Chapter 4: Income from savings and investments

Question 1

What is savings income?

Answer 1

Interest received

Most common form of interest received by an individual is from a bank of building society

Question 2

Basis of assessment

Answer 2

Interest received in the tax year is included in the savings income column of the income tax computation.

If interest is accrued, but not yet received in the tax year, it will not be included in the computation

Question 3

Sources of interest

Examples of interest received that you may see in the assessment include:

Answer 3

-Bank interest
-Building society interest
-Interest from National Savings & Investment (NSI) accounts
-Interest received on investments in gifts
-Interest received on loan stock from companies (loans made to a company)

Question 4

Exempt interest

Answer 4

Interest from National Savings & Investments (NSI) accounts is taxable income

NSI Certificate is exempt

Interest earned from ISA

Question 5

Savings allowance

0% savings allowance

Answer 5

Basic rate tax payers = £1000

Higher rate tax payers = £500

Additional rate tax payers = no benefit

Question 6

Dividend income

Answer 6

Dividends received in tax year are included in the dividend column of the tax computation

Question 7

Dividend income - bandings for tax

Answer 7

Different rates - in ref material

Treated as top slice of income, i.e after non-savings and savings income

Question 8

Dividend allowance

Answer 8

£2000 dividend income is taxed at 0%

Regards to all individuals regardless of income

Question 9

Tax free income

Answer 9

Income from:
-NSI Certificates
-ISA - you can invest up to £20,000

Question 10

Other exempt income

Answer 10

Statutory redundancy money

Winnings and prizes

If you have exempt income - state that it is exempt!!!

Question 11

Tax planning

Answer 11

• invest the maximum yearly amount into ISA whenever possible

-Invest in other tax free investments such as NSI certificates and premium bonds

-It would be sensible for the spouse or civil partner paying tax at the lowest rate to be the one to receive the interest or dividends

-Little to no income spouse or civil partner to offset their personal allowance for investment income

-Legal ownership of the income-generating asset would need to be transferred which can have wider implications