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Mastering the 7 Steps of the UK Income Tax Calculation
15 Jan 26 1 min read
Every financial decision has a tax consequence. For UK individuals, determining the correct income tax liability requires navigating a structured 7-step process. A clear understanding of these steps is essential for building strong tax planning strategies, whether its optimising pension contributions, managing the tapered annual allowance, or addressing the taxation of investments and additional charges.
By understanding these 7 steps, you’ll be equipped to accurately calculate tax liabilities, identify opportunities to improve a client’s tax position, and provide informed guidance on reducing unnecessary tax burdens.
Neil Macleod (Senior Technical Manager, M&G Wealth)
90 minute watch (including Q&A) I Structured CPD accredited by CII
Learning outcomes
By the end of this session, you will be able to:
- Describe the key elements of an individual's UK income tax calculation
- Calculate the income tax liability for a UK individual
- Explain how clients could take steps to reduce their tax liability
Q&A to follow
Claiming your CPD
To claim your CPD certificate, test your knowledge with the questions below.
Write down your answers to each of the following questions and check your answers when you click to claim your CPD certificate on the link below
1. A client confirms that for this tax year they expect to receive salary from employment of £45,000, bank interest of £1,000 and dividends from their OEIC portfolio of £2,000. They make pension contributions to their occupational scheme of £2,500 p.a. under net pay. Assuming their assumptions are correct, what will their “total income” be for the tax year?
a) £32,930
b) £44,000
c) £45,500
d) £50,500
2. Angela has “total income” of £125,000 in the current tax year but decides to make a relief at source pension contribution of £8,000. What will her personal allowance be for the current tax year?
a) £0
b) £70
c) £4,070
d) £5,070
3. There is a statutory order for taking an individual’s taxable income. Which of the following statements is true?
a) Onshore bond gains are taxed before offshore bond gains
b) Redundancy payments are taxed before interest
c) Interest is taxed before earned income
d) Dividends are taxed before onshore bond gains
4. Which of the following is NOT a ‘tax reducer’ deducted from an individual’s tax liability at step 6 of the UK income tax computation?
a) Top Slicing Relief
b) Personal Allowance
c) Marriage Allowance
d) Onshore Bond Tax Credit
1. A client confirms that for this tax year they expect to receive salary from employment of £45,000, bank interest of £1,000 and dividends from their OEIC portfolio of £2,000. They make pension contributions to their occupational scheme of £2,500 p.a. under net pay. Assuming their assumptions are correct, what will their “total income” be for the tax year?
a) £32,930
b) £44,000
c) £45,500
d) £50,500
2. Angela has “total income” of £125,000 in the current tax year but decides to make a relief at source pension contribution of £8,000. What will her personal allowance be for the current tax year?
a) £0
b) £70
c) £4,070
d) £5,070
3. There is a statutory order for taking an individual’s taxable income. Which of the following statements is true?
a) Onshore bond gains are taxed before offshore bond gains
b) Redundancy payments are taxed before interest
c) Interest is taxed before earned income
d) Dividends are taxed before onshore bond gains
4. Which of the following is NOT a ‘tax reducer’ deducted from an individual’s tax liability at step 6 of the UK income tax computation?
a) Top Slicing Relief
b) Personal Allowance
c) Marriage Allowance
d) Onshore Bond Tax Credit
Before collecting your certificate, please take a moment to provide us feedback on this session, please email prudential.distribution.team@prudential.co.uk
Complete the form below and we’ll email your CPD confirmation to you. Please use the email address that you would usually use when contacting us.
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