INCOME TAX
Different types of income must be separated from one another into 3 categories;
- Non savings, non-dividend income (NSNDI), comprising all sources of income except
income derived from savings and dividends;
- Savings income, which is interest from various sources, for example building society
accounts, most National Savings accounts, unit or investment trusts and corporate or
government bonds and gilts; and
- Dividend income.
•
Step 1- Calculate the total income
• Step 2 - Deduct and allowable reliefs
• The resulting sum is NET INCOME
• Step 3 - Deduct any personal allowances
• The resulting sum is TAXABLE INCOMES
• Step 4 - Separate NSNDI, savings income and dividend income, and calculate the tax
on each type of income at the applicable rate(s) (starting rate, basic rate, higher rate
and additional rate)
• Step 5 - Add together the amount of tax from Step 4 (to give the overall tax liability)
Total income (ITTOAIA 2005)
- Employment income
- Dividends
- Interest
- Property Income
- Trading Income
Allowable reliefs
Total Income
Less
Allowable Reliefs
=
Net Income
Interest payments on qualifying loans
- Most interest payments receive no tax relief at all.
- Certain cases, tax relief may be available for interest paid on money borrowed.
- To obtain tax relief, Interest must be payable on a ‘qualifying loan’.
Different types of income must be separated from one another into 3 categories;
- Non savings, non-dividend income (NSNDI), comprising all sources of income except
income derived from savings and dividends;
- Savings income, which is interest from various sources, for example building society
accounts, most National Savings accounts, unit or investment trusts and corporate or
government bonds and gilts; and
- Dividend income.
•
Step 1- Calculate the total income
• Step 2 - Deduct and allowable reliefs
• The resulting sum is NET INCOME
• Step 3 - Deduct any personal allowances
• The resulting sum is TAXABLE INCOMES
• Step 4 - Separate NSNDI, savings income and dividend income, and calculate the tax
on each type of income at the applicable rate(s) (starting rate, basic rate, higher rate
and additional rate)
• Step 5 - Add together the amount of tax from Step 4 (to give the overall tax liability)
Total income (ITTOAIA 2005)
- Employment income
- Dividends
- Interest
- Property Income
- Trading Income
Allowable reliefs
Total Income
Less
Allowable Reliefs
=
Net Income
Interest payments on qualifying loans
- Most interest payments receive no tax relief at all.
- Certain cases, tax relief may be available for interest paid on money borrowed.
- To obtain tax relief, Interest must be payable on a ‘qualifying loan’.
