Set the Personal Savings Allowance on rest-of-UK bands for Scottish taxpayers

changelog.d/2347.fixed.md

@@ -0,0 +1 @@
+Set the Personal Savings Allowance on the rest-of-UK bands for Scottish taxpayers, as ITA 2007 s. 12B(8) requires; give the higher amount at exactly the basic rate limit and the lower amount at exactly the higher rate limit (ITA 2007 s. 10); and use the right bands for periods 2016 and 2017.

policyengine_uk/tests/policy/baseline/gov/hmrc/income_tax/allowances.yaml

@@ -94,21 +94,27 @@
   period: 2020
   absolute_error_margin: 0
   input:
-    tax_band: "BASIC"
+    # 2020 parameters: taxable income £27,500, under the £37,500 basic rate limit.
+    adjusted_net_income: 40_000
+    allowances: 12_500
   output:
     savings_allowance: 1000
 - name: Savings allowance at higher rate
   period: 2020
   absolute_error_margin: 0
   input:
-    tax_band: "HIGHER"
+    # Taxable income £47,500, between £37,500 and £150,000.
+    adjusted_net_income: 60_000
+    allowances: 12_500
   output:
     savings_allowance: 500
 - name: No savings allowance at additional rate
   period: 2020
   absolute_error_margin: 0
   input:
-    tax_band: "ADDITIONAL"
+    # Taxable income £200,000, above the £150,000 higher rate limit.
+    adjusted_net_income: 200_000
+    allowances: 0
   output:
     savings_allowance: 0
 - name: Allowances by default

policyengine_uk/tests/policy/baseline/gov/hmrc/income_tax/allowances/savings_allowance.yaml

@@ -0,0 +1,200 @@
+# Personal Savings Allowance, ITA 2007 s. 12B. A Scottish taxpayer's higher-
+# and additional-rate income is what would be charged at those rates if they
+# were not a Scottish taxpayer (s. 12B(8)(a)(iv) and (b)(iv)), so the
+# allowance follows the rest-of-UK bands: in 2026-27, £37,700 and £125,140 of
+# taxable income, with a £12,570 personal allowance tapered above £100,000.
+# Savings income is taxed at the UK savings rates.
+
+- name: Case 1, a Scottish advanced-rate taxpayer below £125,140 gets £500.
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    people:
+      person:
+        age: 40
+        employment_income: 80_000
+        savings_interest_income: 1_000
+    households:
+      household:
+        members: [person]
+        country: SCOTLAND
+  output:
+    # Taxable income 81,000 - 12,570 = 68,430: Scottish advanced rate, but
+    # UK higher rate. (1,000 - 500) x 40% = 200.
+    pays_scottish_income_tax: true
+    tax_band: ADDITIONAL
+    savings_allowance: 500
+    savings_income_tax: 200
+
+- name: Case 2, a Scottish higher-rate taxpayer below £37,700 gets £1,000.
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    people:
+      person:
+        age: 40
+        employment_income: 45_000
+        savings_interest_income: 1_000
+    households:
+      household:
+        members: [person]
+        country: SCOTLAND
+  output:
+    # Taxable income 46,000 - 12,570 = 33,430: Scottish higher rate, but UK
+    # basic rate, so the whole £1,000 of interest is covered.
+    tax_band: HIGHER
+    savings_allowance: 1_000
+    savings_income_tax: 0
+
+- name: Case 3, an English taxpayer with the same income is unchanged.
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    people:
+      person:
+        age: 40
+        employment_income: 80_000
+        savings_interest_income: 1_000
+    households:
+      household:
+        members: [person]
+        country: ENGLAND
+  output:
+    tax_band: HIGHER
+    savings_allowance: 500
+    savings_income_tax: 200
+
+- name: Case 4, a Scottish taxpayer above £125,140 gets nothing.
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    people:
+      person:
+        age: 40
+        employment_income: 130_000
+        savings_interest_income: 1_000
+    households:
+      household:
+        members: [person]
+        country: SCOTLAND
+  output:
+    # The personal allowance is tapered to nil, so taxable income is
+    # 131,000, above £125,140.
+    savings_allowance: 0
+
+- name: Case 5, 2016-17 bands for a higher-rate taxpayer.
+  period: 2016
+  absolute_error_margin: 0.01
+  input:
+    people:
+      person:
+        age: 40
+        employment_income: 60_000
+        savings_interest_income: 1_000
+    households:
+      household:
+        members: [person]
+        country: ENGLAND
+  output:
+    # Taxable income above the £32,000 basic rate limit but below £150,000.
+    savings_allowance: 500
+
+- name: Case 6, 2016-17 bands for an additional-rate taxpayer.
+  period: 2016
+  absolute_error_margin: 0.01
+  input:
+    people:
+      person:
+        age: 40
+        employment_income: 200_000
+        savings_interest_income: 1_000
+    households:
+      household:
+        members: [person]
+        country: ENGLAND
+  output:
+    savings_allowance: 0
+
+- name: Case 7, the 2016-17 rules also apply to period 2017.
+  period: 2017
+  absolute_error_margin: 0.01
+  input:
+    people:
+      person:
+        age: 40
+        employment_income: 60_000
+        savings_interest_income: 1_000
+    households:
+      household:
+        members: [person]
+        country: ENGLAND
+  output:
+    savings_allowance: 500
+
+- name: Case 8, taxable income exactly at the basic rate limit has no higher-rate income.
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    people:
+      person:
+        age: 40
+        employment_income: 49_270
+        savings_interest_income: 1_000
+    households:
+      household:
+        members: [person]
+        country: ENGLAND
+  output:
+    # 50,270 - 12,570 = 37,700: nothing above the limit (ITA 2007 s. 10(2)-(3)).
+    savings_allowance: 1_000
+    savings_income_tax: 0
+
+- name: Case 9, a pound over the basic rate limit is higher-rate income.
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    people:
+      person:
+        age: 40
+        employment_income: 49_271
+        savings_interest_income: 1_000
+    households:
+      household:
+        members: [person]
+        country: ENGLAND
+  output:
+    savings_allowance: 500
+
+- name: Case 10, taxable income exactly at the higher rate limit has no additional-rate income.
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    people:
+      person:
+        age: 40
+        employment_income: 124_140
+        savings_interest_income: 1_000
+    households:
+      household:
+        members: [person]
+        country: ENGLAND
+  output:
+    # Adjusted net income 125,140 tapers the personal allowance to nil, so
+    # taxable income is 125,140.
+    savings_allowance: 500
+
+- name: Case 11, a pound over the higher rate limit is additional-rate income.
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    people:
+      person:
+        age: 40
+        employment_income: 124_141
+        savings_interest_income: 1_000
+    households:
+      household:
+        members: [person]
+        country: ENGLAND
+  output:
+    savings_allowance: 0

