Chapter 01 - Computation of taxable income of the individuals

Proforma - Taxable income NSI SI DI TI

Non-savings income xx - - xx
Savings income - xx - xx
Dividend income - - xx xx
Total income xxx xxx xxx xxx
Less: Qualifying interest payment xx - - xx
Less: Losses xx - - xx
Net income xxx xxx xxx xxx
Less: Personal allowance xx - - xx
Taxable income xxxx xxxx xxxx xxxx

Total income
- It comprises of the following viz. -
- Non-savings income
- Savings income
- Dividend income

Non-savings income
- It comprises of the following viz. -
- Employment income
- Property income
- Investment income
- Trading income
- Other taxable incomes

Savings income
- It comprises of interest income
- It is taxed at the same rates as the non-savings income but due to savings starting rate
band and savings nil rate band it is shown separately

Savings starting rate band

- It will be available when the individual is having taxable non-savings income of ≤ £5000

Savings nil rate band

- It will be available when the individual is basic rate taxpayer or higher rate taxpayer

Dividend income
- It comprises of dividend income
It is taxed at different rates from the non-savings income and thus it is shown
-
separately
Dividend nil rate band
- It will be available when the individual is having dividend income

Qualifying interest payment

- It comprises of interest paid (including bank charges) on loan taken irt following viz. -
- Providing loan to close-trading company
- Subscribing new ordinary shares in close-trading company
- Purchasing stake in partnership, co-operative or employee-controlled company
- Purchasing plant and machinery by any partner to be used in partnership
- Purchasing plant and machinery by any employee to be used for performing their duties

Losses
- It comprises of the following viz. -
- Any losses from disposal of investments held in real estate investment trust
- Any losses from disposal of investments held in individual's savings account
- Any losses from disposal of investments held in venture capital trust scheme
- Any losses from disposal of investments held in enterprise investment scheme
- Any losses from disposal of investments held in seed enterprise investment scheme
- Any losses when asset enters the interest in possession trust during the lifetime
- Any losses when asset enters the interest in possession trust due to death
- Any losses when asset enters the discretionary trust during the lifetime
- Any losses when asset enters the discretionary trust due to death
- Any losses when asset enters the disabled trust during the lifetime
- Any losses when asset enters the disabled trust due to death

Personal allowance
- It is that portion of net income which is tax-free
It will be subtracted from the non-savings, savings and dividend income in such
-
manner
which is most beneficial for the individual

Notes -
- Children are also entitled to personal allowance
- Full personal allowance will be available in the year of birth and year of death

Adjusted net income

- Personal allowance is reduced on the basis of adjusted net income
- If the adjusted net income is > £100000 during the current tax year then the personal
allowance will be reduced by 50% of adjusted net income exceeding £100000

Proforma - Adjusted net income Amount

Net income xx
Less: Gross personal pension contribution xx
Less: Gross gift aid donation (not examinable in ATX) xx
Adjusted net income xxxx

Exempt income
- It comprises of the following viz. -
- Interest income from income tax refund
- Interest income from national savings certificate
- Interest income from damages for personal injuries
- State benefits
- Scholarships and grants
- Winnings from betting, gambling, gaming, lottery or races
- HMRC's contribution into the personal pension scheme
- Any withdrawals from the pension scheme upto the specified limits
- Any income from investments held in individual's savings account
- Any income from investments held in venture capital trust scheme
- Any income from investments held in enterprise investment scheme
- Any income from investments held in seed enterprise investment scheme
Chapter 02 - Computation of income tax payable by the individuals

Proforma - Income tax payable Amount

Income tax xx
Less: Other reliefs xx
Income tax liability xxx
Less: Tax credits xx
Income tax payable xxxx

Income tax
- It is paid by any chargeable individual on the basis of the following viz. -
- The taxable income earned or received by them during the tax year
- The income tax bands under which they are falling

Chargeable individual
- It means any individual whether UK domiciled or not-UK domiciled
- UK resident individuals will pay income tax on their worldwide incomes
- Non-UK resident individuals will pay income tax only on their UK based incomes

Taxable income
- It is that portion of net income which is taxable

Tax year
- It starts from 06th April, 202X and it ends on 05th April, 202Y

Income tax bands

It helps in determining whether the individual is basic rate taxpayer, higher rate
-
taxpayer
or additional rate taxpayer

Consumption of income tax bands

- Only the relevant income tax bands will be consumed by the following viz. -
- Savings starting rate band
- Savings nil rate band
- Dividend nil rate band

Extension of income tax bands

- All the income tax bands will be extended by the following viz. -
- Gross personal pension contribution
- Gross gift aid donation (not examinable in ATX)

Other reliefs
- It comprises of the following viz. -
- Interest paid (including bank charges) on loan taken irt any residential property - 20%
- Investments held in individual's savings account
- Investments held in venture capital trust scheme - 30%
- Investments held in enterprise investment scheme - 30%
- Investments held in seed enterprise investment scheme - 50%
- Double taxation relief

Tax credits
- It comprises of the following viz. -
- Marriage allowance - 20%
- Non-savings income from real estate investment trust - 20%
- Dividend income from real estate investment trust - 8.75%
- Non-savings income from interest in possession trust - 20%
- Savings income from interest in possession trust - 20%
- Dividend income from interest in possession trust - 8.75%
- Non-savings income from discretionary trust - 45%
- Non-savings income from disabled trust - 20%
- Savings income from disabled trust - 20%
- Dividend income from disabled trust - 8.75%
- Pay as you earn
Chapter 03 - Taxation of family

Spouse or civil partner

- Each spouse will file their separate income tax return

Separately held assets

- It is taxed in the hands of the owner spouse
- Any spouse can transfer their separately held asset to the other spouse at cost thus
resulting in no gain no loss situation for minimising their joint income tax liability

Jointly held assets

- It is taxed on 50:50 basis irrespective of their actual ownership percentage
- Both spouses can get their jointly held asset taxed on the basis of their actual ownership
percentage for minimising their joint income tax liability

Savings income from investments held in joint bank account

- It will be taxed on 50:50 basis irrespective of their actual ownership percentage

Dividend income from shares held in close-trading company

- It will be taxed on the basis of their actual ownership percentage

Marriage allowance
- It is available when both the spouses are basic rate taxpayer
- Any spouse can transfer their personal allowance as marriage allowance to the other
spouse

Notes -
- Full marriage allowance will be available in the year of marriage, year of separation and
year of death of first spouse

Personal allowance
- The personal allowance of the transferor spouse will be reduced
- The personal allowance that can be transferred will be equal to 10% of the personal
allowance available during the tax year and it cannot change
- If the personal allowance of the transferor spouse is less than the personal allowance
that can be transferred then they will transfer the full amount and they will pay income
tax on the difference

Tax credits
- The tax credits of the transferee spouse will be increased
- The tax credits that can be received will be equal to 20% of the personal allowance
that can be transferred and it cannot change
- If the income tax liability of the transferee spouse is less than the tax credits that
can be received then they cannot claim income tax refund and their balance amount
will lapse

Children
- Each child will file their separate income tax return

Any income from parental disposition

- If any child derives any income from such sources which are set-up through parental
disposition then such income will be taxed in the hands of their parent unless -
- Such income is ≤ £100
- Such child is under 18 years (and unmarried)