Question

Daisy had the following income for the tax year 2016/17: i Gross Salary -£103,000 (her employer deducted PAYE of £32,600) i) Property income £16,000 ii) Bank interest received - £1,600 iv) Premium bond prize - £100 Property business income from letting out a furnished house9,000 Income from letting out a room in Daisy's house 7,000 Required: a) Prepare the income tax computation for Daisy for 2016/17, showing the tax liability and the tax due to be paid. 14 marks b) Daisy is thinking of establishing a business letting out holiday cottages. Explain the conditions that must be met for the letting of a cottage to qualify as a holiday letting for income tax purposes.

Rates and allowances

INCOME TAX (2018/19)

%

Basic rate £1 – £34,500 20%

Higher rate £34,500 – £150,000 40%

Additional higher rate £150,001 onwards 45%

A starting rate of 10% applies to savings income where it falls within the first £5,000 of taxable income.

Personal allowances (2018/19)

       £

Personal allowance    11,850

Car fuel benefit (2018/19)

The base figure for calculating the car fuel benefit is £23,400.

Approved mileage rates (2018/19)

Car and vans: 0 – 10,000 miles 45p per mile

10,000+ miles 25p per mile

Motor cycles 24p per mile

Bicycles 20p per mile

CAPITAL GAINS TAX (CGT) (2018/19)

Standard rate of CGT     10%*

Higher rate of CGT     20%*

Entrepreneurs’ relief rate     10%

Annual exemption £11,700

Entrepreneurs’ relief        £10,000,000

*An 8% surcharge applies in respect of residential properties.

NATIONAL INSURANCE (NI) (2018/19)

CLASS 1 (primary)

Earnings up to £162 a week Nil

Earnings between £162 and £892 12%

Earnings over £892 a week 2%

CLASS 1 (secondary)

Earnings up to £162 a week Nil

Earnings over £162 a week 13.8%

CLASS 2

Weekly Contribution – £2.95

Small earnings exception - £6,205

CLASS 3

Weekly contribution - £14.65

CLASS 4

Lower profits limit £8,424

Upper profits limit £46,350

Rate on profits between upper and lower limit – 9%

Rate on profits beyond upper limit - 2%

End of tax tables

Answer 1