Tx notes fa22 Final

Non-savings
Savings
Total
£
£
£
Trading income
102,000
102,000
Bank interest 
4,000
4,000
Total Income
102,000
4,000
106,000
Less: Personal allowance (W1)
(9,570)
(9,570)
Taxable income
92,430
4,000
96,430
Non Savings
37,700 @ 20% 
7,540
54,730 @ 40% 
21,892
Savings 500 @ 0%
0
3,500 @ 40%
1,400
Income Tax Liability
30,832
Normal personal allowance 
12,570
Less 1/2 [106,000 – 100,000]
(3,000)
Revised personal allowance
9,570

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Answer to Example 11
 
 
 
 
The election must be made within 4 years of the end of the tax year ie by 5 April 2027.
David Income Tax Computation 2022/23
£
Trading Profit
10,000
Revised PA (12,570 - 1,260)
(11,310)
Taxable Income
Nil
Victoria Income Tax Computation 2022/23
£
Employment Income
30,500
PA
(12,570)
Taxable Income
17,930
Tax Calculation
Non-Savings 17,930 @ 20% 
3,586
PA tax reduction (1,260 x 20%)
(252)
Tax Liability
3,334

---

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Answer to Example 12
 
 
 
 
Kathy Income Tax Computation 2022/23
Tax calculation: 
Answer to Example 13
 
 
Elliot Income Tax Computation 2022/23
Tax calculation 
(W1) Gross gift aid extends the basic rate band:
37,700 + (1,600 
×
100/80) = 39,700
Non-
savings
Total
£
£
Trading income
52,000
52,000
Total income
52,000
52,000
Less reliefs – Qualifying interest
(1,000)
(1,000)
Net Income
51,000
51,000
Less: Personal Allowance
(12,570)
(12,570)
Taxable Income
38,430
38,430
Non Savings
37,700 @ 20% =
7,540
730 @ 40% = 
292
38,430
Income Tax Liability
7,832
Non-
savings
Total
£
£
Trading income
53,000
53,000
Total Income
53,000
53,000
Less: Personal Allowance
(12,570)
(12,570)
Taxable income
40,430
40,430
Non Savings
39,700 (W1) @ 20% 
7,940
730 @ 40% 
292
40,430
Income Tax Liability
8,232

---

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Answer to Example 14
 
Thomas Income Tax Computation 2022/23
Income Tax Calculation 
Note 1: The PA is reduced to nil as the adjusted net income exceeds £125,140 (W1)
(W2)
Gross gift aid extends both rate bands:
BRB: 37,700 + (6,400 
×
100/80) = 45,700
HRB: 150,000 + (6,400 
×
100/80) = 158,000
(W3)
158,000 – 45,700 = 112,300
Non-
savings
Total
£
£
Trading income
160,000 160,000
Total Income
160,000 160,000
Less: PA (note 1)
(–)
(–)
Taxable income
160,000 160,000
Non Savings
(W2) 45,700 @ 20% =
9,140
(W3) 112,300 @ 40% = 
44,920
2,000 @ 45% = 
900
160,000
Income Tax Liability
54,960
(W1) Net Income
160,000
Less Gross gift aid payment (6,400 
×
100/80)
(8,000)
Adjusted Net income
152,000

---

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Answer to Example 15 
 
 
Kerry Income Tax Computation 2022/23
Income Tax calculation 
Kerry is a higher rate taxpayer so her savings income nil rate band is £500. As non-savings taxable 
income exceeds £5,000 there is no 0% starting rate band to utilise.
The first £2,000 of dividend income benefits from the 0% dividend rate irrespective of the level of 
other income. The remaining dividend income falls within the higher rate band and is taxed at 
33.75%.
(W1)
As Adjusted Net Income does not exceed 100,000 (W2) the PA is not reduced.
(W2)
The BRB and HRB are extended by the gross gift aid
Non-
savings
Savings Dividends
Total
£
£
£
£
Trading income
98,000
98,000
Bank interest
4,000
4,000
Dividends
6,000
6,000
Total Income
98,000
4,000
6,000
108,000
Less reliefs:
Qualifying interest
(3,000)
(3,000)
Net Income
95,000
4,000
6,000
105,000
Less: PA (W1)
(12,570)
(12,570)
Taxable income
82,430
4,000
6,000
92,430
Non Savings
(W2)
43,700 @ 20% 
8,740
38,730 @ 40% 
15,492
Savings 500 @ 0%
0
3,500 @ 40% 
1,400
Dividends 2,000 @ 0%
0
4,000 @ 33.75% 
1,350
Income Tax Liability
26,982
Net Income
105,000
Less Gross gift aid payment (4,800 
×
100/80)
(6,000)
Adjusted Net income
99,000

---

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BRB: 37,700 + (4,800 
×
100/80) = 43,700
HRB: 150,000 + (4,800 
×
100/80) = 156,000
Answer to Example 16 
 
 
If Elton transfers a 5% (say) holding in his property to David, they will automatically be treated as 
jointly owning the property for tax purposes and each will be taxed on 50% of the income. Elton’s 
tax liability will be reduced by £4,000 (10,000 x 40%) and David’s liability will be computed as:
This will save the couple £4,000.
If Elton transferred the entire ownership then all the income would be assessed on David and his 
taxable income of £7,430 (20,000 - 12,570) would be taxed at 20% giving a tax liability of £1,486 
compared to Elton’s current tax liability on the property income of £8,000 (20,000 x 40%) achieving a 
total tax saving therefore of £6,514. The election to transfer £1,260 of the personal allowance from 
David to Elton would not be available here as Elton is not just a basic rate taxpayer.