CH10 - Income Tax Comp Flashcards
Note that we dont tax on all sources of income. In our income tax comp, what types of income do we look at?
Non savings income - NSI
Savings income - SI
Dividends income - DI
Note that these are all in order, hence DI is the last set of income to be taxed
What is the difference between net income and taxable income?
Net income is our total income net of any reliefs
Taxable income is net income - PA
PA is 12570 however this gets reduced if ADJUSTED net income is above?
100,000. Hence any amount above 100,000 * by 50% will be deducted from the PA figure
What is ADJUSTED net income?
This is net income minus gross gift aid donations (*100/80) and gross pension contributions
Aarna has net income for the tax year 2023/24 of £124,500 and made a cash
donation to a charity (declaring this to be under the gift aid scheme) of
£9,800.
Calculate Aarna’s personal allowance for the tax year 2023/24
Net income = 124500
Adjusted net income = net income - gross gift aid donations
gross gift aid donations = 9800 * 100/80
124500 - (9800 * 100/80) = 112250
Reduce PA by 50% of amount above 100,000
112250 - 100,000 = 12,250
12,250 * 50% = 6125
PA = 12570 - 6125 = 6445
What is the dividend nil rate band (note this is the same for everyone regardless of how much income you earn)
1000
If someone is an additional rate tax payer, what nil band are they no longer eligable for?
The savings nil rate band
If a individual takes out a loan for a qualifying purpose, the interest paid during the tax year is deductible from total income. Qualifying purposes include?
- loans to buy P&M for use in a partnership / employment
- loans to buy an interest in a close company /employee controlled
- loans to invest in partnership
- loans to pay inheritence tax
thus loans for personal or mortgages are not deductible
Given qualifying interest payments are deductible from total income, we call this a ?
Relief
Reliefs are subject to a cap of?
50,000 or 25% of total adjustted income
