How to work this tax calculation out?

BrainWars

I’m trying to understand how income tax works and would like some clarification. I thought the easiest way would be to set up a scenario.

Suppose someone has:

• Annual salary: £35,000

• Rental income: £5,000

• Dividends: £2,500

• Interest income: £10,000

This person then:

• Contributes 50% of their earned income to a pension

• Makes a £2,000 charitable donation via Gift Aid

I have a few questions:

1. Would this person be considered a basic-rate or higher-rate taxpayer? 

2. Would they be eligible for additional tax relief on their Gift Aid donation?

3. How is the total tax amount calculated? Is there a specific order in which different types of income and tax reliefs are applied?

Thanks a lot!!

Dazed_and_C0nfused

Where are they resident for tax purposes?

Is the "salary" taxable pay as would appear on their P60?

Is rental "income" the profit?

What method is used to make the pension contribution? 

Is the £2,000 Gift Aid net or gross?

BrainWars

Let's assume the below:

- Resident of England
- 'Salary' is earned income through employment hence will appear on P60.
- Rental income is profit only, all expenses already deducted
- Pension contribution will be relief at source
- £2000 donation excludes 25% gift aid reclaim

Isthisforreal99

A net pension contribution of £17,500 (50% of salary) equates to a gross amount of £21,875 which extends the basic rate band by same amount so no higher rate tax due as all income welll below increased basic rate band.

Dazed_and_C0nfused

BrainWars said:

Let's assume the below:

- Resident of England
- 'Salary' is earned income through employment hence will appear on P60.
- Rental income is profit only, all expenses already deducted
- Pension contribution will be relief at source
- £2000 donation excludes 25% gift aid reclaim

Even a Scottish resident wouldn't be higher rate with those increases to the basic rate band.

BrainWars

That means this person will still have £1000 PSA right?

Dazed_and_C0nfused

BrainWars said:

That means this person will still have £1000 PSA right?

Yes, the first £1,000 of interest will be taxed at 0%.

The first £500 of the dividend income will also be taxed at 0%.