policyengine_uk/tests/test_savings_allowance_properties.py

@@ -0,0 +1,94 @@
+"""Personal Savings Allowance, ITA 2007 s. 12B.
+
+A Scottish taxpayer's higher- and additional-rate income is what would be
+charged at those rates if they were not a Scottish taxpayer (s. 12B(8)(a)(iv)
+and (b)(iv)), so the allowance follows the rest-of-UK bands for everyone.
+
+Invariants, for single adults in 2026 with pay, savings interest and
+dividends drawn freely:
+
+1. Country: the allowance is the same for a Scottish and an English taxpayer
+   with the same income.
+2. Differential: it equals the statute computed independently here: £1,000
+   when taxable income is at or under the £37,700 basic rate limit, £500 at
+   or under the £125,140 higher rate limit, and nil above (ITA 2007 s. 10(2)-
+   (3)), with taxable income as total income less the personal allowance,
+   tapered by £1 for every £2 of income over £100,000.
+3. Monotonic: a higher pay never raises the allowance.
+"""
+
+import numpy as np
+from hypothesis import HealthCheck, example, given, settings
+from hypothesis import strategies as st
+
+from policyengine_uk import Simulation
+
+YEAR = 2026
+PEOPLE = 12
+money = st.integers(min_value=0, max_value=300_000)
+small = st.integers(min_value=0, max_value=20_000)
+incomes = st.lists(st.tuples(money, small, small), min_size=PEOPLE, max_size=PEOPLE)
+
+
+def _allowances(rows, country):
+    """One single-adult household per row, all in one simulation."""
+    people, benunits, households = {}, {}, {}
+    for i, (pay, savings, dividends) in enumerate(rows):
+        name = f"p{i}"
+        people[name] = {
+            "age": {YEAR: 40},
+            "employment_income": {YEAR: pay},
+            "savings_interest_income": {YEAR: savings},
+            "dividend_income": {YEAR: dividends},
+        }
+        benunits[f"b{i}"] = {"members": [name]}
+        households[f"h{i}"] = {"members": [name], "country": {YEAR: country}}
+    simulation = Simulation(
+        situation={"people": people, "benunits": benunits, "households": households}
+    )
+    return np.asarray(simulation.calculate("savings_allowance", YEAR))
+
+
+BOUNDARY_ROWS = [
+    (49_270, 1_000, 0),  # taxable 37,700: at the basic rate limit
+    (49_271, 1_000, 0),  # taxable 37,701
+    (124_140, 1_000, 0),  # taxable 125,140 (allowance tapered to nil)
+    (124_141, 1_000, 0),  # taxable 125,141
+] + [(0, 0, 0)] * (PEOPLE - 4)
+
+
+def _statute(pay, savings, dividends):
+    income = pay + savings + dividends
+    allowance = max(0, 12_570 - max(0, income - 100_000) / 2)
+    taxable = income - allowance
+    if taxable > 125_140:
+        return 0
+    if taxable > 37_700:
+        return 500
+    return 1_000
+
+
+@settings(
+    max_examples=10,
+    deadline=None,
+    suppress_health_check=[HealthCheck.too_slow],
+)
+@given(rows=incomes)
+@example(rows=BOUNDARY_ROWS)
+def test_scottish_and_english_taxpayers_get_the_same_allowance(rows):
+    scottish = _allowances(rows, "SCOTLAND")
+    english = _allowances(rows, "ENGLAND")
+    assert np.array_equal(scottish, english)
+    assert list(scottish) == [_statute(*row) for row in rows]
+
+
+@settings(
+    max_examples=10,
+    deadline=None,
+    suppress_health_check=[HealthCheck.too_slow],
+)
+@given(rows=incomes, rise=st.integers(min_value=1, max_value=100_000))
+def test_a_higher_pay_never_raises_the_allowance(rows, rise):
+    before = _allowances(rows, "SCOTLAND")
+    after = _allowances([(pay + rise, s, d) for pay, s, d in rows], "SCOTLAND")
+    assert np.all(after <= before)

