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

Which statement about the order in which income is taxed in an individual's income tax computation is correct?

Non-savings income is taxed first, then savings income, then dividends on top. This layering decides which rate bands and nil rate bands apply to each type of income.

  1. ADividends are taxed first, then savings income, then non-savings income
  2. BSavings income is taxed first, then non-savings income, then dividends
  3. CNon-savings income is taxed first, then savings income, then dividendsCorrect
  4. DAll income is taxed pro rata across the bands

Explanation

Income is layered with non-savings income first, then savings income, then dividend income on top. The personal allowance is set against non-savings income first. This order determines which bands and nil rate bands are available to savings and dividends.

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