Income Tax Flashcards
Name the 5 types of income
Trade, employment, property, investment, miscellaneous
Legislation for employment income tax rules
Income Tax (Earnings and Pensions) Act 2003
Legislation for trading, property, investment and miscellaneous income
Income Tax (Trading and Other Income) Act 2005
What’s the rent-a-room relief amount?
£7,500
13 employment benefits exempt from tax
- Group income protection
- Provision of meals
- Mobile phones
- Long service awards
- Suggestion schemes
- Work-related training
- Relocation and removal expenses
- Home working
- Workplace nurseries
- Liability insurance
- Pension advice
- Coronavirus tests
- Trivial benefits
10 taxable employee benefits
- Use of assets
- In-house benefits
- Company cars
- Beneficial loans
- Living accommodation
- Cash vouchers
- Non-cash vouchers
- Credit tokens
- Employee liabilities
- Medical insurance
Calculation of personal allowance reduction over £100,000
(Adjusted net income - 100,000)/2
Adjusted net income is net income minus personal pension contributions and gift aid donations
How to avoid personal allowance trap (income between £100k and £125,140)
- Use tax free investments (e.g. ISAs)
2. Make pension payments or gift aid donations
What are the personal savings allowances?
Basic-rate payers: £1,000
Higher-rate payers: £500
Additional-rate payers: £0
How do relief at source pension payments and gift aid donations affect tax liability?
How is this calculated?
They extend the band limits at the basic tax rate (20%)
Increase the tax band limit by the donation plus 25%
What is the dividend allowance?
Is it affected by tax banding?
£2,000
No, everyone is entitled but excess dividends are taxed at different rates in each band
What rate is dividend income taxed at?
Basic: 8.75%
Higher: 33.75%
Additional: 39.35%
Explain the £5,000 0% rate on savings income
No tax is paid on savings income, up to £5000, which falls in the first £5,000 of income above the personal allowance.
E.g. if employment income is £13,570, there is room for £4,000 of tax free savings income.
What counts as savings income for purpose of personal savings allowance? (3 items)
- Interest
- Interest element of purchased life annuities
- Gains from life assurance contracts
6 steps to calculate tax charge
- Calculate pre-tax income for year
- Deduct reliefs from total income
- Deduct the personal allowance
- Add payment which extend bands
- Calculate tax on remaining income
- Deduct any tax reducers
What order is income taxed in? (4 items)
- Earnings, pensions, rental income
- Savings income (exc. 4 below)
- Dividend income
- Chargeable gains under life assurance policies
What is the difference between a child’s parental and non-parental money?
Interest or income from parental money is taxed as part of the parent’s income.
Parental and non-parental money should be kept separate.
How much can a parent save in a Junior ISA without it affecting their tax liability?
£9,000
Can parents pay into a 16/17 year old’s ISA to take advantage of the £20,000 tax-free savings allowance?
No, if the income originates from a parent it will be treated as the parent’s capital.
How is child benefit reduced for high earners?
There is a charge of 1% of CB payments per £100 of income over £50,000. At £60,000, the payment charge is equivalent to 100% of the payment.
How is income in child’s bare trust treated for income tax
- If income is less than £100 per year, no tax
- If more than £100 per year and comes from parent, taxed on full amount as parent’s income
- No tax if capital from other relative
Under the general position, whose tax liability is income from bare trusts added to?
The beneficiary’s
How is special tax relief for vulnerable beneficiaries calculated?
Deduct tax paid if trust income was taxed as beneficiary’s normal income, from the tax paid under normal property trust rules.
The level of relief is the difference between the two.
When should trustees and vulnerable beneficiaries make an election for special treatment?
No later than 12 months after date tax should be reported (i.e. January 31 2025 for tax year 22/23)
12 types of trust
- Bare. 2. Interest in possession.
- Discretionary. 4. Accumulation
- Mixed. 6. Settlor-interested.
- Non-resident. 8. Life interest.
- Power of appointment 10. Will
- Statutory. 12. Pension Scheme
How do beneficiaries receive the personal allowance, personal savings allowance, or dividend allowance?
As a refund from own tax, as all trust income is taxed at the basic rate, without allowances, and paid by the trustee before being passed to the beneficiary (unless income is paid directly to the beneficiary).
Can trustees claim tax relief on the expenses of managing a trust?
No. Costs can be saved by having payments mandated or paid directly to beneficiary.
In what order are trust expenses set against income before payment to the beneficiary?
- UK dividends
- Foreign dividends
- Savings income
- Other income
Which form is used to tell beneficiaries about trust income?
R185
Case that decided no single factor conclusive in determining employment status.
Hall v Lorimer
