Taxation of Individuals
Core concepts
Individual taxation starts with the scope of charge: residents are taxed on worldwide income, non-residents generally only on local-source income. Candidates must know the building blocks: assessable income, allowable deductions, personal reliefs/allowances, and the rate bands (progressive marginal rates, with a possible higher-rate threshold). Distinguish employment income (salary, benefits-in-kind, taxable perquisites) from self-employment income (profits adjusted for tax) and investment income (interest, dividends, rent).
Traps to watch
- Residence and domicile are separate tests; a person can be resident but not domiciled, changing how foreign income is taxed (remittance vs arising basis).
- Benefits-in-kind are often taxable at their cash-equivalent or a statutory formula, not the employee's perceived value.
- Reliefs are capped or tapered at higher income levels; do not apply them unconditionally.
- Timing: income is taxed when received or when earned depending on the basis (cash vs accrual) and the tax year cut-off.
Rule of thumb
Compute taxable income = assessable income − allowable deductions − reliefs, then apply the rate bands in order. Always check the marginal band before quoting a rate.
Worked example: Gross salary 60,000; allowable deductions 5,000; personal relief 10,000. Taxable income = 45,000. If the first 20,000 is taxed at 0% and the remainder at 20%, tax = 0 + (25,000 × 20%) = 5,000.