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Taxation

A

Anne Marie

Member
A question on taxation section of SA6

1) Taxation of Dividends: Some past questions say that dividend income is received franked of a 10% tax credit. Fine. So basic rate taxpayers pay no further tax. OK. But some questions say that to calculate higher rate tax you add back the 10% tax credit and use 32.5% to calculate the extra tax, and some use 22.5% - please help as I am confused
e.g. for a 100 dividend, 100/0.9*22.5% or 100/0.9*32.5%

2) CGT Allowances: For an individual, what are the CGT allowance for a basic rate and higher rate taxpayer? It mentions £11,100 is the limit for zero tax, above that 18% for basic and then 28% for higher - what is the allowance for higher rate or is everything above £11,100 taxed at 28% for higher rate taxpayers?

3) Income Tax: What are the income tax brackets for basic and higher rate tax? these are 20% / 40% / 45% I understand but at what amounts? And how does the savings income fit in to this?

thank you
 
I'm giving generic advice here rather than specifics. How tax works changes over time - in the UK typically at each Budget. Usually the basis is the same, its the limits that change, but occasionally new tiers etc are introduced. Examiners will be looking at what is in the course and any data in the course can be used in exam solutions as relevant. So my guess is these past questions come from different times hence the differences in 1)
Re 3) in the UK if you are getting interest on savings etc that is classed as ' income ' so in this sense we aren't looking solely at employment remuneration.
You can google current limits; I'm not sure of them.
 
What Bystander says is true - if it is not in the course, you wont be expected to know it (particularly things like income tax brackets). Also true that interest from savings is just added on to employment income, and may fall into higher brackets.
In answer to the specific dividend question, someone whose income pushes them into the 40% bracket would have to pay additional tax on dividends of (using your 100 net dividend example) 100/0.9 * 22.5%. In combination with the 10% tax credit, some people say that means they have paid 32.5% on the gross div. This is all changing now, and most investors get £5,000 of dividends free of tax, and then pay either 7% or 32.5% on dividend income in excess of this amount. Much simpler! CGT works in a similar way. If your income has pushed you into the higher rate tax bracket, then you will pay 28% on all taxable gains in the year. Taxable gains are gains in excess of your allowance. If you are only basic rate, its 18% on everything above the tax free allowance.
 
Thank you both

The rate of CGT has fallen from 28%/18% to 20%/10% but I suppose I don't need to know this?

Similarly - I don't need to know the 7.5%/32.5% dividend rates about £5000?
 
The rates in the core reading are usually fine for the exam, and if you know the up to date ones, that also scores you the marks. Best of both worlds.
 
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