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S and D are married couple
S- Higher taxpayer
D- Additional taxpayerThey have savings in Building society deposit which is in their joint account.
Interest- $9600Question- S’s income tax saving if Building society deposit account had been in D’s sole name instead of in joint name.
Answer is 4300 x 60% = $2580
I believe they got 4300 by subtracting 500 ( saving income rate nil band) from 4800 (I.e. 9600/2) —-> Correct me if I’m wrong.But I didn’t understand that 60%
I presume that the question gave precise levels of income rather than just stating – higher rate tax payer and additional rate taxpayer?
S’s salary -112000
building society interest- 4800
less PA- (2600)
taxable- 114200D’s taxable income:
Employment income- 213248
Trading income (40 % partner)- 34240
building society- 4800
less: Interest paid – (6200)Net/taxable income: 246088
In the above working, building society is in a joint account.
Part B of the question is to calculate S’s income tax saving if deposit account had been in D’s sold name instead of joint.
A taxpayer who has adjusted net income in excess of £100,000 will lose PA at a rate of £1 for every £2 of income up to £122,000.
Thus for every £2 of income in this band the taxpayer’s taxable income will increase by £3. £3 taxed at 40% is £1.20 additional tax on additional income of just £2.
£1.20 tax on £2 of income is an effective rate of 60%!
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