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ACCA Strategic Professional · Advanced Taxation (UK) · Mitigation of tax by numerical analysis and reasoned argument

Ravi has taxable income of £30,000 of non-savings income and £20,000 of dividends, all after the personal allowance. He is a UK resident with no savings income. Using the basic rate band of £37,700 and the dividend nil rate band, what is the income tax payable on his dividends?

The dividend tax is £4,781.25. Only £7,700 of the basic rate band remains after non-savings income. Of that, £500 is at 0%, £7,200 is at 8.75% (£630) and the remaining £12,300 is at 33.75% (£4,151.25).

  1. A£1,706.25
  2. B£4,781.25Correct
  3. C£4,825.00
  4. D£6,581.25

Explanation

Non-savings income uses £30,000 of the basic rate band, leaving £7,700 for dividends. Of that £7,700, £500 is taxed at the nil rate, £7,200 at 8.75% (£630) and the remaining £12,300 at 33.75% (£4,151.25). The total is £4,781.25. Taxing £7,700 at 8.75% (£673.75) ignores the nil rate band, which still uses up part of the basic rate band, and gives £4,825.

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