(Personal) Taxable income & Taxable gain

System
System Posts: 100,534 🤖 Admin 🤖
edited June 18 in AAT student discussion
Hi,

Please can somebody help me out, regarding a personal tax dilemma.

I thought that the "taxable income" figure derives from the total income minus the personal allowance (£5035 in my example).

Based on this, the "taxable gain", is this made up of the total capital gain (after indexation / taper relief) minus the annual exemption (£8800 in my example)?

I am assuming that "taxable" means after allowances / deductions have already been taken off, ready for your tax computation to be done?

Please confirm this / tell me otherwise, as it is driving me barmey :shock:

Many thanks, in advance,

Bex

x

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:(Personal) Taxable income & Taxable gain

    I'll try.
    We first do our Income Tax Computation - you know the table you compute all the Saving incomes, non-saving income & dividends, take away PA(£5035)and it gives the Total Taxable Income of each columes.
    and then compute Capital Gain - as you say, after all the losses, relief and exemption (£8800).

    For instance, Total Taxable Income say £10000 with no saving income nor dividends; Capital Gains £10000.
    we can now calculate the Tax Liability for the year:
    £2150 @10%
    £7850 @22%
    £10000 @20% (as we haven't use up the basic rate band and CGT charges 20% at this band)

    What do you think? I hope it doesn't sound patronising (I am just help you to help myself really :) ).
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:(Personal) Taxable income & Taxable gain

    If you were to have had savings and dividends would you work out the tax on these first before doing the capital gains tax? Or do you compute the capital gains with non savings income i.e from employment and lettings and then do the savings and divs so divs will be in the higher tax band if the total of all income goes over the threshold?

    Are we right to assume in your exmaple the personal allowance and the 8800 have been deducted and the 10,000 is net?

    Thanks
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:(Personal) Taxable income & Taxable gain

    Hi,

    Yes, you will have to do the income tax liability in the usual way from the income tax computation, then the CGT.

    using the same example: say we also have £500(grossed up) taxable saving income and £400(grossed) dividends, the calculation would:
    £2150 @10%
    £7850 @22%
    £500 @20% (as saving income charge 20% at basic rate band)
    £400 @10%
    £10000 @20% (and we still haven't use up the basic rate band otherwise would be 40%)

    ans your 2nd question, yes, by the time we do the tax liability calculation, all the allowances should have been taken off.

    hope this is helpful
    Apple
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:(Personal) Taxable income & Taxable gain

    Hi Apple,

    Thank you for your comment, sorry I have only just replied!

    I checked my message for days and no oone replied to help :( I began to wonder if I had worded it in a way that someone was able to help me!

    Thank you, I have done the homework question, as I thought, and like you confirmed - treating it as though the exemption had already been taken off.

    Phew, hopefully it will be right, I will argue it if not, as "taxable" income and gain should be similar with regards to exemptions and allowances.

    Thanks again,

    Bex :D

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