Life 1 and Life 2 both have separate tax calculations. The details of which are set out below for the various elements.
When multiple taxable incomes or investments are added to the forecast, they are identified as either belonging to life 1, life 2, or both. They are then added to the appropriate person’s tax and taxed accordingly. Where they are identified as jointly owned then the gain or taxed income is applied to the first life.
Personal Tax allowance – The starting point is to assume a full tax allowance is available which is tapered and removed according to the income.
Earned income is taxed assuming current income tax and employee national insurance rates. Tax bands are assumed to increase with CPI each year. National Insurance is applied to earned income taking into account the earnings limits until the state pension age is reached.
The thresholds for Income tax, capital gains, lifetime allowance, national insurance, inheritance tax and chargeable gains are to be frozen until the tax year ending in 2027. After this date, they are assumed to increase in line with CPI.
Tax on savings and investment is approximated by applying a -0.5% adjustment to the return on taxable assets.
Dividend income is taxed assuming the current dividend income rates and the dividend allowance. The dividend allowance is assumed to be fixed until 2025/26 and increase at CPI each year thereafter.
Capital gains tax allowance - We assume that the full capital gains tax allowance is available each year and any gains above this are taxed at the highest capital gains tax rates for investments and property respectively.
For withdrawals from a GIA, capital gain tax allowances and rates are applied. For onshore/offshore bonds any amount withdrawn will be taxed as a chargeable gain.