Dear Tutor, In your lecture note example 3 and 6. In example three taxable income is 39930 and for saving income calculation you deducted from (37700-non savings income 14930-savings income nil rate band for higher tax payers 500*0.2)=4454 which I got it. But in your example 6 taxable income 38930 and for savings income calculation you deducted (38930-non savings income 24930-savings income nil rate band 500 and dividends 1500)*0.2=2400. why you used 38930 instead of 37700.
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Income computation
3h ago#1The basic rate band is £37,700, and as the taxable income in Example 3 is £39,930, it is in excess of the basic rate band by £2,230. The taxable income of £39,930 is taxed as follows:
£14,930 (NSI) at 20%
£500 (SNRB) at 0% (giving a total taxed so far of £15,430, leaving £22,270 of the basic rate band remaining).
The balance of the basic rate band is applied to savings income, which is taxed at 20%, leaving the balance of the total taxable savings income of £2,230 falling into the higher rate band to be taxed at 40%.
The basic rate band is still £37,700, and as the taxable income in Example 6 is £38,390, it is in excess of the basic rate band by £1,230. The taxable income of £38,930 is taxed as follows:
£24,930 (NSI) at 20%
£500 (SNRB) at 0%
£12,000 (SI) at 20% (giving a total taxed so far of £37,430, leaving £270 of the basic rate band remaining)
When we move on to dividends, the first £500 is covered by the DNRB and is taxed at 0%, so this uses up the remainder of the basic rate band of £270, leaving the balance of £230 (still taxed at 0%) tipping over into the higher rate band. As we are now in the higher rate band, the balance of the dividend income of £1,000 is taxed at 33.75%.
So £1,230 falls into the higher rate band as above, it's just that £230 of it is taxed at 0% as it's within the first £500 of dividend income.
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