Principles of Income Tax

Question 1

Name the 7 main types of income that are tax exempt.

Answer 1

1. National Savings Certificates
2. Statutory Redundancy Money
3. Winnings
4. Scholarships
5. Some Social Security Benefits: e.g. Child benefit
6. Interest on personal injury damages
7. Income from ISA’s.

Question 2

What is the personal allowance for 2017/18?

Answer 2

£11,500

Question 3

What is the threshold at which we restrict the personal allowance?

Answer 3

£123,000

Question 4

What is the formula for the adjusted personal allowance?

Answer 4

0.5 * (Adjusted Net Income - £100,000).

Minus this from £11,500 to derive the adjusted personal allowance.

Question 5

What are the components of adjusted net income?

Answer 5

Net Income - Gross Personal Pension Contributions - Gross Gift Aid

Question 6

What are the Savings Nil Rate Bands for the 3 classes of taxpayer?

Answer 6

Additional - £0
Higher - £500
Basic - £1000

Question 7

What are the Dividend Nil Rate Bands for the 3 classes of taxpayer?

Answer 7

£5000 for all classes of tax payer

Question 8

True or False: Both the savings nil rate and dividend nil rate bands do not count towards the salary tax limits.

Answer 8

False - both nil rates count towards the £33,500 basic rate and £150,000 higher rate bands.

Question 9

What is the savings start rate and when does it apply?

Answer 9

0% - only applies to the first £5,000 of taxable income.

Question 10

How do we use the personal allowance efficiently across NSI, SI and DI?

Answer 10

If NSI is lower than the personal allowance, we should look to take advantage of any starting or nil rate bands for tax efficiency purposes.

Question 11

What is the Transferable Personal Allowance?

Answer 11

£1,150 which is 10% of the personal allowance

Question 12

How is the Transferrable Personal Allowance executed?

Answer 12

It is claimed as a tax reducer on the partner receiving the benefit at basic rate tax (20% of £1,150 = £230)

Question 13

What is the main condition for the transferable personal allowance to be claimed?

Answer 13

Both partners must be basic rate taxpayers.

Question 14

What is the threshold at which parents will be taxed on their investments to their child?

Answer 14

£100 - anything above is taxed on the parents.

NB: Grandparents can invest freely.

Question 15

What constitutes tax deductible qualifying interests?

Answer 15

If a loan is taken out to invest in:

1. Interest in a Partnership
2. Ordinary shares or loan of money to a close trading company (5 shareholders or less and hold at least 5% of shares)
3. Plant & Machinery used in the business or performance of duties.

Question 16

If assets are jointly owned what is the default ownership viewed by HMRC?

Answer 16

50:50

A joint declaration needs to be made to specify the actual proportions they are entitled to.

Question 17

How is child benefit income tax charge calculated?

Answer 17

1% of child benefit for every £100 of ANI where ANI is £50,00 < ANI < £60,000.