ACCA Strategic Professional · Advanced Taxation (UK)

Income tax: the scope of income tax, residence and overseas aspects: formula sheet

Full chapter guide

Key formulas

Computation flow: Total income − reliefs = net income; net income − personal allowance = taxable income; Show non-savings, savings and dividend columns separately.
Order of taxation: Non-savings first, then savings, then dividends; The personal allowance is also set against income in this order.
Normal 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.
Dividend rates: Basic 8.75%. Higher 33.75%. Additional 39.35%; Use the band in which each slice of dividend falls.
Savings nil rate band: Basic rate taxpayer £1,000. Higher rate taxpayer £500; Based on the rate band the taxpayer's taxable income reaches. An additional rate taxpayer gets no savings nil rate band.
Dividend nil rate band: £500; Available to all taxpayers. The £500 is taxed at 0% but uses up band.
Starting rate for savings: 0% on savings income falling within the first £5,000 of taxable income; Non-savings taxable income uses up the £5,000 first. The starting rate is lost once non-savings taxable income reaches £5,000.
Personal allowance: £12,570; Transferable amount £1,260 where the marriage allowance rules apply.
Personal allowance restriction: Reduction = (adjusted net income − £100,000) ÷ 2; The allowance is nil when adjusted net income is £125,140 or more. Adjusted net income is net income less the gross amount of gift aid donations and personal pension contributions.
Cap on income tax reliefs: Reliefs capped at the higher of £50,000 or 25% of income; Applies to specified reliefs only, such as certain trading loss reliefs against general income. Charitable giving and pension relief are not within the cap.
Extending the basic rate band: Basic rate band = £37,700 + gross gift aid donations + gross personal pension contributions; Gross means the net payment × 100/80. Only the bands move, not the taxable income.
Sufficient ties table: previously resident: Under 16 days: not resident | 16-45 days: resident if 4 ties | 46-90: 3 ties | 91-120: 2 ties | 121-182: 1 tie | 183 or more: resident; This is given in the tax tables. Check the column for previously resident, then match days to ties.
Sufficient ties table: not previously resident: Under 16 days: not resident | 16-45 days: not resident | 46-90: resident if 4 ties | 91-120: 3 ties | 121-182: 2 ties | 183 or more: resident; Use this column for someone not resident in the UK in any of the previous three tax years.
Order of the test: Automatic overseas tests → automatic UK tests → sufficient ties test; Stop at the first conclusive test. Do not go to ties if an automatic test decides the case.
Automatic overseas test (days): Fewer than 16 days in the UK, or fewer than 46 days if not resident in any of the previous three years; Either leads to not resident. Other overseas tests relate to full-time work overseas and to leavers working abroad. Check the facts given.
Automatic UK test (days): 183 or more days in the UK in the tax year; Leads to UK resident. Other UK tests cover a UK home and full-time UK work. Check the conditions in the scenario.
UK ties: Family, accommodation, work, 90-day, country; The country tie applies only to those previously resident. Define each tie against the facts.
Statutory residence test: days in UK (previously resident): Under 16 days: automatically not resident. 16–45: resident with 4+ ties. 46–90: 3+ ties. 91–120: 2+ ties. 121–182: 1+ tie. 183+: automatically resident; From the tax table given in the exam. Use it first, because residence comes before domicile or LTR.
Statutory residence test: days in UK (not previously resident): Under 46 days: automatically not resident. 46–90: resident with 4 ties. 91–120: 3+ ties. 121–182: 2+ ties. 183+: automatically resident; Fewer ties are needed for someone previously resident, so check which column applies.
Long-term UK resident (LTR) for IHT: UK resident in at least 10 of the 20 tax years immediately before the relevant tax year; Rule stated in outline. An LTR has worldwide assets within IHT. Use the exact test given in the question or examinable documents.
Tail after leaving the UK: 10–13 years' residence: 3 years. Then +1 year for each extra year of residence. Maximum 10 years; During the tail the leaver is still treated as an LTR for IHT.
Older deemed domicile tests (IHT): UK domiciled in the previous 3 years, or UK resident in 15 of the previous 20 tax years; Know these as background, since questions may refer to them. Do not apply them if the question uses the residence-based rules.
IHT rates and bands: Nil rate band £325,000. Residence nil rate band £175,000. Lifetime rate 20%. Death rate 40%; The residence nil rate band relates to a home passed to direct descendants. Use it only where the question suggests it applies.
Taper relief on death within 7 years: 3–4 years: 20% reduction. 4–5: 40%. 5–6: 60%. 6–7: 80%; It reduces the tax, not the value of the gift. Under 3 years: no reduction.
Residence basis of charge: UK resident: worldwide income and gains (arising basis). Non-resident: UK-source income only; Decide residence first using the statutory residence test and the day and ties table given in the exam.
