The Gazette 1994

GAZETTE

JULY 1994

The additional relief provides that tax liability is reduced by 10% in respect of each qualifying child.

less than £75,000 would not be taxed. Both these views are incorrect. The following examples are shown to set out the tax calculations and to highlight these anomalies.

Mr Brown House £140,000 x £75,000

= £75,000 (exemption

Marginal relief

limit) £140,000

Example 1

Marginal relief was introduced in the ; Finance Act, 1983 where household income did not exceed the income exemption limit by specified sums. ; The Finance Act, 1994 increased the marginal relief thresholds from £5,000 to £10,000 in respect of ! owner/occupiers under 65 and from £5,000 to £15,000 for the owner/occupiers or joint owner/occupiers who have reached the age of 65 years 16 . The formula for marginal relief is T x A - E 10,000 or 15,000

Mrs Brown Holiday cottage £70,000 x £75,000

Mr and Mrs Brown have incomes of £30,000 and £20,000 respectively. They have one child in university who is resident in the apartment in Dublin and have the following properties which they hold as joint tenants:- valued £70,000 Apartment in Dublin valued £50,000 2 apartments, normally let valued £ 100,000 Total value of property: £360,000 Value for RPT (exclude apartments let) £260,000 Home valued £140,000 Holiday cottage

= £43,750

£120,000

Apartment Dublin £50,000 x £75,000

= £31,250

£120,000 Exemption Limit

£75,000

Tax - Mr Brown £140,000 - £75,000 = taxable property £65,000 Tax £250 + £600 (£140,000 - £100,000 x 1.5%) = £850 Tax - Mrs Brown £120,000 - £75,000 = taxable property £45,000 Tax £250 + £300 (£120,000 - £100 , 000x1 . 5%)=

T = tax payable without marginal relief A = aggregate relevant income E = income exemption limit

Tax £250,000+ 1.5% x £150,000-£100,000) + 2% balance

£3,200

£550

Relief for dependent child £3,200 x 1 + 10 (note 1)

Example

Less child exemption

£320

£55

Tax payable

£2,880

John and Mary aged 66. Value of house £91,000. John's pension £14,900, Mary's pension £14,900. John and Mary's income

Tax payable by Mrs Brown Payable by Mr Brown

£495 £850

(Note 1). If Mr and Mrs Brown had two dependent children the relief would be 3,200 x 2 + 10 = £640.

£1,345

£29,800

Tax saving £1,535.

Total assessment income (Note 1) Tax without marginal relief

£29,000

Example 2

Note. The saving of tax in example 2 arises because the married couple own the properties separately rather than jointly. Example 3 If Mrs Brown owned the Dublin property jointly with her son her liability would be as follows:-

£125

Same situation except the house is owned by Mr Brown and the holiday cottage and apartment in Dublin are owned by Mrs Brown.

Tax reduced by marginal relief to 125 x £29,000 - £25,000 + £15,000 = £33.33 (Note 1). The total assessable household income is reduced to the nearest £1,000 rather than reducing each individual's income to the nearest £1,000. j There are certain anomalies in relation I to the operation of the tax. It is often | mistakenly thought that a husband and wife would be limited to one j exemption limit of £75,000 or that persons with a relevant residential property whose share therein is worth Tax calculations j

Formula A x G B

Holiday home £70,000 x £75,000

A = the market value of one unit of residential property (ignoring joint ownership apportionment). G = the general exemption limits (£75,000 for 5 April 1994). B = the aggregate of the market values of all residential properties owned

= £43,750

£120,000 Dublin Apartment £50,000 x £75,000

- = x 1/2 = £15,625

£120,000

by that person (ignoring joint ownership apportionment).

Exemption limit £59,375

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