ACCA paper F6 UK Basic Income Tax computation | Tax reliefs & Qualifying interest payments

Tax reliefs

Tax relief is given for certain losses incurred (e.g. trading losses and certain qualifying interest payments).

Qualifying interest payments

·         Purchase of a share in a partnership

·         Purchase of ordinary shares in, or loans to a close trading company (controlled by 5 or fewer)

·         Purchase of ordinary shares in an employee controlled UK resident unquoted trading company

·         Purchase of plant & machinery by an employee for use in his employment

·         Payment of inheritance tax by a personal representative of a deceased’s estate

Interest not allowed

·         Interest on debts used to finance expenditure for trade purpose

·         Interest incurred on borrowings to acquire or improve commercial letting property

·         To provide working capital for a letting trade

ACCA paper F6 UK Basic Income Tax computation | Tax reliefs & Qualifying interest payments | Example

Example 3

Anwar and Barry each have total income of £50000 none of which is savings or dividend income. They made the following payments during 2009/10.

·         Anwar made interest payments during the year totaling £2000 on a loan on his mortgage for his principal private residence.

·          Barry made interest payments of £2000 on a loan to invest on a partnership in which he is a partner.

Calculate the income tax liability for Anwar and Barry for 2009/10.

Solution

Income tax computation 2009/10

	Anwar	Barry
	£	£
Total income Less Reliefs: Qualifying interest paid Net income Less: personal allowance Taxable income	50000 50000 (6475) 43525	50000 (2000) 48000 (6475) 41525

Income tax	£	£
Basic rate Higher rate Income tax liability	37400 6125 43525	37400 4125 41525	× 20% × 40%	7480 2450 9930	7480 1650 9130

ACCA paper F6 UK Basic Income Tax computation | Tax reliefs & Qualifying interest payments

Tax reliefs

Tax relief is given for certain losses incurred (e.g. trading losses and certain qualifying interest payments).

Qualifying interest payments

·         Purchase of a share in a partnership

·         Purchase of ordinary shares in, or loans to a close trading company (controlled by 5 or fewer)

·         Purchase of ordinary shares in an employee controlled UK resident unquoted trading company

·         Purchase of plant & machinery by an employee for use in his employment

·         Payment of inheritance tax by a personal representative of a deceased’s estate

Interest not allowed

·         Interest on debts used to finance expenditure for trade purpose

·         Interest incurred on borrowings to acquire or improve commercial letting property

·         To provide working capital for a letting trade