8

1. Buy plant / machinery
2. Buy an interest in an unquoted, employee-controlled company
3. Invest in a partnership / cooperative
4. Buy ordinary shares or lend money to a ‘close company’ (controlled by 5 or fewer shareholders / solely by directors)

Question 9

Relief on Pension Contributions

Answer 9

An individual <75 can receive relief on contributions to a pension scheme at their marginal tax rate, the maximum limit is the higher of:

1. Annual earnings in a tax year, capped at £40,000
2. Basic amount of £3,600

It is possible to carry forward unused allowances from the previous 3 years

Question 10

Relief on Pension Contributions: Calculating 1

Answer 10

Taxpayer claims relief on pension contributions at their marginal tax rate (e.g. higher rate receives 40% relief), however this was tapered for additional rate tax payers:

e.g. The £40,000 cap is reduced by £1 for every £2 of taxable income above £150,000.
To a minimum cap of £10,000 (at £210,000 taxable income)

A safeguard is where NET income is £110,000

Question 11

Relief on Pension Contributions: Calculating 2

Answer 11

When an individual does not have sufficient income to claim relief.

The maximum contribution a person can pay is £2,880 (£3,600 with 20% relief)

This results in £3,600 being paid into their pension scheme, despite earning less than this

Question 12

Taxation of Trust income

Answer 12

Tax rates (First £1,000 - Standard Rate Band)

• Dividend Income = 7.5% (dividend ordinary rate)
• All other income = 20% (basic rate)

Tax rates (>£1,000)

• Dividend Income = 38.1%(dividend trust rate)
• All other income = 45% (trust rate)

Standard Rate £1,000 is first applied to All other income (property, trading, savings etc), followed by Dividend income

Question 13

Multiple Trusts

Answer 13

If the settlor created more than 1 trust, the Standard rate £1,000 is divided equally between trusts

Question 14

Relief on Trust Income

Answer 14

When trust income is paid out to a beneficiary, it is treated as already being taxed at the 45% trust rate.

If the beneficiaries level of income means they are below the additional 45% rate, they may be able to claim some / all of it back