Week 3

• How much is Personal Allowance in 2023/24?

  £12,570
• If the taxpayer is a basic rate tax payer then how much can he earn from his employment to stay in that tax bracket?

  £50,270
• If the taxpayer is a higher rate tax payer then how much maximum can he earn from his employment to stay in that bracket?

  £125,140
• Non-savings income is treated as the

  “bottom slice” of earnings (taxed first in tax computation)
• Savings income is treated as a “higher layer” of income (taxed after

   non-savings income)
• Savings income = income from savings = interest
• Interest received net (we have to gross it up by x 100/80 in income tax computation)
• Savings income includes bank and building society interest, interest on government securities and loan or debenture interest
• Bank and building society interest is received gross but some types of savings income such as debenture or loan interest (UK companies) and patent royalties  are received net of 20% income tax
• In an income tax computation, any income received net of 20% tax is "grossed up" by multiplying the net amount by 100/80
• § Individual Savings Accounts might be held by individuals from the age of 16
• cash ISAs – savings account
• stocks and shares ISAs – stocks and shares account (from the age of 18)
• § Maximum amount “subscription limit” to invest is £20,000 in 2023/24
• § Interest and dividends arising from ISAs are exempt from income tax
• You can save up to £20,000 in one type of account or split the allowance across some or all of the other types.
• § You can only pay £4,000 into your Lifetime ISA in a tax year. You could save £15,000 in a cash ISA, £2,000 in a stocks and shares ISA and £3,000 in an innovative finance ISA in one tax year.
• In tax year 2023/24, savings income is taxed at the "starting rate" of 0% if it falls within the first £5,000 of taxable income.
• Every £1 of other income above your Personal Allowance reduces your starting rate for savings by £1.
• Additional rate taxpayer          no PSA
• § Any income tax deducted at source is deducted from the income tax liability
• You may get a dividend payment if you own shares in a company.
• Basic and higher tax rate band can be extended by grossed gift aid.
• Basic tax band (and higher tax band as well) takes in all 0% allowances on savings and dividends, which reduces its amount available for savings and dividends.
• Be careful if the non-saving income is below £37,700 as then PSA (£1000 or £500) will fill the rest of the band. Even if taxed at 0% !!!!
• § Income is taxable on the basis of which CLASS it falls within
• § Each individual has their own set of allowances
• § Some incomes are received net and others gross
• § All incomes are grossed up in the income tax computation
• § Special rules apply to savings and dividend income
• Dividends Tax free allowance is 500