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Non-resident clients may benefit from an excluded income computation. The tax liability cannot exceed the lower of:
The tax that would be paid by a UK resident; or
The tax due on the income after ignoring all 'excluded income' and any tax thereon but barring all personal allowances.
In other words the tax cannot exceed Generally speaking the 'excluded income' computation is not beneficial because no personal allowances are given. However, where the income is made up largely of excluded income sources, particularly if it included untaxed income, the alternative computation may be beneficial.
IRIS will do this comparison automatically for years 1999-2000 onwards. It will not do so for 1998-99 and earlier years.
Excluded income is made up of:
Interest or profits from banks, building societies or other deposit takers.
Dividends from UK companies.
Income from unit trusts.
National Savings Bank income.
Profits from public revenue dividends.
Social security pensions and benefits.
Income from purchased life annuities (taxed at 20%) but not those purchased under pension schemes (taxed at the basic rate).
This equates to income and tax from the following boxes on the tax return:
|
Type of income |
Income |
Tax |
|
UK Interest |
10.1, 10.4, 10.7, 10.8, 10.11, 10.14 |
10.3, 10.6, 10.10, 10.13 |
|
UK Dividends |
10.17, 10.20, 10.23, 10.26 |
10.16, 10.19, 10.22, 10.25 |
|
State pensions and benefits |
11.1 to 11.7 and 11.9 |
11.8 |
|
Trust income (savings and dividends) |
7.3, 7.9, 7.12, 7.18, 7.21, 7.27, 7.30 |
7.8, 7.11, 7.17, 7.20, 7.26, 7.29 |
A non-resident individual has £3,000 income from property and £5,000 untaxed income from UK banks:
Normal computation Excluded income computation
Property income 3,000 Property income 3,000
Bank interest 5,000 Bank interest 5,000
Personal allowance (4,535) Excluded income (5,000)
-------- --------
Taxable income 3,465 3,000
==== ====
Tax on 1,880 @ 10% 188.00 Tax on 1,880 @ 10% 188.00
Tax on 1,585 @ 20% 317.00 Tax on 1,120 @ 22% 246.40
---------- ----------
Tax due 505.00 Tax due 434.00
===== =====
In this case the excluded income computation is beneficial. However, if the bank interest had been taxed the result would change:
Normal computation Excluded income computation
Property income 3,000 Property income 3,000
Bank interest 5,000 Bank interest 5,000
Personal allowance (4,535) Excluded income (5,000)
-------- --------
Taxable income 3,465 3,000
==== ====
Tax on 1,880 @ 10% 188.00 Tax on 1,880 @ 10% 188.00
Tax on 1,585 @ 20% 317.00 Tax on 1,120 @ 22% 246.40
---------- ----------
Tax borne 505.00 Tax borne 434.00
Tax deducted (1,000.00)
------------ ------------
Tax refund (495.00) Tax due 434.00
====== ======
The IRIS computation will show excluded income as a deduction and add back any tax deducted at source from that income so that it cancels out the amount deducted at source.