Income Tax

Question 1

List sources of non savings income

Answer 1

Salary, Bonuses & taxable benefits (employed)
Fees, trading income/profits (self employed)
Pension income
Taxable state benefits
Property income

Question 2

How does overlap relief work

Answer 2

Self employed are taxed on the income in their accounts ending in the tax year
They are free to choose their own trading year
It does not have to tie in with the tax year

Y1 - Based on profits for that tax year.
Y2 - Based on the accounting period ending in the tax year. If not full year then based on first 12 months profits
Y3 - Based on profits for the accounting period ending in the tax year
Final year - overlap relief is given for any profits taxed twice in year 1 & 2

Question 3

Who can deduct qualifying interest payments from their income

Answer 3

Certain interest payments can be deducted from income
A loan taken out to pay IHT qualifies (restricted to 1 year from taking out loan)
Limited to higher of 25% of adjusted total income or £50,000
Adjusted total income = total income (including taxable benefits) +charitable giving made via payroll, less pension contributions less gift aid contributions

Question 4

What is the high income child benefit charge?

Answer 4

For every £100 that adjusted income is above £50,000 claimants will have to pay back 1% of child benefit until they reach £60,000 at which point they are entitled to nothing.

Question 5

What is the criteria to qualify from the Marriage Allowance

Answer 5

• Must be married or in a Civil Partnership
• where one spouse is non taxpayer with income below £12,570 - not using personal alowance
• if other spouse is basic rate taxpayer with income between £12,570 & £50,270
• Must have allowance available to transfer

Question 6

How is Marriage Allowance claimed and received

Answer 6

• Check eligible - Married - both income within limits
• Are they too old & eligible for Married Couples Allowance instead
• born post 1935
• can transfer 10% of personal allowance £1257 to spouse
• will save £x in thus tax year
• can back date to include any tax year since 5th April 2015 / previous 3 years they were eligible
• basic rate tax payer will receive cheque / payment as lump sum
• their future tax code will be adjusted
• lower income earner makes the claim