251 / 432
GAZETTE
The additional relief provides that tax
liability is reduced by 10% in respect
of each qualifying child.
Marginal relief
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
T = tax payable without marginal
relief
A = aggregate relevant income
E = income exemption limit
Example
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
£29,800
Total assessment income
£29,000
(Note 1)
Tax without marginal relief
£125
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.
Tax calculations
j
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
JULY 1994
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.
Example 1
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:-
Home
valued £140,000
Holiday cottage
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
Tax £250,000+ 1.5% x
£150,000-£100,000) +
2% balance
£3,200
Relief for dependent child
£3,200 x 1 + 10 (note 1)
£320
Tax payable
£2,880
(Note 1). If Mr and Mrs Brown had
two dependent children the relief
would be 3,200 x 2 + 10 = £640.
Example 2
Same situation except the house is
owned by Mr Brown and the holiday
cottage and apartment in Dublin are
owned by Mrs Brown.
Formula
A x G
B
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
by that person (ignoring joint
ownership apportionment).
Mr Brown
House
£140,000 x £75,000
= £75,000 (exemption
limit) £140,000
Mrs Brown
Holiday cottage
£70,000 x £75,000
= £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%)=
£550
Less child exemption
Tax payable by Mrs Brown
Payable by Mr Brown
Tax saving £1,535.
£55
£495
£850
£1,345
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:-
Holiday home
£70,000 x £75,000
£120,000
Dublin Apartment
£50,000 x £75,000
= £43,750
£120,000
Exemption limit £59,375
- = x 1/2 = £15,625
227