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First of all thank you so much for uploading the videos. We’ve been waiting for it.
I’ve been watching the lectures and in part 2, Example 3, Billy is a high rate taxpayer. I have a slight confusion with regards to nil rate band.
For a high rate taxpayer, the nil rate band is 500 which is taxed at 0%.
In the solution, 500 is used up from the basic rate band of 37,700.
I was thinking, if it should’ve been used up from the [37,700-125,140] band, since the 500 nil rate relates to the higher rate band?Thank you.
No, the nil rate bands, both for savings and dividends, are part of the tax bands; i.e. included within not in addition to.
As Billy’s total taxable income is £39,930, he is a higher rate taxpayer so that fact means that his savings income gets a NRB of £500.
As his taxable NSI is £14,930, he has £22,770 of his basic rate band remaining to apply to his savings income. As the first £500 falls within this band, it is taxed at 0% leaving £22,270 of his basic rate band available for his savings income to be taxed at 20%. As his total taxable savings income is £25,000 and we have already taxed £(500 + 22,270) = £22,720, the balance of the £25,000 (£25,000 – £22,770) = £2,230 takes us over the BRB of £37,700 and is taxed at 40%.
Thank you so much for taking the time out to explain.
You have explained it so clearly.
I was getting confused about this even when doing this from Kaplan text. But then when I was watching your lectures, it was pretty clear but just to make sure that no doubt is left, I thought it’ll better if I posted my question here. Now I can move forward to the next topic.Once again, thank you.
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