FIG regime conditions: Non-resident for the previous 10 consecutive tax years, then claim in each of the first 4 tax years of UK residence; Foreign income and gains are then outside UK tax for that year. It is an annual claim, so you can choose year by year.
Cost of claiming FIG: Claim made = no personal allowance and no CGT annual exempt amount (£3,000) for that year; Compare tax with and without the claim. Do not assume claiming is always better.
Income tax rates (2025/26): Non-savings: 20% to £37,700, 40% to £125,140, 45% above. Dividends: 8.75%, 33.75%, 39.35%. Dividend nil rate band £500; Savings nil rate band is £1,000 for basic rate and £500 for higher rate taxpayers. Additional rate taxpayers get none.
CGT rates: 18% lower rate, 24% higher rate, annual exempt amount £3,000; For a resident not claiming FIG, foreign gains are taxed in the year of disposal.
Double tax relief (unilateral or treaty): Credit = lower of (foreign tax suffered, UK tax on that foreign income); Work out UK tax on each source of foreign income separately. Foreign tax above the treaty rate is not creditable.
Credit relief limit: Credit = lower of (foreign tax suffered; UK tax on that foreign income); Work it out separately for each source of income or gain. Excess foreign tax is not carried forward or across to another source.
UK tax on the foreign income: UK tax on foreign income = total UK tax with the income − total UK tax without it; Include the foreign income gross. It is the top slice within its income type, so it normally takes the marginal rate.
Net UK tax payable: UK tax liability − DTR credit; Credit relief cannot create a repayment of UK tax.
Personal allowance: £12,570, reduced by £1 for every £2 of adjusted net income above £100,000; It is nil when adjusted net income is £125,140 or more. Non-residents get it only if they are in a qualifying category.
Income tax rates: Basic band £37,700 at 20%; higher rate to £125,140 at 40%; additional rate 45%; Normal rates are used for the non-savings income in the examples. Dividend and savings rates differ.
CGT rates: 18% in the lower band, 24% in the higher band; annual exempt amount £3,000; The same lower-of rule applies to foreign tax on gains.
UK resident CGT scope: UK resident individual: CGT on gains from worldwide assets; Residence in the year of disposal is the test. Remittance basis points are outside this page.
Non-resident CGT scope: Non-resident: generally no UK CGT, except UK land and property and certain other UK-linked disposals; Always state the asset type. UK residential property is the usual exam asset.
CGT rates: Lower rate 18%, higher rate 24%, annual exempt amount £3,000; Rates apply to gains after the annual exempt amount. The lower rate applies only where basic rate band remains after taxable income.
Business asset disposal relief: Rate 14%, lifetime limit £1,000,000; Investors' relief has the same limit and rate. Check the qualifying conditions in the question.
Temporary non-residence: UK resident for at least 4 of the 7 tax years before departure + period of non-residence of 5 years or less = gains on assets owned at departure and disposed of during the absence are taxed in the year of return; The asset must have been acquired before departure. These tests are not confirmed by the tax tables supplied, so verify them against the ATX-UK article on international aspects of personal taxation.
IHT domicile scope: UK domiciled or deemed domiciled: worldwide assets. Neither: UK assets only; Overseas assets of a person who is neither are excluded property.
IHT nil rate bands and rates: NRB £325,000; RNRB £175,000; lifetime rate 20%; death rate 40%; Tax is on the excess over the nil rate band. Take the figures from the tax tables.
Taper relief: 3-4 years 20%; 4-5 years 40%; 5-6 years 60%; 6-7 years 80% reduction; The reduction is applied to the tax, not the value of the gift. It only helps if tax is due on the gift.
Statutory residence test: automatic outcomes: Under 16 days = automatically not resident; 183 days or more = automatically resident; These apply to both previously resident and not previously resident individuals. Use the table in the exam for the middle bands.
Not previously resident: ties needed: 16-45 days: automatically not resident; 46-90: 4 ties; 91-120: 3 or more ties; 121-182: 2 or more ties; Resident if the ties shown are met. Check the 'previously resident' column separately, as the tie numbers are lower.
Previously resident: ties needed: 16-45 days: 4 or more ties; 46-90: 3 or more; 91-120: 2 or more; 121-182: 1 or more; Same table, other column.
Workday apportionment: UK taxable earnings = total earnings × UK working days ÷ total working days; Use this when the question gives no other basis. State that you have apportioned on a working-day basis. Round to the nearest £.
Pension annual allowance: £60,000 standard (2023/24 to 2025/26); minimum allowance £10,000; Threshold income limit £200,000; adjusted income limit £260,000. The tax-relieved maximum with no earnings is £3,600.
Tapered annual allowance: Allowance = £60,000 - (adjusted income - £260,000) ÷ 2, not below £10,000; Applies only where threshold income exceeds £200,000 and adjusted income exceeds £260,000.
Class 1 NIC rates: Employee: 8% on £12,571-£50,270, 2% above. Employer: 15% above £5,000; Use only where the question makes the employment subject to UK Class 1 NIC.

