Why Choose Us?
0% AI Guarantee
Human-written only.
24/7 Support
Anytime, anywhere.
Plagiarism Free
100% Original.
Expert Tutors
Masters & PhDs.
100% Confidential
Your privacy matters.
On-Time Delivery
Never miss a deadline.
Eric, is an advertising executive, and his wife Nichole, is an IT consultant
Eric, is an advertising executive, and his wife Nichole, is an IT consultant. Having made a large gain on the sale of a property when they got married, they have acquired a considerable number of investments. They now require assistance in preparing their self-assessment tax returns for the tax year 2019/20 and have listed out their income and expenditure: ERIC £ Salary 105,000 Premium bond winnings 10,000 Interest received on NS&I certificates 600 Nichole Salary 110,000 ISA account dividend income 700 interest income 250 Dividend received on Scotch plc shares 3,000 Interest received on 10% treasury stock 2019 (a gilt-edged security) 4,000 Gift aid payment to Dogs Trust 2,000 In addition they received interest of £11,000 on a joint building society account. Required: Calculate the income tax liabilities for ERIC and Nichole for the tax year 2019/20 (15 marks)
Expert Solution
Income Tax Liability for Eric :
Salary = 
105,000
Income tax rate for salary = 40%
Taxable salary = 105,000 x 40/100 = 42,000
Premium bond winnings 10,000 are normally tax free. There is no tax liability for premium bond winnings.
Interest received on NS&I certificates = 600
Interest received is a capital gain. Therefore it is taxed under capital gain taxes at a higher normal rate of 20% because Eric is a higher tax payer.
Taxable interest = 600 x 20/100 = 120
Total Taxable income = Taxable salary 42,000 + Taxable interest 120
Total Taxable Income of Eric = 42,120
Income Tax Liability for Nichole
Salary = 110,000
Income tax rate for salary = 40%
Taxable salary = 110,000 x 40/100 = 44,000
Dividend income = 700
As the salary is higher, taxable dividend is taken at higher rate. So Tax rate for dividend income = 32.5%
Taxable dividend = 700 x 32.5/100 = 227.5
Interest income = 250
Interest income is taxed under capital gain taxes at a lower normal rate of 10%.
Taxable interest = 250 x 10/100 = 25
Dividend received on Scotch Plc Shares = 3,000
Taxable higher rate dividend = 32.5%
Taxable dividend = 3000 x 32.5/100 = 975
Interest received on treasury stock = 4,000
Interest on treasury stock under capital gain taxesat a higher normal rate of 20%
Taxable interest = 4000 x 20/100 = 800
Gift aid payment to Dogs Trust = 2,000
As Nichole is a higher tax payer, the charity claims basic rate of 20% from Nichole. Therefore, Nichole has to give 2,400 [(2000 x 20%) + 2000]. She can claim the difference of tax rate 20% (40% - 20% = 20%) from the gross donation 2400. Thus Nichole can claim 480 from the total tax payment.
Total taxable income for Nichole= Taxable salary 44,000 + Taxable dividend 227.5 + Taxable interest 25 + Taxable dividend 975 + Taxable interest 800 - Deduction on gift payment 480
Total Taxable Income for Nichole = 45,547.5
Eric and Nichole received interest of 11,000 on a joint building society account. Taxable rate on property is 28% for higher tax payers like Eric and Nichole.
Taxable interest income = 11,000 x 28/100 = 3,080
Total Taxable Income of Eric and Nichole = 42,120 + 45,547.5 + 3,080
Total Taxable Income of Eric and Nichole for the year 2019/20 = 90,747.5
Archived Solution
You have full access to this solution. To save a copy with all formatting and attachments, use the button below.
For ready-to-submit work, please order a fresh solution below.
