A client’s income tax status will affect most financial decisions throughout their lifetime - from choosing the most appropriate savings vehicle, funding for their pension or how to take their income in retirement. Understanding how income is taxed is an essential component of any financial planning.

This module should take around 45 minutes to complete. Once you have completed all the sections there is a short self-assessment quiz to check what you have learned and a CPD certificate for up to 45 minutes can be claimed.

On completion of this module you should be able to:

  1. Explain the different types of income and the order in which they are taxed
  2. Determine which income tax allowance a client might be entitled to
  3. Calculate a client income tax liability

Post learning assessment

Question 1

Put the following income sources in the order in which they will be assessed.

  • Dividends from an OEIC
  • Drawdown income
  • Onshore bond gains
  • Interest distributions from a unit trust

Question 2

Joel has the following income for the tax year:

  • salary of £40,000
  • interest of £10,000
  • rental income of £8,000
  • dividends of £5,000

Which of these DB scheme members has a statutory right to transfer AND can request a guaranteed transfer value?

  1. Personal allowance
  2. Personal allowance and dividend allowance
  3. Personal allowance, dividend allowance and personal savings allowance
  4. Personal allowance, dividend allowance, personal savings allowance and starting rate for savings

Question 3

Jennifer runs her own business. She takes a salary of £20,000 and dividends of £60,000. In the current tax year she surrenders an offshore bond which has creates a chargeable gain of £40,000. She also pays a gross contribution to a personal pension of £10,000. What impact will this have on her personal allowance?

  1. Jennifer will receive the full personal allowance
  2. Her personal allowance will be reduced by £10,000
  3. Her personal allowance will be reduced by £5,000
  4. She will receive no personal allowance

Check your answers

Claim your certificate

Any reference to legislation and tax is based on our understanding of United Kingdom law and HM Revenue & Customs practice at the date of production. These may be subject to change in the future. Tax rates and reliefs may be altered. The value of tax reliefs to the investor depends on their financial circumstances. No guarantees are given regarding the effectiveness of any arrangements entered into on the basis of these comments.