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Eric, is an advertising executive, and his wife Nichole, is an IT consultant

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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)

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Income Tax Liability for Eric :

Salary = $\epsilon$ 105,000

Income tax rate for salary = 40%

Taxable salary = 105,000 x 40/100 = $\epsilon$ 42,000

Premium bond winnings $\epsilon$ 10,000 are normally tax free. There is no tax liability for premium bond winnings.

Interest received on NS&I certificates = $\epsilon$ 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 = $\epsilon$ 120

Total Taxable income = Taxable salary 42,000 + Taxable interest 120

Total Taxable Income of Eric = $\epsilon$ 42,120

Income Tax Liability for Nichole

Salary = $\epsilon$ 110,000

Income tax rate for salary = 40%

Taxable salary = 110,000 x 40/100 = $\epsilon$ 44,000

Dividend income = $\epsilon$ 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 = $\epsilon$ 227.5

Interest income = $\epsilon$ 250

Interest income is taxed under capital gain taxes at a lower normal rate of 10%.

Taxable interest = 250 x 10/100 = $\epsilon$ 25

Dividend received on Scotch Plc Shares = $\epsilon$ 3,000

Taxable higher rate dividend = 32.5%

Taxable dividend = 3000 x 32.5/100 = $\epsilon$ 975

Interest received on treasury stock = $\epsilon$ 4,000

Interest on treasury stock under capital gain taxesat a higher normal rate of 20%

Taxable interest = 4000 x 20/100 = $\epsilon$ 800

Gift aid payment to Dogs Trust = $\epsilon$ 2,000

As Nichole is a higher tax payer, the charity claims basic rate of 20% from Nichole. Therefore, Nichole has to give $\epsilon$ 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 $\epsilon$ 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 = $\epsilon$ 45,547.5

Eric and Nichole received interest of $\epsilon$ 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 = $\epsilon$ 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 = $\epsilon$ 90,747.5

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Eric, is an advertising executive, and his wife Nichole, is an IT consultant

Accounting