Income tax: property and investment income: formula sheet

Key formulas

Main pool WDA

WDA = 18% × (b/f balance + additions not relieved by AIA or FYA − disposal proceeds)

Reducing balance. Time-apportion for a period that is not 12 months.

Special rate pool WDA

WDA = 6% × (b/f balance + additions not relieved by AIA or FYA − disposal proceeds)

Holds integral features, long-life assets and cars over 50g/km.

Annual investment allowance

AIA = 100% × qualifying spending, up to £1,000,000

Not available on cars. Limit is time-apportioned for a period that is not 12 months. Allocate AIA to special rate pool additions first because they get the lower WDA.

Company enhanced allowances

Main pool FYA 100%; special rate pool FYA 50% (new, unused assets, companies only)

The 50% not relieved moves to the special rate pool and gets the 6% WDA.

Car rates

New zero CO2 car: 100%. CO2 1–50g/km: 18%. CO2 over 50g/km: 6%. Second-hand zero CO2 car: 18%

No AIA on cars. Use the table ACCA gives you.

Structures and buildings allowance

SBA = 3% × qualifying construction cost per year (straight line)

Excludes land. Starts when the building is first brought into qualifying use. Not available on dwellings.

Balancing adjustments

Pool balance negative after deducting proceeds: balancing charge in any period. Pool balance positive on cessation: balancing allowance

A negative pool balance gives a balancing charge whenever it arises, not only on cessation. A balancing allowance on a pool arises only when the trade ceases. Otherwise a positive balance stays in the pool and earns the WDA.

Rent-a-room limit

Exempt gross receipts ≤ £7,500 per tax year

Figure from the ATX-UK tax tables. Receipts at or below the limit are exempt automatically.

Default method where receipts exceed the limit

Taxable amount = Gross receipts − £7,500

No expenses are deductible under this method.

Alternative method (election)

Taxable amount = Gross receipts − Actual allowable expenses

Taxpayer elects out of the relief. Choose it when expenses exceed £7,500.

Choosing between methods

Elect if actual expenses > £7,500

Where expenses are below £7,500 the default method gives the lower taxable amount.

Normal property income tax rates

Basic 20%, higher 40%, additional 45%

Property income is non-savings, non-dividend income taxed at the normal rates.

Income tax rates (non-savings and savings)

Basic £1 – £37,700: 20% | Higher £37,701 – £125,140: 40% | Additional over £125,140: 45%

Bands apply to taxable income, after the personal allowance. Savings income uses the same rates.

Dividend rates

Basic 8.75% | Higher 33.75% | Additional 39.35%

Dividend nil rate band of £500 is taxed at 0% but still uses up the band.

Order of taxation

Non-savings → savings → dividends

Applies to deducting the personal allowance and to filling the bands.

Starting rate for savings

0% on savings income within the first £5,000 of taxable income

Reduced £ for £ by taxable non-savings income. Nil if non-savings taxable income is £5,000 or more.

Savings nil rate band

Basic rate taxpayer £1,000 | Higher rate taxpayer £500 | Additional rate taxpayer nil

Status is set by the band in which your total taxable income falls. The tax tables give the £1,000 and £500 amounts, but you must work out which band the taxpayer is in.

Personal allowance

£12,570 less £1 for every £2 of adjusted net income above £100,000

Nil when adjusted net income is £125,140 or more. Between £100,000 and £125,140 there is an effective marginal rate of 60% on income (where that income is taxed at 40%).

ISA overall investment limit

Maximum subscription per tax year = £20,000

This is the overall limit across ISAs. Income and gains inside are tax free. Payments get no upfront relief.

Pension annual allowance

2023/24 to 2025/26: £60,000; minimum allowance £10,000

Pension input is tested against the allowance. Any excess is taxed as the individual's income at their marginal rates, after using carry forward.

Tapering of annual allowance

Threshold income limit £200,000; income limit £260,000; allowance falls by £1 for every £2 of adjusted income above £260,000, to a minimum of £10,000

Taper applies only if both threshold income exceeds £200,000 and adjusted income exceeds £260,000. Use the tax tables for the limits.

Gross-up of a net personal contribution (relief at source)

Gross contribution = net paid ÷ 0.80

The scheme claims 20% basic rate relief. Basic and higher rate bands are extended by the gross contribution, giving extra relief to higher and additional rate taxpayers.

Limit on relieved personal contributions

Higher of relevant UK earnings and £3,600 (gross)

Without any earnings, the maximum contribution qualifying for tax relief is £3,600.

Cap on income tax reliefs

Cap = higher of £50,000 and 25% × income

Applies unless otherwise restricted. 25% of income only exceeds £50,000 when income is above £200,000.

Official rate of interest

Rate = 3.75%

Used for the benefit on a beneficial employment loan. The tax tables give the rate as assumed for the exam.

