BPP LPC – Tax Revision Notes
PART 1 – General Principles
Income vs Capital
- If a receipt is the product of how the taxpayer generates money on a regular basis this will be
classified as an income receipt.
- If a receipt is the product of a transaction that is not integral to such regular activity this is
likely to be classified as a capital receipt. “One-off” transactions.
- Individuals are assessed to income tax and capital gains tax on the basis of a tax year which
runs from 6 April – 5 April.
- Companies are assessed to corporation tax on the basis of a financial year which runs from
1 April – 31 March (although companies can choose an accounting period that does not match
the financial year).
PART 2 – Income Tax Calculation
1) TOTAL INCOME = (Gross income from all sources)
2) LESS available tax reliefs (interest on qualifying loans and pension contributions)
= NET INCOME
3) LESS Personal Allowance * = TAXABLE INCOME
4) Calculate whether the personal savings allowance is available - (look at Taxable Income to see
which income tax band it ends in).
5) Split the Taxable Income into non-savings, savings and dividend income.
Non-savings income = Taxable income – savings income – dividend income.
6) Apply relevant tax rates: Non-savings à savings à dividend (NB £2000 dividend allowance)
7) Add together the amounts of tax from (6) à Total income tax liability
* Remember to reduce PA by £1 for every £2 of net income above £100,000. If Net Income is
£125,000 or more, no PA is available. Allowance = £12,500 – ((Net income - £100,000) / 2)
PART 3 – Capital Gains Tax Calculation
1) Sale proceeds/Market Value
2) LESS disposal expenditure = NET SALE PROCEEDS
3) LESS initial expenditure LESS subsequent expenditure = TOTAL CHARGEABLE GAIN
4) LESS annual exemption (12,300)
LESS carried forward or carried-across losses
= TAXABLE CHARGEABLE GAIN
5) Apply CGT to the Taxable Chargeable Gain at one of the following rates:
o 10% if ER applies
o 10% if taxable income plus taxable chargeable gain (or any part of gains) within basic
rate tax threshold
o 20% if taxable income plus gains exceeds basic rate threshold.
BLP (Tax) – Distinction Level Revision Notes | Page 1 of 6
PART 1 – General Principles
Income vs Capital
- If a receipt is the product of how the taxpayer generates money on a regular basis this will be
classified as an income receipt.
- If a receipt is the product of a transaction that is not integral to such regular activity this is
likely to be classified as a capital receipt. “One-off” transactions.
- Individuals are assessed to income tax and capital gains tax on the basis of a tax year which
runs from 6 April – 5 April.
- Companies are assessed to corporation tax on the basis of a financial year which runs from
1 April – 31 March (although companies can choose an accounting period that does not match
the financial year).
PART 2 – Income Tax Calculation
1) TOTAL INCOME = (Gross income from all sources)
2) LESS available tax reliefs (interest on qualifying loans and pension contributions)
= NET INCOME
3) LESS Personal Allowance * = TAXABLE INCOME
4) Calculate whether the personal savings allowance is available - (look at Taxable Income to see
which income tax band it ends in).
5) Split the Taxable Income into non-savings, savings and dividend income.
Non-savings income = Taxable income – savings income – dividend income.
6) Apply relevant tax rates: Non-savings à savings à dividend (NB £2000 dividend allowance)
7) Add together the amounts of tax from (6) à Total income tax liability
* Remember to reduce PA by £1 for every £2 of net income above £100,000. If Net Income is
£125,000 or more, no PA is available. Allowance = £12,500 – ((Net income - £100,000) / 2)
PART 3 – Capital Gains Tax Calculation
1) Sale proceeds/Market Value
2) LESS disposal expenditure = NET SALE PROCEEDS
3) LESS initial expenditure LESS subsequent expenditure = TOTAL CHARGEABLE GAIN
4) LESS annual exemption (12,300)
LESS carried forward or carried-across losses
= TAXABLE CHARGEABLE GAIN
5) Apply CGT to the Taxable Chargeable Gain at one of the following rates:
o 10% if ER applies
o 10% if taxable income plus taxable chargeable gain (or any part of gains) within basic
rate tax threshold
o 20% if taxable income plus gains exceeds basic rate threshold.
BLP (Tax) – Distinction Level Revision Notes | Page 1 of 6
