Marginal Rate Of Tax On Income Calculation?

[LittleSquidge]

Good afternoon all.

I'm currently studying for the ATT qualification and up until this point the personal tax unit has been 100% revision for me. However, this section has thrown me as I can't see to see how they ended up with the 30% - the last paragraph.

Personal Tax, Chapter 6, Page 50, 2014/15:

"Arthur is 73.

Arthur's personal allowance for 2014/15 will be calculated as follows:

Pension - 11,200
Rental income - 11,100
Dividends - 5,000
Total - 27,300

In this illustration net income and adjusted net income will be the same as Arthur has not made any gift aid donations (or personal pension contributions).

PA (born 6.4.38 - 5.4.48) - 10,500
Less 1/2 (27,300 - 27,000) - (150)
PA given - 10,350

As a result of the withdrawal of £1 of the personal age allowances for every £2 of income above the income limit, the marginal rate of tax on income in excess of the £27,000 limit is 30%."

Thank you in advance!

[buildersmate]

I can't fathom it either.
I think it is a mistake and it should say 20%…

[factor-fiction]

I think the marginal rate will be more than 20% if the personal age allowance is reduced in this way. I haven't got time to do the calculation now, sorry, but 30% wouldn't surprise me

[factor-fiction]

For the £300 he earns over £27000 he will pay the normal 20% tax (£60) and he will also pay 20% tax on the £150 from the reduced allowance (which means £30 tax).
that effectively means 30% tax

[buildersmate]

Ah, got it FF. I now understand what the question is getting at.

[hjd]

A bit late, but - on income of £27,000 he has £10,500 PA so pays tax at 20% on £16,500 so tax £3,300.
On £27,300 income, PA £10,350 and tax 20% on £16,950 so £3,390.
Additional tax £90 on additional income of £300 is an effective rate of 30%.

[LittleSquidge]

Thank you for the responses!
I asked a colleague and they explained to work out the taxable income and tax for both alternatives. Then work out the differences between tax charged and income taxed. Then divide these two to get the 30%.