AF 4 - Section 2 Income Tax and CGT

Question 1

Personal Allowance

Answer 1

Earnings Bracket

Under £100,000 £11,850
£100,000 - £123,700 Decreases from £11,850 by £1 for every £2, until it reaches £0.00
Over £123,700 £0.00

Are You Blind? PA + £2,390

Question 2

PA Under £100,000

Answer 2

£11,850

Question 3

PA £100,000 - £123,700

Answer 3

Decreases from £11,850 by £1 for every £2, until it reaches £0.00

i.e. £11,850 * 2 = £23,700

Question 4

Tax Bands

Answer 4

Personal Allowance Up to £11,850 0%
Basic Rate £11,851 - £46,350 20%
Higher Rate £46,351 - £150,000 40%
Additional Rate Over £150,000 45%

Question 5

Tax thresholds

Answer 5

The threshold for basic rate tax is taxable income of £34,500 (£46,350 - PA £11,850 = £34,500)

If someone has income in excess of £123,700 they will have no PA

Question 6

Income Tax

Answer 6

Income is assessed for tax in a certain order

1. ) Non-Savings Income (Earned Income, Pension income, Rental income)
2. ) Savings Income
3. )Dividends
4. ) Taxation of Investments Bonds and CGT

Question 7

Starting Rate for Savings

Answer 7

Low Income earners can benefit from a 0% ‘starting rate’ of Income Tax up to £5,000 of savings interest
Reduced for every £1 over the Personal income Tax Allowance of £11,850.
If you earn £12,500, your 0% starting rate for savings would be a maximum of £4,350

£12,500 - £11,850 = £650
£5,000 - £650 = £4,350

0% Allowance = £4,350

Question 8

Starting Rate for Savings

Answer 8

If overall taxable income (employment + savings interest) is £17,850 or less you may not pay tax on your savings income.
This consists of £11,850 PA, £5,000 Savings income and £1,000 New personal savings allowance

Question 9

Starting Rate for Savings - Example

Answer 9

If your employed income is £10,000 plus £5,000 in savings interest no income tax will be payable.
Employed income is below £11,850 PA and the savings income is within the 0% starting rate for savings

Question 10

Starting Rate for Savings - Example

Answer 10

If your employed income is £13,000 plus £3,000 in savings interest you would pay tax on £1,150 of earned income.

£13,000 - £11,850 = £1,150
£1,150 * 20% = £230

Question 11

Starting Rate for Savings - Example

Answer 11

If your earned income is £16,000 and £1,000 in savings interest you would pay 20% tax on £4,150 of income.

Personal Allowance
£16,000 - £11,850 = £4,150
£4,150 * 20% = £830

Savings Interest
£5,000 - £4,150 = £850
£850 * 0% = £0.00

Personal Savings Allowance
£150 * 0% = £0.00

Question 12

High / Additional Rate tax on interest

Answer 12

Some investments ( many corporate bonds) pay interest with 20% tax deducted at source. There is no further liability foe Basic Rate tax Payers NEED TO REVIEW

Question 13

Capital Gains Tax (CGT)

Answer 13

For investments that are not exempt CGT may be payable on disposal of an asset.
Annual exemption limit of £11,700. If gains on non-exempt assets exceed the exemption, then the excess is taxable