Income And Tax

Question 1

Cap on interest payments an losses

Answer 1

This is capped at the highest of £50,000 or 25% of the individuals adjusted income

Question 2

IHT and interest

Answer 2

Allowable if it’s payable on a loan used to pay IHT
Restricted to one year from making loan
Relief at borrowed top aye but restucted to £50,000 or 25% of adjusted income .
Borrower must be personal representative of deceased

Question 3

Charitable gist

Answer 3

2 main tax efficiency ways
Gift aid - non tax payers cannot benefit from gift aid - you to have a tax liability so non tax payers should not use this facility
Basically a high right tax payer gets relief at source and the charity can claim back a further 20% from hmrc . The client gets the basic tax limit increased by the total amount of gift I.e she gift £7000 she get basic tax relief at &£8750
Payroll giving
Again benefit for non tax payers

Question 4

Pension contributions tax relief

Answer 4

Personal pensions - paid net
Occupational pension- deducted from employer income
Retirement annuity- deducted from risk income

Question 5

Personal allowance

Answer 5

Possible to give 10% to spouse

Reduced to nil gradually if income over £100k

Question 6

Age allowance

Answer 6

No age allowance from 16/17

Question 7

Personal savings allowance

Answer 7

Basics rate tax payers have £1000
High rate have - £500
Additional rate have -0

Question 8

£24,000 without income tax liability

Answer 8

Personal allowance £11,500
£1000 personal savings allowance£5000 0% starting rate of savings
£1000 allowance of property and trading income
£5000 dividend allowance totals £24000

Question 9

Married persons allowance

Answer 9

Capped at 10% so £115
Beneficial is one spouse is non tax payer and doesn’t use all of their personal allowance.
The partner receiving personal allowance cannot be paying tax higher than basic rate
Potential tax saving is £230 (1150@20%)
If recipients tax liability is less than £230 the transferable amount is reduced
Can’t make election if either spouse has claimed marriage couples allowance -if once spouse was born before 6th April 1935

Question 10

Marriage couples allowance

Answer 10

Allowance of £8455
If born. Before 6th April 1935
Portion of allowance over basic allowance of £3260 is reduced by £1 for every £2 of adjusted income over £28000
MCA is a tax reducer
Relief given at 10%
Couples born before 5th Dec 2005 - allowance belongs to husband
Can be tsf to wife
All can be tsf to wife if husband doesn’t have enuf income to use it himself, on joint election all can be tsf to wife half can be tsf to wife if she elects

Couples born after 5 Dec 05- allowance given to higher earner

Question 11

Personal income tax trap

Answer 11

Where someone earns between £100,000 to £123,000 their rate of tax is electively 60% because of the reduction of personal allowance .
This impact can be reduced by
Inveting in isa and using isa income
Investing in pensions and claiming tax relief and reducing their overall income /and or donations to charity
Be careful about causing in single premium investment bonds above the 5% limit when income is between £100,000-£123,000

Question 12

Rent a room

Answer 12

Relief at £7500

Question 13

Income taxed in following order

Answer 13

Salary or pension then , 
Savings interest , then 
Offshore bond then 
Dividend income then 
Onshore bond gain
Capital gains

Question 14

Maintenance payments

Answer 14

No tax relief on these except when either party was married before 6th April 1935 and payments made to a divorced or seperated spouse
Relief given at 10% on payments of up to £3260