Interest on underpaid tax

Interest = Tax unpaid × 8.50% × (days late ÷ 365)

Runs from the due date to the date of payment. Not a tax-deductible cost in the exam unless told otherwise.

Interest on overpaid tax

Interest = Tax overpaid × 3.50% × (days ÷ 365)

HMRC pays this on repayments. The rate is lower than the underpaid rate.

Stamp duty on shares

Duty = Consideration × 0.5%

Paid by the buyer. Apply the rate to the price paid.

SDLT on non-residential property

SDLT = 0% × first £150,000 + 2% × (£150,001 to £250,000) + 5% × excess over £250,000

A slice system. Each rate applies only to the part of the price in that band.

Standard penalties for errors

Careless: max 30%, min 0% unprompted, 15% prompted. Deliberate not concealed: max 70%, min 20% unprompted, 35% prompted. Deliberate and concealed: max 100%, min 30% unprompted, 50% prompted.

Applied to the extra tax due because of the error. The tax tables give these percentages.

Quick revision

• Income is taxed in order: non-savings, then savings, then dividends.
• Income tax bands: basic rate up to £37,700, higher rate up to £125,140, then additional rate. Dividend rates are 8.75%, 33.75% and 39.35%.
• Dividend nil rate band is £500. Savings nil rate band is £1,000 for basic rate taxpayers and £500 for higher rate taxpayers.
• The 0% starting rate for savings applies only within the first £5,000 of taxable income.
• Rent-a-room relief limit is £7,500.
• Main pool writing down allowance is 18%, special rate pool is 6%, and the annual investment allowance is 100% up to £1,000,000.
• Structures and buildings allowance is a 3% straight line allowance.
• ISA overall investment limit is £20,000.
• Income tax reliefs are capped at the higher of £50,000 or 25% of income, unless otherwise restricted.
• Interest rates: 8.50% on underpaid tax and 3.50% on overpaid tax.
• Stamp duty on shares is 0.5%. Non-residential SDLT is 0%, 2% and 5% on the slices given in the tables.
• Error penalties: careless up to 30%, deliberate but not concealed up to 70%, deliberate and concealed up to 100%.

Common mistakes

• Claiming the AIA on a car. Fix: Cars never get AIA. Put them in the main pool (1–50g/km) or special rate pool (over 50g/km), unless the new car has zero emissions and gets the 100% allowance.
• Giving individuals or partnerships the 100% or 50% company enhanced allowances. Fix: Enhanced allowances are for companies only and for new, unused assets. For an individual, spending above the AIA goes into the pool at 18% or 6%.
• Deducting expenses as well as the £7,500 under the default method. Fix: Remember the default method is gross receipts less £7,500 only. Expenses are only used under the alternative method.
• Applying the £7,500 limit to profit rather than gross receipts. Fix: Always start with gross receipts, including payments for services such as meals or laundry.
• Deducting the personal allowance from dividends or savings first Fix: Always set the allowance against non-savings income first, then savings, then dividends.
• Using the savings nil rate band of £1,000 for a higher rate taxpayer Fix: Check if total taxable income exceeds £37,700. If so, the allowance is £500. The additional rate applies where taxable income exceeds £125,140, and then the allowance is nil.
• Treating a net personal pension payment as the gross contribution and testing it against the annual allowance. Fix: Divide by 0.80 for a relief at source scheme. Test the gross figure against the annual allowance and use it to extend the bands.
• Applying the cap on income tax reliefs to pension contributions. Fix: Pensions are controlled by the annual allowance. The cap covers other reliefs, such as trading loss relief against general income. Keep the two tests apart.
• Applying 5% to the whole non-residential property price. Fix: Treat SDLT as bands. Only the part above £250,000 bears 5%, and the first £150,000 bears nothing.
• Using the official rate (3.75%) for late-paid tax. Fix: Write the purpose beside each rate: 3.75% beneficial loans, 8.50% underpaid tax, 3.50% overpaid tax.

Exam tips

• Read the taxpayer first. If the question says sole trader, partner or individual, do not give company enhanced allowances. Flag this in one line to show scepticism and earn professional skills marks.
• Use the tax table ACCA provides for all rates and limits. Do not rely on memory for cars or the AIA limit.
• When the question asks you to advise on buying, compare timing. A purchase just before or after a year end changes the first allowance and the cash flow. Quantify the tax saved at the relevant income tax or corporation tax rate.
• Show the pool layout even when the answer seems simple. Marks are awarded for each correct step, and a missed carry-forward is a typical lost mark.
• For property investors, state clearly what qualifies: SBA on commercial building construction, no allowance on land, and no relief for items in dwelling houses. Then apply it to the scenario.
• Read for whether the letting is in the taxpayer's own home. That decides if rent-a-room is even relevant.
• Show both method calculations and then state which one you choose. Marks are for the comparison.
• Take the £7,500 limit from the tax tables. Do not rely on memory for any figure.