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Sep 2013 q1(iv)

Discussion in 'SA5' started by Edwin, Feb 8, 2015.

  1. Edwin

    Edwin Member

    This question draws a lot from Chapter 4 which is really helpful, wish there were more of questions like this...

    I downloaded 2013 changes to core-reading from the acted website here;-

    http://www.acted.co.uk/Docs/2013/CMP Upgrades/SA5-PU-13.pdf to use the correct tax rates.

    A few things I don't understand;-

    1. Why is the personal allowance not deducted when calculating the Basic rate tax, i.e the 6874 is just 20% of 34370 not 20%(34370-8105), whereas the 23010 is 40% of (100000-34370-8105)?

    2. For the interest income taxation, I am failing to arrive at the 26.67....according to my calculations these are the steps;-

      Mr X actually gets 600 Francs (pre-tax) = 400 pounds and pays 0.2*400 since he is a higher rate income earner = 80 pounds. Since he has already paid 133.33 pounds (200 Francs) his tax liability is now 80 - 133.33? Looks like the examiners' report calculates his tax liability as 0.4*400=160 to get a tax liability of 160-133.33=26.67? (Help will be appreciated here)

    3. For Mrs X, I don't understand why the personal allowance is recorded against the OffhsoreLand account? Wasn't it just supposed to be placed against the zero salary and the tax on the OffhsoreLand account made zero since she is a starting savings earner?

    PS;- where can I find more calculation questions from this topic?
     
    Edwin, Feb 8, 2015
    #1
  2. Colin McKee

    Colin McKee ActEd Tutor Staff Member

    This was a tough, and unexpected, question. You will find nothing like it prior or since. The ActEd course notes do not have much on this type of calculation as I didn't really expect it to be tested like this.
    The answer to the first question is easy though. The £34k income tax allowance is on top of the tax free allowance. So you have to get to £34k + £8k before you start paying higher tax. Thus you would never deduct £8k from £34 to get anything. (NB these rates have been adjusted in the years since this question was asked, and the basic allowance is not £10k, but the lower basic rate band is smaller.)

    Second question, I think the calc goes like this: total income 1200 is divided between both parties giving 600 each. This is the £400 that each party has in the tax schedule as it is converted to sterling at 1/1.5. Then the full 40% tax charge is levied to give a potential £160. But since 400 was withheld at source = 200 each, then this can perhaps be claimed against the tax charge. 200 is effectively 133 in sterling, and hence the net charge is 26.7

    Last question, I think it doesn't matter where you put the 8,105 of allowance. The fact is that all of the income received add up to less than the income tax allowance, and hence no income tax is paid. The "starting saving" rate you refer to is a tax band AFTER the nil tax allowance (as per the first point above).

    Hope this helps.
     
    Colin McKee, Feb 9, 2015
    #2
  3. Edwin

    Edwin Member

    Thanks a million, you don't know how helpful this is. My question is for the second point above, why levy a tax of 40% on interest income for a higher rate earner, insn't it 20%?
     
    Last edited by a moderator: Feb 9, 2015
    Edwin, Feb 9, 2015
    #3
  4. Edwin

    Edwin Member

    Hi Colin, so the examiners were wrong?
     
    Edwin, Feb 11, 2015
    #4
  5. Colin McKee

    Colin McKee ActEd Tutor Staff Member

    Hi, The question is, why do you think they should levy a 20% tax on a 40% taxpayer?? You may be thinking that this is UK income where 20% has already been taken (or "imputed" by the corporation tax paid). It is overseas income which is not deemed to give exemption to UK tax. So 40% for a 40% taxpayer.
     
    Colin McKee, Feb 12, 2015
    #5
  6. Edwin

    Edwin Member

    Hi Colin, but isn't it taxation on "interest income" from a savings account and hence subject to 20%, not personal income which is subject to 40%?

    I'm missing something...
     
    Last edited by a moderator: Feb 12, 2015
    Edwin, Feb 12, 2015
    #6
  7. Colin McKee

    Colin McKee ActEd Tutor Staff Member

    Interest is taxed at 40% if you are a higher rate taxpayer. the only time it would be reduced is if there was tax already paid on the income. Sometimes this may happen with bank savings interest in the UK for example.
     
    Colin McKee, Feb 13, 2015
    #7
  8. r_v.s

    r_v.s Ton up Member

    Would you please explain how the 57525 comes??
    Sorry! I got it...I was uing 37340 all along :(

    1. also how did the 451.39 figure come up?
    1250 is net dividend. If there is a 10% tax credit, gross div = 1388.88. So isnt the tax on this at 22.5% and that 312.5, so and what is the -138?
    2. Also why are the VC shares exempt?
     
    Last edited: Apr 10, 2015
    r_v.s, Apr 10, 2015
    #8
  9. Edwin

    Edwin Member

    1) The 451.39 is the tax payable on the gross dividend before the tax credit is allowed, and hence the -138 is the tax credit.

    0.325*1250/0.9 = 451.39, 0.1*1250/0.9 = 138.88

    2) The first 10900 of an individual’s net gains are free of CGT - NOW, then it was the first 10600
     
    Edwin, Apr 10, 2015
    #9
  10. r_v.s

    r_v.s Ton up Member

    2) The first 10900 of an individual The first 10900 of an individual’s net gains are free of CGT - NOW, then it was the first 10600

    But what about the first 5500? Isn't 5500+8000 > 10600(then) and 10900 (now!!)?
     
    r_v.s, Apr 17, 2015
    #10
  11. Edwin

    Edwin Member

    My summary notes say 'Husbands and wives are subject to CGT separately", so they share the 11000 since they jointly own the portfolio but Mrs X is on her own with the 8000, which is also below 10900 (now** we need to start referring to the right numbers) and 10600 then
     
    Last edited by a moderator: Apr 17, 2015
    Edwin, Apr 17, 2015
    #11
  12. Colin McKee

    Colin McKee ActEd Tutor Staff Member

    The gain on the venture cap trust s exempt in the UK.
     
    Colin McKee, Apr 17, 2015
    #12
  13. Edwin

    Edwin Member

    Thanks Colin, my answer is wrong....rvs was right, but the notes make no mention of taxation of a Venture Trust...

    Capital gains on Unit trusts is said to be in the normal way...while Investment Trusts are equity and also taxed as such
     
    Edwin, Apr 17, 2015
    #13
  14. Bidza

    Bidza Member

    Hi Edwin. Section 4.3 of the Taxation chapter lists main exemptions. The seventh bullent point reads "enterprise investment scheme, venture capital trust and business expansion schemes". I think this suggests that the VC should be exempt.
     
    Bidza, Apr 17, 2015
    #14
  15. Edwin

    Edwin Member

    You say I must start reading my notes :D
     
    Edwin, Apr 17, 2015
    #15
  16. r_v.s

    r_v.s Ton up Member

    Thanks! :)
    I was started looking thro the notes for something like this, but I guessed I missed it :(
     
    r_v.s, Apr 17, 2015
    #16

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