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Dear Tax Tutor,
I came across a question and when i saw the way it was answered i became confused.
I kind of different from what i use to understand.
The question is detailed below:
Samson and Delila are married couple. Samson was born on 24 June 1964 and Delilah was born on 6 May 1962. They are both employed by Rope PLC.During the year, samson was paid a gross annual salary of 112,000 pounds. Samson and Delilah have SAVINGS in a BUILDING SOCIETY DEPOSIT account which is in their joint names of which they recieved 9,600 pounds.
Calculate samson’s income tax liabilities.
I did it this way:
Non savings, Savings Total.
salary 112,000 112,000
interest(9600/2*100/80) 6000 6000
Less personal income
(112,000-100000/2-10,000) (4000) – (4000)
————- ———– ———–
Taxable income 108,000 6000 114,000
———— ———– ————–But the answer came this way:
Employment income-salary 112,000
building society interest (9600/2) 4,800
———-
116,800
Personal allowance (116,800-100,00/2-10000) (1,600)
————
Taxable income 115,200
————
My question now is that:
1) why is building interest treated as Non savings?1) Your answer – If the interest is stated as received and they have not stated gross next to it then you should indeed gross it by 100/80 which will give 12,000 and then split it 50/50 thus giving 6,000 so that net income is 118,000. The PA is then restricted by 9,000
(118,000 – 100,000) / 2 which would leave a PA of 1,000. Interest income IS savings income but the PA is not restricted merely by reference to non savings income but by reference to “adjusted net income”!
2) Their answer – This answer would be correct if you had been told that the interest figure was GROSS
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