PT 3, 4, 5 Taxation of Interest, Dividend & Other Taxable Income Flashcards
Taxable interest includes interest received on:
- bank and building society accounts
- National Savings and Investments (NS&I) accounts (this is different to interest on National Savings & Investments (NS&I) Certificates, which is exempt)
- gilts (government stocks)
This interest is received gross.
Savings allowance rules
No higher rate income 1,000
Higher rate income but no additional rate income 500
Additional rate income Nil
Foreign dividends…
must be ‘grossed up’ to take account of any foreign withholding tax.
Stock / scrip dividend treatment?
A taxpayer may be offered a stock dividend (also called a scrip dividend) whereby they will be given shares rather than cash.
The cash foregone will still be treated as a dividend and taxed in the normal way
Enhanced stock / scrip dividend?
If the market value of the shares differs from the cash foregone by 15% or more of that market value, then the market value is used as the taxable dividend figure instead of the cash foregone. This is known as an enhanced stock (or scrip) dividend.
Income from discretionary trusts?
is grossed up by 100/55
You can deduct the 45% tax credit when calculating tax due. Such income is always treated as non-savings income
Income received by an interest in possession trust?
is taxed in the hands of the trustees at 20% for non-savings/savings and 8.75% for dividends. The income paid out by the trust retains its nature in the hands of the beneficiaries.
The dividend allowance is not available when calculating tax payable by trustees
Non-savings and savings income will need to be grossed up by 100/80 and dividend income by 100/91.25 in order to arrive at
the gross amounts to enter into the tax computation.
The gross amounts will then be taxed as any other non-savings, savings or dividend income. The tax credits are deducted to find tax due.
Settlor-interested trusts arise where the person who sets up the trust (the settlor), or their spouse/civil partner ….
can benefit from either the trust income or the assets of the trust. The whole of the income received by the trust is taxed on
the individual as if it were received by them. The settlor is entitled to a tax credit for the tax paid by the trustees, but any tax repayment received in respect of the income must be repaid to the trustees.
Where a parent provides funds to a child….
under the parental settlement rules any income subsequently arising will be taxed on the parent. The rules apply where:
* funds are settled by a parent;
* the child is under 18 and unmarried; and
* the gross annual income is more than £100.
Unit trusts …..
distribute interest or dividends. Interest is received gross and taxed as normal savings income. Dividends from unit trusts are taxed in the normal way
Company loan stock interest is ….
received net of a 20% tax credit and has to be grossed up
in the tax computation. It is then taxed as normal savings income. The tax credits are deducted to find tax due.
Joint income received by spouses/civil partners is split …
equally between the parties unless an election is made for it to be split according to their beneficial entitlement.
