SAIM1110 - Savings and investment income: tax on savings and investment income: example for tax years up to and including 2007/08

Example

Jane has income of £30000 from employment, and savings income in the form of net building society interest of £800 and dividends of £9000. The personal allowance for 2006-07 is £5035, the starting rate band covers income up to £2150, and the threshold for higher rate tax is £33300.

The dividends are taxed as the highest part of income and are taxed partly at the dividend ordinary rate of 10% and partly at the dividend upper rate of 32.5%. The building society interest is the next highest part of total income and is taxed at the savings rate of 20%. Her tax liability in 2006-07 is as follows:


Income

Employment30000
Interest1000
Dividends10000

[9000+(9000 x 1/9)]

Less personal allowance
Taxable35965


Tax

2150 @ 10%215
22815 @ 22%5019
1000 @ 20%200
7335 @ 10%733
2665 @ 32.5%866
Total7033
Less tax at source on interest(200)
Less tax credit(1000)
Tax payable5833