Quick revision

Fewer than 16 days in the UK means automatically not resident for everyone.
183 or more days in the UK means automatically resident.
For the sufficient ties test, previously resident people need fewer ties than those not previously resident.
With 16 to 45 days, a person not previously resident is automatically not resident.
With 121 to 182 days, a previously resident person is resident with one tie or more.
Check the automatic tests before you use the ties table.
Residence and domicile are separate tests; do not mix them up.
Income tax bands: basic £1 to £37,700 at 20%, higher up to £125,140 at 40%, additional above that at 45%.
Dividend rates are 8.75%, 33.75% and 39.35%, with a £500 dividend nil rate band.
Inheritance tax: nil rate band £325,000, lifetime rate 20%, death rate 40%.
Capital gains tax rates are 18% and 24%, with an annual exempt amount of £3,000.
Always state your conclusion and give reasons, not just the figures.

Common mistakes

Setting the personal allowance against dividends or savings first. Fix: Always deduct the allowance from non-savings income first, then savings, then dividends.
Using net income instead of adjusted net income to test the personal allowance restriction. Fix: Deduct gross gift aid and gross personal pension contributions from net income before you test against £100,000.
Going straight to the ties table. Fix: Always check the automatic overseas and UK tests first. Write a short line for each.
Using the wrong column for previous residence. Fix: Underline previous residence in the scenario and pick the column before you read the days band.
Treating residence and domicile as the same thing. Fix: Residence is tested by days and ties each year. Domicile is a permanent-home concept in law. Long-term residence is a count of years. State which one you are applying.
Using the old 15 of 20 deemed domicile rule when the question gives residence-based facts. Fix: Read the requirement. Use the test the question and the examinable documents support, and name it in your answer.
Taxing a UK resident only on remitted foreign income. Fix: State that the arising basis is the default for a UK resident, and use the FIG regime only for qualifying new arrivals.
Giving the FIG regime to anyone newly resident, without checking the ten-year test. Fix: Count the earlier tax years and check they are ten consecutive years of non-residence before applying the regime.
Deducting the foreign tax in full without comparing it with the UK tax. Fix: Always write 'lower of' and show both figures. The credit can never exceed the UK tax on that income.
Including foreign income net of foreign tax in the UK computation. Fix: Gross it up to the amount before foreign tax. UK tax is charged on the gross income and the foreign tax is then credited.

Exam tips

Set out the computation with three columns for non-savings, savings and dividends. Markers give marks for a clear layout even when a figure is wrong.
Read every question for gift aid, pension contributions and loss reliefs. They change adjusted net income and the basic rate band, and they are a common source of marks.
Use the tax tables ACCA provides. Do not rely on memory for rates and bands. Assume 2025/26 rates apply unless the question says otherwise.
Calculations only need to be to the nearest £. Show all workings, because follow-through marks are given for correct methods.
When asked to advise, comment on the effective 60% rate between £100,000 and £125,140. Show how a pension or gift aid payment can cut tax in that range.
Show the order of the tests in your answer. Even a single line for each automatic test earns credit.
State previous residence and the day count first, since the table depends on both.
Define each tie against the scenario facts. Do not just list tie names.