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ACCA Strategic Professional · Advanced Taxation (UK) · Tax advantages and disadvantages of alternative courses of action

Ahmed has taxable income (after the personal allowance) made up of £4,000 of non-savings income and £3,000 of savings income. Under the ATX-UK rules, which statement is correct about the starting rate for savings?

The 0% starting rate applies only to savings income falling within the first £5,000 of taxable income. Ahmed's £4,000 of non-savings income uses most of that band, so only £1,000 of his savings income benefits from the starting rate.

  1. AThe starting rate of 0% applies to savings income that falls within the first £5,000 of taxable income, so £1,000 of his savings income is covered by itCorrect
  2. BThe starting rate of 0% applies to all savings income of a basic rate taxpayer
  3. CThe starting rate of 0% applies only if non-savings income is nil
  4. DThe starting rate of 0% applies to the first £5,000 of savings income regardless of other income

Explanation

The starting rate of 0% applies to savings income that falls within the first £5,000 of taxable income. Non-savings income of £4,000 uses the first £4,000, leaving £1,000 of the £5,000 band for savings income. The other options misstate the test by ignoring non-savings income.

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