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Non Savings Income: 6000
Savings Income: 6000
Dividend Income: 180000question is in this case how should we calculate tax liability. since I am an additional rate tax payer should we we pay tax on dividend income @38.1% directly or should I first pay 7.5% till 33500 then @ 32.5% till 150000 and then @38.1 for the balance.
I apoligize to the tutor for answering the question again, but I feel that helping others is one the best ways for me to be prepared for my exam too,
Sir, to answer your question, after going through the OT notes, I can say that Dividends are only taxed after NonSavings And Savings. Since both of those take 12000 off the 33500 basic rate, we can use that too. But firstly, 5000 from dividends will have 0%, then the amount upto 33500 will have the lower rate, then upto 150000 will take the higher rate, and finally above that it will have additional rate.
Note : only 175000 of dividends are taxable, since 5000 are exempted
The question that you pose strongly suggests that you have not worked through the OT lectures and notes as it indicates little knowledge from chapter 2!
Once again Azam thank you for trying to help your fellow students but it’s probably best to leave this particular forum for me to answer.
Rizwankazmi please work through the lectures and notes before raising queries as hopefully by doing so you will avoid a considerable amount of problems for yourself – you cannot work examples until you have studied the relevant lectures and notes!
In this question you should both be aware that with this level of income there would be no PA available and no savings income nil rate band available, hence the income figures are also the taxable income figures and you will then work progressively through the relevant tax bands.
Rizwankazmi please work through the lectures and notes for chapter 2 and then send me your answer to this question or tell me which part of the model answer to this question that you do not understand.
Azam please note that we do not exempt £5,000 of dividend income – it is all taxable BUT the first 5,000 is at the dividend income nil rate band – this will therefore use up 5,000 of the 33,500 basic rate band!
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