LECTURE 7: Personal Tax Computations Flashcards
What happens to bank an building society interest for tax?
The amount received or credited to the account in the tax year is included in the tax computation.
What happens to dividends for tax?
The amount received in the tax year is shown in the tax computation.
What income is exempt from income tax?
- Interest on National Savings Certificates
- Income from Individual Savings Accounts
- Betting winnings, competition prizes, Premium Bond prizes.
What is the pro forma for personal tax computations?
Total Non-Savings Savings Dividends
Employment Income
(less occupational pension contributions)
Trading Income Income from property Interest received Dividends Total Income LESS personal allowance Taxable income
What is the tax payable for non-savings income (Scottish taxpayers)?
First £31,500
(+gross Gift Aid payments) @ 20%
Next £118,500 @40%
Balance (over £150,000) @ 45%
What is the tax payable for savings income?
Balance of 1st £5,000 of total income @ 0%
Personal Savings Allowance (£1,000/500/0) @ 0%
Balance of 1st £33,500 (+gross Gift Aid payments) of total income @20%
Next £116,500 @ 40%
Balance (over £150,000) @ 45%
What is the tax payable for dividend income?
£5,000 @ 0% (everyone)
Balance of 1st £33,500 (+gross Gift Aid payments) of total income @ 7.5%
Next £116,500 @ 32.5%
Balance (over £150,000) @38.1%
Sum all income tax liabilities.
What is the personal allowance (17/18)?
£11,500
PERSONAL ALLOWANCE
Personal allowances are set against non-savings income, savings income and dividend income such as to give the lowest tax liability.
The personal allowance is reduced if a taxpayer’s adjusted net income (total income less gross gift aid payments) exceeds £100,000, by half of the excess.
Examples
1.Employment income £116,000
PA
£11,500
Less
½(116,000 – 100,000)
(8,000) (reduction in personal allowance)
3,500
PERSONAL SAVINGS ALLOWANCE
The personal savings allowance gives tax-free savings income up to a given limit.
For 17/18 the personal savings allowance is:
- £1,000 if taxable income does not exceed the basic rate band of £33,500.
- 500 if taxable income exceeds the basic rate limit of £33,500 but does not exceed the higher rate limit of £150,000.
- Nil if taxable income exceeds the higher rate limit of £150,000.
The PSA is not used against savings income which falls within the first £5,000 of total income and already benefits from the 0% starting rate for savings.
DIVIDEND ALLOWANCE
The dividend allowance gives tax-free dividend income up to a given limit.
In 17/18 the dividend allowance is £5,000.
TRADING INCOME ALLOWANCE
Gross (before expenses) trading income of up to £1,000 per annum is tax free. If trading income exceeds £1,000, the tax payer can elect to be taxed on the excess over £1,000 instead of on income less allowable expenditure.
PROPERTY INCOME ALLOWANCE
Gross property income of up to £1,000 per annum is tax free. If property income exceeds £1,000, the taxpayer can elect to be taxed on the excess over £1,000 instead of on income less allowable expenditure.
Tax relief on Gift Aid payments
Under this scheme taxpayers are entitled to tax relief on payments to charity. This is given at source - i.e. 20% tax is deducted by taxpayers when paying the charity. The charity claims this amount from HMRC.
This is given by extending their basic rate band £31,500/33,500 by the gross Gift Aid Payment (amount paid * 100/80)
Example 1 Salary £46,605 Gift Aid payment £320 Tax if no Gift Aid £ Salary 46,605 PA (11,500) 35,105 £31,500 at 20% 6,300 £3,605 at 40% 1,442 £35,605 7,742 Tax with Gift Aid of £320 net i.e 320 x 100/80 = £400 gross £(31,500 + 400) = 31,900 at 20% 6,380 £35,105 – 31,900 = £3,205 at 40% 1,282 7,662
What relief to higher rate and additional rate taxpayers get from Gift Aid?
Higher rate - relief of 40%
Additional rate - relief of 45%.
This is given by extending their basic rate band £31,500/33,500 by the gross Gift Aid Payment (amount paid * 100/80)
