# Income tax computation Example 16

### Problems with notes or lectures?

2. Haha Elton and David!

Thanks for these lectures, I’m actually grateful for the periods of white screen so that the video downloads quicker. Makes sense with the OT notes out.

3. why is personal allowance not reduced even it exceeds 100,000.?

• @prit, PA is not reduced because there’s nothing to reduce it.

1) Adjusted Net Income (Net Income 106,000 – Gross Gift Aid 4800×100/80) = 100,000 which is NOT >100,000 (doesn’t exceed).

If PA were to be reduced, we’d reduce it by half of the EXCESS of the Adjusted Net Income over 100,000. But the ‘excess’ here = 0, and 1/2 of 0 = 0. So if we reduce 7,475 by 0, we get 7,475 intact.

and…

2) Kerry is young (so 24,000 threshold applied to PAA is out of the question here).
If he were old with same income and payments, we’d need two calcs:

- First on account of his ANI being > 24,000, where we’d halve the excess (106,000-24,000 = 82,000) and subtract from his PAA …since this would be negative, we’d restrict it to standard PA 7,475.

… and then

- First on account of his ANI being > 100,000, we’d reduce his restricted PAA (7,475 as above) by 1/2 x [Net Income 106,000 - 100,000], i.e by 3000, finally a revised PA of 4,475.

• CORRECTION (IGNORE ABOVE!!!!!!!!!!!!!):

PA is not reduced because there’s nothing to reduce it.

1) Adjusted Net Income (Net Income 106,000 – Gross Gift Aid 4800×100/80) = 100,000 which is NOT >100,000 (doesn’t exceed).

If PA were to be reduced, we’d reduce it by half of the EXCESS of the Adjusted Net Income over 100,000. But the ‘excess’ here = 0, and 1/2 of 0 = 0. So if we reduce 7,475 by 0, we get 7,475 intact.

and…

2) Kerry is young (so 24,000 threshold applied to PAA is out of the question here).

If he were old with same income and payments, on account of his ANI (100,000) being > 24,000, we’d halve the excess (100,000-24,000 = 76,000) and subtract the 38,000 from his PAA …since this would be negative, we’d restrict the revision to a standard PA 7,475. … BUT then,
IF in addition his ANI were > 100,000, say 110,000 (of course this could have affected the calc above but ignore that here … revised PAA would have stayed same = std 7,475) we’d AGAIN reduce his restricted PAA (7,475 as above) by half of the EXCESS over 100,000 now (as opposed to 24,000 above) …
i.e. by 1/2 x [ANI 110,000 - 100,000], i.e by 5,000, finally a revised PA of 2,475 (7,475 – 5,000).

• @crye, Many Manyt thnks reallyyyyy helped.

4. No video lecture for benefits???

• @m_sabeer, Benefits usually go with Employment Income.

5. Would be more helpful if examples are worked through on screen. Or atleast the study text should be shown as a blank screen is hard to deduce what is going on by voice only

• @haider316, Open your F6 course notes. You are supposed to follow them with our lectures

• @haider316, go to their notes ,there yhe can find the answers to all the examples mentioned in the notes

6. and which text is he using ,so i can refer to the workings and help me follow the lecture

• Opentuition F6 course notes

7. how comes the screen is blank

• @gumeden, because the tutor explains, and let you do the workings

8. oh my god,i didnt understand that joint owned property by married couple,there is no examples done for wht lecture explained,please consider it and put again,others are so clear.thnx

• @sweetusudu, (let me know if you still have a difficulty on this)

2 issues mainly:

1) If a Q told you they have a close/family company, when calculating their IT, on the computation, the income for each of them from that source (trading profit) will be half of the amount by default (50-50 rule). They could elect to be apportioned their actual ownership/holdings in the company if this is beneficial to them. If the man is higher rate payer (40%) and ACTUALLY owns 25% of the holdings in the company (wife 75%, lower rate payer 20%), if nothing is done, he’ll be taxed at 40% on his deemed/default 50% share of this particular source of income, which is unwise. So why not elect to be assessed on actual ownnership where he’ll rather be assessed 40% tax BUT only on 25% of the income from the holding? His wife, being lower rate payer would carry the other burden, her 75% holding income, at 20% tax only … hence better tax planning!
If the reverse were true about their taxpayer statuses, it would be then unwise to make the election since it would be better for the woman to be taxed 40% on her deemed 50% holding than on 75% actual holding …. Just like voluntarily jumping off a cliff.
If you get the above, you can use your reasoning to suggest tax planning in case of LOSSES!!

2) If a Q told you the man has a property/house giving some rental income, when calculating his IT, on the computation, the Rental/Property income (see proforma) will be fully assessed at 40% higher rate. But what is he gave (legally) his wife say 5% of the building? It would now be recognised by the ‘stupid’ law as them having 50:50 of the income from that property (joint ownership). So when calculating their individual I.T’s, on the computation, the Rental/Property income for each of them will be half of the amount by default (50-50 rule). The husband will now be saving the amount (half) that goes to wife at 40%!! … and since she’s a basic rate taxpayer (or maybe has no income), she’ll be paying for this at assessment 20%, hence an effective saving of 20% (40%-20%) on the amount deemed to be received by poor wife.

Who makes these rules?!

• I meant “But what IF he gave (legally) his wife say 5% ownership of the building?…

9. thnx Opentuition. got the answers and am able to understand better.. great work

10. wea r the model answers that are not done on the screen?