HMRC Filing Exclusion 102 will affect taxpayers who have a Chargeable Event Gain (CEG) with notional tax, in the higher rate band and dividend income. The personal allowance is being allocated against the CEG when it would be more beneficial to allocate it against the nil rate dividend income.
Below is an example of how the calculation is currently working and a revised calculation showing how the personal allowance could be used more beneficially.
| Current calculation | |||||||
| Non Savings | Savings | Dividends | Total | Tax | |||
| (Employment) | (Life policy gain) | ||||||
| Income | 9,750.00 | 40,250.00 | 2,000.00 | 52,000.00 | |||
| PA | -9,750.00 | -2,100.00 | -11,850.00 | ||||
| Taxable | 0.00 | 38,150.00 | 2,000.00 | 40,150.00 | |||
| Starting rate 0% | 3,000.00 | 3,000.00 | 0.00 | ||||
| 0% | 500.00 | 2,000.00 | 2,500.00 | 0.00 | |||
| 7.5% | 0.00 | 0.00 | |||||
| 20% | 29,000.00 | 29,000.00 | 5,800.00 | ||||
| 40.00% | 5,650.00 | 5,650.00 | 2,260.00 | ||||
| 38,150.00 | 2,000.00 | 40,150.00 | 8,060.00 | ||||
| Less notional tax (38,150@20%) | -7,630.00 | ||||||
| Net tax payable | 430.00 | ||||||
| Beneficial ordering | |||||||
| Non Savings | Savings | Dividends | Total | Tax | |||
| Income | 9,750.00 | 40,250.00 | 2,000.00 | 52,000.00 | |||
| PA | -9,750.00 | -100.00 | -2,000.00 | -11,850.00 | |||
| Taxable | 0.00 | 40,150.00 | 0.00 | 40,150.00 | |||
| Starting rate 0% | ** | 5,000.00 | 5,000.00 | 0.00 | |||
| 0% | 500.00 | 500.00 | 0.00 | ||||
| 7.5% | 0.00 | 0.00 | |||||
| 20% | 29,000.00 | 29,000.00 | 5,800.00 | ||||
| 40.00% | 5,650.00 | 5,650.00 | 2,260.00 | ||||
| 40,150.00 | 0.00 | 40,150.00 | 8,060.00 | ||||
| Less notional tax (40,150@20%) | * | -8,030.00 | |||||
| Net tax payable | 30.00 | ||||||
| * | notional tax is based on taxable amount of gain | ||||||
| ** | full starting rate for savings available because taxable income reduced by 2,000 dividends | ||||||
| which are now covered by the personal allowance | |||||||
If you have a scenario which applies to this exclusion, a paper return should be filed together with a Reasonable Excuse form which refers to the exclusion number.
To print your tax return with a Reasonable Excuse form: