2. Income Tax Flashcards
What is the marriage allowance?
Ability to transfer 10% of personal allowance to spouse.
Receiving partner must be basic rate payer only.
What are the key features of the personal savings allowance?
Tax free allowance on interest
Not available for additional rate payers
Cannot transfer to spouse
What is the income tax treatment of proceeds from life assurance policies?
Basic rate income tax deducted at source.
No further tax liability for qualifying policies.
Non-qualifying policies subject to higher and additional rate tax
What is the order for calculating taxable income? (5)
- Earned & pension
- Rental/property
- Savings
- Dividends
- Gains from life policies
What is the starting rate band?
£5k allowance for savings income
Reduced by any taxable non-savings income
Who pays Class 1 NI?
Employees: between primary threshold and upper earnings limit, reduced rate above this
Employers: above secondary threshold (upper secondary threshold for U21s and apprentice upper secondary threshold for apprentices U25s
Class 1A on BIK
Who pays Class 2,3,4 NI?
Class 2: weekly flat rate - abolished April 2024
Class 3: voluntary contributions
Class 4: self-employed
When do the self employed pay tax & NI?
2 instalments followed by balancing (re)payment
31 January in-year
31 July following year
31 January following year balancing (re)payment
How do the Scottish and Welsh income taxes work?
Scotland:
Rates and bands set by Scottish govt but follow UK rules on savings, dividends, allowances and reliefs.
Apply to ‘close connections’ - main residence in Scotland
Wales:
Income tax rate 10% lower than UK rate then Welsh govt have freedom to increase from there
How are returns from unit trusts taxed?
Dividends and interest paid gross - taxable on element above dividend/savings allowance
What are the main types of taxable income? (6)
- Earnings from employment incl BIK (excl first £30k of redundancy)
- Profits from trade/profession
- Interest/Dividend/Rental/Royalty income
- Tips
- Income from govt stocks
- Income from trusts
What are the main types of non-taxable income? (8)
- Interest on NS&I and ISAs
- Proceeds from qualifying life assurance policy
- Gambling & lottery prizes
- Wedding & retirement gifts from employer
- Educational grants
- War widow’s pension
- Capital part of purchased life annuity (not interest)
- Reimbursed expenses from volunteer work
How do you calculate an employee’s cash equivalent value of a use of asset?
20% of market value when first provided to employee (‘annual value’) + expenses incurred by employer in maintaining the asset
If asset is rented by employer, then cash equivalent = value of rent above 20% market value
Key features of personal allowance?
£12,570
Reduces by £1 for every £2 above £100k (adjusted for pension conts and donations)
What is the cap on contributions to a qualifying life assurance policy?
£3.6k p.a
