Exercises Non-savings income, Savings income and Dividends Answers PDF

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EXERCISES – Non-savings income, Savings income and Dividends Question 1 (2.2) Calculate the 2019-20 income tax liability of a UK taxpayer with income for the year as follows: (a) Business profits of £28,105 and bank interest of £720. (b) Business profits £50,150, building society interest £930 and bank interest £570. (c) Net loan interest of £130,604

Taxable income does not exceed £37,500, therefore the personal savings allowance is £1,000 and savings income of £720 is taxed at the nil rate.

Taxable income exceeds £37,500 but does not exceed £150,000. Therefore the personal savings allowance is £500 and savings income of £500 is taxed at the nil rate. Non-savings income absorbs the whole of the basic rate band, so the remaining £1,000 of savings income is taxed at the higher rate of 40%. c)Grossed-up loan interest is (£130,604 × 100/80) = £163,255. There is no nonsavings income so the first £5,000 of savings income is taxed at the starting rate of 0%. However, taxable income exceeds the higher rate limit so the personal savings allowance is £nil. The income tax liability is (£5,000 × 0%) + (£32,500 × 20%) + (£112,500 × 40%) + (£13,255 × 45%) which is a total of £57,464.75. Income tax deducted at source is £32,651 (£163,255 – £130,604) so income tax payable is (£57,464.75 – £32,651.00) = £24,813.75.

Question 2 (2.3) Stephanie has the following income in 2019-20: Income from self-employment Rents received Bank interest Dividends Compute Stephanie's income tax liability for the year.

£ 29,880 15,730 200 250

The personal savings allowance is £1,000 and the dividend allowance is £2,000. Therefore all of the savings income and dividend income is taxed at 0%. For a Scottish taxpayer, the tax liability on non-savings income would be (£2,049 × 19%) + (£10,395 × 20%) + (£18,486 × 21%) + (£2,180 × 41%) = £7,244.17.

Question 3 (2.4) Ernest has a retirement pension in 2019-20 of £56,890 and bank interest of £620. His personal allowance for the year is £12,500. Compute Ernest's income tax liability for the year.

The personal savings allowance is £500, so £500 of the savings income is taxed at the nil rate. The tax liability is (£37,500 × 20%) + (£6,890 × 40%) + (£500 × 0%) + (£120 × 40%) = £10,304.00. Dividends of £620 would have been covered by the dividend allowance of £2,000 and taxed at 0%. The tax liability would have been reduced by £48 (£120 × 40%) to £10,256.00.

Question 4 (*2.5) Ivan has the following income for tax year 2019-20: Part-time salary Net interest on gilt-edged securities Premium bond prize Compute the income tax payable by Ivan for the year.

£ 16,985 1,360 50

Question 5 (*2.6) Mary's income for tax year 2019-20 consists of business profits of £26,920, dividends received of £124,460 and rents received of £3,750. Calculate Mary's income tax liability for 2019-20....