Basic income tax calculation Flashcards
What are the 3 heads of income for income tax calculation purposes?
- Non-saving income
- Saving income
- Dividend income
What falls under Non-saving incomes?
- Employment income
- Trading income
- Property income
- REIT income
- Trust income
- Pension income
What falls under Saving income?
Interest Income
What falls under Dividend income?
- Trust income
- Dividend income
What is the personal allowance available to every individual?
£12,570
What are the tax rates and bands for Non-saving income?
- Basic rate band (£1-£37,700): 20%
- Higher rate band (£37,701-£125,140): 40%
- Additional rate band (£125,141+): 45%
What is the tax year for UK?
6th April 2023 to 5th April 2024
What is REIT?
Real Estate Investment Trust; a mutual fund investing public money in real estate/property market.
How does REIT earn?
Through rental income and capital gains on invested properties, distributing income to investors.
What benefits do investors gain from REITs?
- Expert management reduces risk.
- Diversified portfolio (multiple properties).
- Access to real estate market without direct property purchase.
What are the tax implications of REIT dividends?
- 20% withholding tax deducted.
- Taxed on receipt basis.
- Treated as non-saving income.
What is dividend income, and how is it classified for tax purposes?
Dividend income is profit distribution by a company to its shareholders, it’s classified as a separate head of income because it has different tax rates
What are the tax bands and rates for dividend income?
- Basic rate band (£1-£37,700): 8.75%
- Higher rate band (£37,701-£125,140): 33.75%
- Additional rate band (£125,141+): 39.35%
What reliefs are available for dividend income?
- First £1,000 taxed at 0%
- No withholding tax
Why are dividend income tax rates lower?
Because dividend income is already taxed at the corporate level, reducing the tax burden on individual shareholders.
What is a trust?
A legal arrangement where a donor’s assets are managed by trustees on the behalf of beneficiaries.
Why is a trust created?
- Income management for those unable to manage themselves.
- Systematic income distribution.
- Income tax planning.
- Inheritance tax planning.