Allowances and Reliefs

Question 1

When is the PA deducted?

Answer 1

When calculating taxable income so it acts as a tax threshold

Question 2

What happens if the PA is not fully used? (subject to conditions)

Answer 2

10% may be transferred to a spouse or civil partner

Question 3

What happens to the PA if the taxpayers ‘adjusted net income’ is above £100,000?

Answer 3

• PA reduced at rate of £1 for every £2 that exceeds limit.
• when over £125,140, PA is 0

Question 4

How do you calculate adjusted net income?

Answer 4

Net income - tax reliefs - grossed up amount of any Gift Aid donations and personal pension contributions made in the year

Question 5

When can the Marriage Allowance not be transferred?

Answer 5

• If either tax payer pays tax at the higher or additional rate OR the dividend upper or additional rate
• Unavailable if MCA is claimed

Question 6

How is the marriage allowance given to the spouse?

Answer 6

• PA of the spouse is not increased but their income tax liability is reduced by 20% of this amount.
• This makes MA a tax reducer along with the MCA

Question 7

When is the Blind Person’s Allowance calculated?

Answer 7

• Deducted when calculating the taxpayer’s taxable income, like PA.

Question 8

How are payments and gifts treated and what are some examples?

Answer 8

• Deductible from total income
• Eg. Eligible interest payments, certain ‘annual payments’, gist of listed shares to charity or gifts of land or buildings to a charity.

Question 9

What do you do if the payment is made net of 20% income tax?

Answer 9

• Gross up at 100.80 before deducting it from total income

Question 10

Examples of eligible interest payments

Answer 10

• Loan to purchase machinery for use in employment or business of a partnership

-loan to purchase ordinary shares in a close company

• loan to purchase shares in an employee controlled company
• a loan to pay inheritance tax

Question 11

What amount do you use when deducting a gift of listed shares or property to charity?

Answer 11

• market value at date of the gift + incidental costs of the donor - value of benefits received by donor

Question 12

Payments that are tax reducers on the taxpayers taxable income examples

Answer 12

• Maintenance payments made to an ex-spouse
• Interest on first £30k of loan on main residence
• Gifts of pre-eminent property to nation (tax reduction = 30% of property value)

Question 13

How does the tax relief for Gift Aid work?

Answer 13

• Basic and higher rate limit increased by gross amount of gift
• Gross up all Gift Aid donations