policyengine_uk/variables/gov/hmrc/income_tax/allowances/savings_allowance.py

@@ -5,26 +5,36 @@ class savings_allowance(Variable):
     value_type = float
     entity = Person
     label = "Savings Allowance for the year"
+    documentation = (
+        "The Personal Savings Allowance (ITA 2007 s. 12B): the basic amount "
+        "with no higher-rate income, the higher amount with higher-rate but "
+        "no additional-rate income, and the additional amount (nil) with any "
+        "additional-rate income. For a Scottish or Welsh taxpayer, s. "
+        "12B(8)(a)(iv) and (b)(iv) count as higher- or additional-rate income "
+        "what would be charged at those rates if they were not a Scottish or "
+        "Welsh taxpayer, so the bands are the rest-of-UK ones for everyone. "
+        "tax_band follows the Scottish bands for a Scottish taxpayer, as the "
+        "Marriage Allowance conditions need, so it is not read here. Taxable "
+        "income is taken, as in tax_band, as adjusted net income less "
+        "allowances."
+    )
     definition_period = YEAR
-    reference = "Income Tax Act 2007 s. 12B"
+    reference = "https://www.legislation.gov.uk/ukpga/2007/3/section/12B"
     unit = GBP
 
     def formula(person, period, parameters):
-        tax_band = person("tax_band", period)
-        tax_bands = tax_band.possible_values
-        amounts = parameters(
-            period
-        ).gov.hmrc.income_tax.allowances.personal_savings_allowance
+        income_tax = parameters(period).gov.hmrc.income_tax
+        amounts = income_tax.allowances.personal_savings_allowance
+        thresholds = income_tax.rates.uk.thresholds
+        taxable_income = person("adjusted_net_income", period) - person(
+            "allowances", period
+        )
+        # thresholds[1] is the basic rate limit and thresholds[2] the higher
+        # rate limit. Income up to a limit is charged at the lower rate and
+        # only income above it at the higher one (ITA 2007 s. 10(2)-(3)), so
+        # taxable income exactly at a limit has none in the band above.
         return select(
-            [
-                tax_band == tax_bands.ADDITIONAL,
-                tax_band == tax_bands.HIGHER,
-                (
-                    (tax_band == tax_bands.STARTER)
-                    | (tax_band == tax_bands.BASIC)
-                    | (tax_band == tax_bands.INTERMEDIATE)
-                ),
-                tax_band == tax_bands.NONE,
-            ],
-            [amounts.additional, amounts.higher, amounts.basic, amounts.basic],
+            [taxable_income > thresholds[2], taxable_income > thresholds[1]],
+            [amounts.additional, amounts.higher],
+            default=amounts.basic,
         )