LP2 2016-17 edition Web update 02: 29 November 2016 Please note the following updates to your 2016-17 edition of the LP2 study text (amendments in bold).
Chapter 7, section A2, page 7/4 Please amend the fourth paragraph and example 7.1 as follows: UK residents pay tax on any dividends received over the £5,000 allowance at the following rates: • 7.5% on dividend income within the basic rate band. • 32.5% on dividend income within the higher rate band. • 38.1% on dividend income within the additional rate band. Dividends which fall within the dividend allowance still count towards the basic and higher rate bands.
Example 7.1 In 2016/17, Helen earns £40,000 and receives a dividend from a UK shareholding of £10,000. She is entitled to a personal allowance of £11,000 for 2016/17, as well as a dividend allowance of £5,000. Helen’s taxable income (based on her earnings) for 2016/17 is: £40,000 – £11,000 = £29,000 Her basic rate threshold for 2016/17 is £32,000 of her taxable income. This means that she has £3,000 of her basic rate income band remaining (£32,000 – £29,000) to use in conjunction with her other income sources. The first £5,000 of Helen’s dividend falls within her dividend allowance for 2016/17, so only the £5,000 excess is taxable. The first £3,000 of Helen’s dividend allowance falls within the remaining basic rate band of £3,000. The additional £2,000 of her dividend allowance falls within the higher rate band. This means that the excess dividend of £5,000 is also covered by the higher rate band and is taxed at 32.5%. As a result, the income tax liability due on Helen’s dividend is: £5,000 × 32.5% = £1,625
Chapter 7, question answers, page 7/18 Please amend question answer 7.2 to read: 7.2 To begin, we need to find out Kenny’s taxable income by subtracting his personal allowance from his earnings: £25,000 – £11,000 = £14,000 This leaves £18,000 of the basic rate income band remaining (£32,000 – £14,000). The first £5,000 of Kenny’s £15,000 dividend is covered by the dividend allowance and falls within the basic rate income band. The excess dividend of £10,000 also falls within the basic rate income band. £14,000 + £5,000 + £10,000 = £29,000 Therefore, the excess dividend of £10,000 is taxed at the basic rate of 7.5%: £10,000 × 7.5% = £750
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Financial services products and solutions
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LP2/2016-17 edition Financial services products and solutions
Chapter 7 self-test answers, page vii Please replace self-test answer 3 with the following: 3. As Jane earns £30,000, she is considered a basic rate taxpayer in 2016/17. Her taxable income equates to: £30,000 – £11,000 = £19,000 This leaves £13,000 of the basic rate income band remaining (£32,000 – £19,000). The first £5,000 of Jane’s £10,000 dividend is covered by the dividend allowance and falls within the basic rate income band. The excess dividend of £5,000 also falls within the basic rate income band. £19,000 + £5,000 + £5,000 = £29,000 Therefore, the excess dividend of £5,000 is taxed at the basic rate of 7.5%: £5,000 × 7.5% = £375
