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ACCA Strategic Professional · Advanced Taxation (UK) · Income tax: the comprehensive computation of taxable income and the income tax liability

Anita, a UK resident, has trading profits of £30,000, bank interest of £2,000 and no other income for 2025/26. Her personal allowance is £12,570. Using the savings income nil rate band and starting rate, which statement about her income tax computation is correct?

The starting rate is unavailable because taxable non-savings income exceeds £5,000. As a basic rate taxpayer she gets a £1,000 savings nil rate band, so £1,000 of interest is tax free and the other £1,000 is taxed at 20%.

  1. AThe savings income is taxed at 0% because the starting rate applies to the £2,000 in full
  2. BNon-savings income is taxed after savings income, so the starting rate band is fully available
  3. CTaxable non-savings income of £17,430 exceeds £5,000, so the starting rate is unavailable, and the £1,000 savings nil rate band covers £1,000 of the interest, leaving £1,000 taxed at 20%Correct
  4. DThe savings nil rate band of £500 applies because she has trading income

Explanation

Taxable income is £32,000 less £12,570 personal allowance, giving £19,430 total, of which £17,430 is non-savings. The personal allowance is deducted from non-savings income first, so non-savings taxable income of £17,430 exceeds the £5,000 starting rate limit and the starting rate is lost. She is a basic rate taxpayer, so the nil rate band is £1,000. The remaining £1,000 of interest is taxed at 20%. The £500 band applies to higher rate taxpayers only.

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