TAX LECTURE 4 NOTES
OUTCOMES
Compute the profits of a property business
Apply rent a room relief
Describe the treatment of property business losses
Determine the tax treatment of interest and dividends
Identify sources of income which are not subject to tax
SAVINGS INCOME
Savings income means interest income
Rates can be 0%, 20%,40% or 45%
THE STARTING RATE 0% BAND
The first £5,000 of savings income is taxed at 0% but only to the extent that non-savings income
is less than £5,000.
Therefore, if non-savings income is £5,000 or more, the 0% starting rate is not available.
To the extent that non-savings income is less than £5,000, savings income is taxed at 0% up to a
maximum of £5,000
Otherwise normal rates apply: 20%, 40%, 45%.
STARTING RATE BAND
June’s non-savings income after deducting the personal allowance is £12,000. She is not entitled
to the 0% starting rate for savings income.
Liu’s non-savings income after deducting the personal allowance is £3,200. He is entitled to
£1,800 0% starting rate for savings income.
THE PERSONAL SAVINGS ALLOWANCE (PSA)
The first £1,000 of savings income is taxed at 0% for all basic rate taxpayers.
£500 for higher rate taxpayers
None for additional rate taxpayers
The PSA is applied after the 0% starting rate (if it applies)
LEMONIA EXAMPLE:
Lemonia has £12,570 of employment income and £6,000 bank interest income for 2022/23.
Compute Lemonia’s taxable income.
Lemonia’s taxable non-savings income is NIL after subtracting the personal allowance. So no tax.
She is entitled to the full £5,000 starting rate of 0%
In addition, since she is a basic rate taxpayer she is entitled to the personal savings allowance of
£1,000 taxable at 0%.
So Lemonia has no tax liability and will be able to claim a refund of any tax deducted under PAYE
from her salary.
, DIVIDEND INCOME
The first £2,000 of dividend income is taxed at 0%
Then taxed at 8.75% up to basic rate limit of £37,700
Dividends in the higher rate band are taxed at 33.75%
Dividends above the higher rate limit taxed at 39.35%
JELL
Jell has dividend income of £21,570 for 2022/23. He has no other source of income.
Dividend Income: 21570
Less: Personal Allowance: (12570)
Taxable Income: 9000
Tax Liability:
£2,000 x 0% : 0
£7,000 x 8.75%: 612
Tax due: 612
Example 1
Example 2
OUTCOMES
Compute the profits of a property business
Apply rent a room relief
Describe the treatment of property business losses
Determine the tax treatment of interest and dividends
Identify sources of income which are not subject to tax
SAVINGS INCOME
Savings income means interest income
Rates can be 0%, 20%,40% or 45%
THE STARTING RATE 0% BAND
The first £5,000 of savings income is taxed at 0% but only to the extent that non-savings income
is less than £5,000.
Therefore, if non-savings income is £5,000 or more, the 0% starting rate is not available.
To the extent that non-savings income is less than £5,000, savings income is taxed at 0% up to a
maximum of £5,000
Otherwise normal rates apply: 20%, 40%, 45%.
STARTING RATE BAND
June’s non-savings income after deducting the personal allowance is £12,000. She is not entitled
to the 0% starting rate for savings income.
Liu’s non-savings income after deducting the personal allowance is £3,200. He is entitled to
£1,800 0% starting rate for savings income.
THE PERSONAL SAVINGS ALLOWANCE (PSA)
The first £1,000 of savings income is taxed at 0% for all basic rate taxpayers.
£500 for higher rate taxpayers
None for additional rate taxpayers
The PSA is applied after the 0% starting rate (if it applies)
LEMONIA EXAMPLE:
Lemonia has £12,570 of employment income and £6,000 bank interest income for 2022/23.
Compute Lemonia’s taxable income.
Lemonia’s taxable non-savings income is NIL after subtracting the personal allowance. So no tax.
She is entitled to the full £5,000 starting rate of 0%
In addition, since she is a basic rate taxpayer she is entitled to the personal savings allowance of
£1,000 taxable at 0%.
So Lemonia has no tax liability and will be able to claim a refund of any tax deducted under PAYE
from her salary.
, DIVIDEND INCOME
The first £2,000 of dividend income is taxed at 0%
Then taxed at 8.75% up to basic rate limit of £37,700
Dividends in the higher rate band are taxed at 33.75%
Dividends above the higher rate limit taxed at 39.35%
JELL
Jell has dividend income of £21,570 for 2022/23. He has no other source of income.
Dividend Income: 21570
Less: Personal Allowance: (12570)
Taxable Income: 9000
Tax Liability:
£2,000 x 0% : 0
£7,000 x 8.75%: 612
Tax due: 612
Example 1
Example 2
