Chapter 2: Income tax computation

Question 1

Is exempt income included on an individuals personal tax computation?

Answer 1

No

Question 2

Examples of exempt income

Answer 2

Betting winnings

Interest on National Savings Certificates (This is not an NSB account)

Damages for personal injury

Income from ISAs

Premium bond winnings

Question 2

should you state in your answer that the income is exempt?

Answer 2

YES

Question 2

What type of income get taxed first?

Answer 2

Non-savings
then
Savings
then
Dividends

Question 3

ISAs

Min age for ISAs and cash ISAs
How many can you pay into?
Max investment per year
Withdrawing money and replacing it (cash ISAs)

Answer 3

Min age: Available to UK residents, 18 and above (16 and above for Cash ISAs)

Pay into a max of one cash ISA and one stocks and shares ISA

Max investment is £20,000 per year (£20k is the max across both accounts)

May withdraw money from a cash ISA and replace it in the same tax year without counting towards 20k limit

Question 4

Taxable income

Answer 4

Adding together all of an individuals sources of income ad deducting the personal allowance

Question 5

For personal allowance purposes:

Adjusted Net Income is total income less:

Answer 5

Less:

Loss relief
Qualifying interest payments
Gross Gift Aid contributions and personal pension contributions

Question 6

Qualifying Interest Payments (Eligible Interest)

What do you deduct it from?
What does it include 5 things:

Answer 6

Deduct from total income before the personal allowance

Deduct from non-savings then savings then dividend income

Includes INTEREST paid on a loan used:
-By a partner to invest (capital or loan) in partnership
-By a partner or employee to purchase plant and machinery, including computers
-To invest in (or make a loan) to a close a trading company. - Controlled by directors or 5 or fewer shareholders.
-To invest in a co-operative
-To invest in an unquoted employee-controlled trading company in which employees own more than 50% shares

Question 7

Starting rate

Answer 7

Starting rate @ 0% applies to savings income within the first £5000 of taxable income.

If non-savings income exceeds £5000 then starting rate us not available.

Example: Non-savings income after deduction of PA is £3000 and savings income is £3500.

£5000-£3000=£2000 @ 0%

Starting rate does not include Savings allowance

Question 8

Gift Aid

Answer 8

-To a registered UK Charity

-Regular or one off

-No maximum or minimum gift

-Donor must give charity a Gift-Aid declaration

-Gift must be unconditional (nothing in return)

-Donor obtains only limited benefit from the gift

Question 9

Does gift relief affect BRB tax payers?

Answer 9

No

Question 10

Child benefit income tax charge

Answer 10

Restriction for ANI between £50k - £60k

Charge is 1% for each £100 between £50k-£60k

Take the difference between 50k-60k and divide by 100 and ROUND DOWN
Example: ANI of £57189
£57189-£50000=£7189
£7189/100=71% Round down

Tax free otherwise

Question 11

Marriage Allowance

Effect of the election

Answer 11

Spouse / civil partner can make a marriage allowance election to transfer £1260 of their personal allowance.

Available if neither spouse / civil partner is a higher or additional rate tax payer.

Only beneficial if the transferor does not fully utilise their PA and the recipient does, so total income tax liability of the couple is reduced

Tax repayment not possible

Question 12

Marriage Allowance

An election can be made:

Answer 12

In advance (by 5 April 20X3 for 20X2/X3)

Election will remain in force for future years unless it is withdrawn or conditions are no longer met

In arrears (by 5 April 20X7 for 20X2/X3 - 4 years after the end of the tax year)