Solutions to Tom's ANI problem

Question 1

How do you calculate the ANI Adjusted net income

Answer 1

• Add income from all sources
• Include investment dividend and income
• Only exclude tax free income e.g ISAs and some NS&I products such as premium bonds and certain savings certificates
• Deduct gross value of member pension contribution
• Deduct gross value of gift aid and payroll giving
• The Adjusted net income then is arrived at

Question 2

4 points

What is Tom and Sally’s total income and why is there a requirement to calculate Net Adjust Income and what are they

Answer 2

• Tom’s salary and interest totals £100,050 is over £100,000, NAI calculation results over £100,000 reduces/removes personal allowance.
• After deduction of gross pension NAI £95,250
• Sally’s salary and interest totals £88,050, hers is not over £100,000
• After deduction of gross pension NAI is £83,850
• If income is between £60,000 to £80,000 then NAI calculation results between this point reduces/removes child benefit

Question 3

3 points

What issues can there be for Tom?

Answer 3

• Pay rises, additional P11d benefits or overtime could push income over £100,000 in the future

Question 4

4 points

What can the solutions be for Tom and Sally?

Answer 4

• Transfer the saving deposits into Sally’s name, avoid Tom approaching limit with future pay rises
• Tom to use Cash ISA’s or S&S ISAs (next financial year) or NS&I tax free savings certificates when fix rate on deposit ends so interest/dividend income becomes tax free
• Tom and Sally make pension contributions so that both their NAI reduces down to below £80,000 or even £60,000 to avoid high income child benefit charge
  40% income tax relief will also be available on the contributions
• Salary sacrifice
• Gifts to charity

Question 5

2 points

At her current salary why should Sally continue to apply for child benefit but no recieve any?

Answer 5

• Child benefit counts towards NIC contributions for DWP benefits and the state pension
• Sally may need these NIC contributions if she took time off work when the children were born

Question 6

What does the adjusted net income affect?

Answer 6

• Personal allowance
• Personal Savings Allowance
• Child benefit
• Can reduce them or lose the allowance or benefit completely
• It does not affect the dividend allowance

Question 7

What are tax free accounts?

Answer 7

• ISAs
• VCT’s
• Pension wrapper