Tx notes fa22 Final

June 2023 to March 2024 exams
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Illustration 1 
Donald and Theresa are a married couple and have regular annual income as follows:
It is clear from the above information that Donald is a higher rate taxpayer with taxable income of 
£57,430 (70,000 – 12,570) and Theresa is a basic rate taxpayer with taxable income of £16,430 
((18,000 + 2,000 + 9,000) – 12,570).
In this situation it would normally be the case that for tax planning purposes it would be advisable to 
see if any investment income could be moved from the higher rate taxpayer to the basic rate 
taxpayer. This, however is not possible as Donald’s only income is his salary. 
The introduction of the nil rate bands, however, means that in the above example tax savings can be 
achieved if firstly, £500 of the interest income could be made by Donald and therefore use his 
savings income nil rate band of £500 that is currently being wasted. This income is being taxed at 
20% on Theresa as she has savings income in excess of her nil rate band of £1,000 and she does 
not benefit from the 0% starting rate for savings income as she has more than £5,000 of taxable non 
savings income (salary 18,000 less PA 12,570 = 5,430). This would save £100 in tax.
The second transfer would be of sufficient shares to move up to £2,000 of dividend income from 
Theresa to Donald in order that both may use their dividend income nil rate bands of up to £2,000. 
Currently Theresa is being taxed at 7.5% on £7,000 of her dividend income, so a tax saving of £150 
would be possible here.
Clearly in practice choosing the right amount of interest bearing securities and shares to transfer to 
Donald to allow usage of the available nil rate bands may be a little difficult to precisely achieve!!
In the above example it would be an even more interesting scenario if Donald in addition to his salary 
had annual property income of £10,000. In his computation this income would all be taxed at the 
higher rate of 40%. 
Theresa, even before the transfer of some of her interest income and dividend income to utilise 
Donald’s savings income and dividend income nil rate bands, only has £16,500 of taxable income 
and is therefore only a basic rate taxpayer. 
If Donald was to transfer ownership of the property to Theresa the £10,000 property income would 
now be taxed at 20% instead of 40% and a tax saving of £2,000 would be achieved. Remember also 
that the transfer would be on a no gain no loss basis for CGT and would be an exempt transfer for 
IHT purposes so there would be no capital taxes problems arising from this transfer.
In terms of investment planning for taxpayers, their retirement is a key issue and a comfortable 
retirement will be influenced by what income producing assets are owned by the taxpayers and how 
that income will be taxed as seen above with savings and dividend income nil rate or starting rate 
bands, the use of ISA’s and each spouse’s PA and basic rate band. 
The other key issue is the provision of a pension and it is essential for this purpose that you 
understand the tax implications of making contributions into a pension scheme, either occupational 
or more often examined, personal pension scheme as identified within Chapter 10.
Donald 
- Salary 
£70,000
Theresa 
- Salary
£18,000
Interest
£2,000
Dividends 
£9,000

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