Hi,
I studied at college for the first two years of further education (which included an extensive module on tax) and am now in year 3 of university.
In college we were advised that what determined your personal savings allowance was your total taxable income (ie non savings, savings and dividends added together). So, if that totalled above the basic rate band threshold, you were entitled to £500 or £0 (depending on your total earnings).
Now in university, the lecturer is advising that you only work out the personal savings rate band based solely on non savings income, less the personal allowance (not personal savings allowance, but personal allowance).
I have looked at the videos on line and I think what I understand from your content, is that the 1st way (total taxable income) is correct, but I wanted to post the question here to see the advice.
I have looked at past ACCA papers and solutions, but the amounts are so high that this isn't even a consideration (£150k upwards).
Can you advise?
Thank you.
Ask the Tutor ACCA TX-UK
Personal Savings Allowance
If you go back to the study notes and lectures you will find that there are TWO separate issues here that pertain to the taxation of Savings Income
The Savings Income nil rate band - which is dependent upon total taxable income and whether the taxpayer is a just a basic rate taxpayer, or higher rate taxpayer or additional rate taxpayer, and
the 0% Starting Rate of tax which is only available on savings income that falls into the first £5,000 of taxable income, which is established by taking the PA firstly from Non Savings income to compute if any part of the Savings Income does then fall into the first £5,000 of taxable income.
See Chapter 2 Section 3.2 (e) and the examples that follow - most specifically Example 5
Here is an example which might explain better what I am asking (ignoring the first £5k rule):
For the tax year 2020-21, Joe has a salary of £46,500, savings income of £2,000 and dividend income of £6,000. During the year, he paid interest of £300 which was for a qualifying purpose. Joe’s employer deducted £6,800 in PAYE from his earnings. The income tax payable by Joe is:
Non Savings Income : £46,500 - £300 - £12,500 (PA) = £33,700
Savings income: £2,000
Dividend income : £6,000
Total income : £46,500 + £2,000 + £6,000 - £300 - £12,500 = £41,700
What would be the personal savings allowance here - £500 or £1,000?
As I stated previously the rules with examples are clearly illustrated in the study notes and lectures - please use and answer your own question - is the taxpayer a higher rate taxpayer - yes - therefore??
Also - you cannot choose to ignore tax rules - they either apply or they do not - does the 0% starting rate apply here - if not then no 0% starting rate
Also note that what you are referring to above as "Total Income" is not Total Income but is total Taxable Income
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