Count other investment income in capital income, and test it in every income measure

changelog.d/2733.fixed.md

@@ -0,0 +1 @@
+Count `other_investment_income` in `market_income`, `household_market_income` and `hbai_household_net_income`. Income tax already charged it as savings income, so household net income carried the tax on it without the income.

changelog.d/2745.fixed.md

@@ -0,0 +1 @@
+Count `other_investment_income` (National Savings, gilt and other securities interest, and trust interest) in `capital_income`, as market and HBAI income now do. Nothing reads `capital_income`, so income tax, benefits and the other income measures are unchanged.

docs/book/validation/hbai.md

@@ -26,7 +26,7 @@ The table below shows how the HBAI income components map to PolicyEngine variabl
 | Income received from dividends (from FYE 2022) |`dividend_income`|
 | State support - all benefits and tax credits |`hbai_benefits`|
 | Income from occupational and private pensions |`private_pension_income` (includes occupational pension income)|
-| Investment income |`dividend_income`, `savings_interest_income`, `property_income_after_finance_costs`|
+| Investment income |`dividend_income`, `savings_interest_income`, `other_investment_income`, `property_income_after_finance_costs`|
 | Maintenance payments |`maintenance_income`, `spousal_maintenance_income`|
 | Income from educational grants and scholarships (including, for students, student loans and parental contributions) |`student_payments`|
 | The cash value of certain forms of income in kind (free school meals, free school breakfast, free school milk, free school fruit and vegetables, Healthy Start vouchers and free TV licences for those aged 75 and over who receive Pension Credit) |`free_school_meals`, `free_school_fruit_veg`, `free_school_milk`, `healthy_start_vouchers`, `free_tv_licence_value`|

policyengine_uk/tests/policy/baseline/household/income/other_investment_income_in_household_income.yaml

@@ -0,0 +1,47 @@
+# Other investment income (National Savings, gilt and other securities
+# interest) is savings income for income tax (taxable_savings_interest_income),
+# so market, capital, gross, net and HBAI income count it as they count bank
+# interest. 2026-27: personal allowance £12,570, basic rate 20%, personal
+# savings allowance £1,000 for a basic rate taxpayer, starting rate for savings
+# £5,000 less non-savings income above the personal allowance (here nil),
+# employee NI 8% from £12,570 to £50,270, TV licence £180.
+
+- name: Other investment income counts in market, capital, net and HBAI income
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    age: 40
+    employment_income: 40_000
+    other_investment_income: 2_000
+  output:
+    # 40,000 + 2,000.
+    market_income: 42_000
+    household_market_income: 42_000
+    household_gross_income: 42_000
+    capital_income: 2_000
+    # (40,000 - 12,570) x 20% = 5,486, plus (2,000 - 1,000 PSA) x 20% = 200.
+    income_tax: 5_686
+    # (40,000 - 12,570) x 8%.
+    national_insurance: 2_194.40
+    # 42,000 - 5,686 - 2,194.40.
+    hbai_household_net_income: 34_119.60
+    # Less the 180 TV licence. Without the interest it is 32,139.60, so the
+    # interest raises net income by 2,000 less its 200 of tax.
+    household_net_income: 33_939.60
+
+- name: The same amount as bank interest gives the same incomes
+  period: 2026
+  absolute_error_margin: 0.01
+  input:
+    age: 40
+    employment_income: 40_000
+    savings_interest_income: 2_000
+  output:
+    market_income: 42_000
+    household_market_income: 42_000
+    household_gross_income: 42_000
+    capital_income: 2_000
+    income_tax: 5_686
+    national_insurance: 2_194.40
+    hbai_household_net_income: 34_119.60
+    household_net_income: 33_939.60

policyengine_uk/tests/test_isa_income_contract.py

@@ -150,7 +150,10 @@ def test_unmarked_legacy_conversion_preserves_cash_and_supplied_exemptions(
     assert value(
         simulation, "individual_savings_account_interest_income"
     ) == income.get("individual_savings_account_interest_income", 0)
-    assert value(simulation, "capital_income") == income["savings_interest_income"]
+    # Capital income is the legacy gross interest plus other investment income.
+    assert value(simulation, "capital_income") == (
+        income["savings_interest_income"] + income.get("other_investment_income", 0)
+    )
     assert value(simulation, "taxable_savings_interest_income") == expected_taxable
     pd.testing.assert_frame_equal(dataset.person, original)
 

policyengine_uk/tests/test_other_investment_income_household_income_properties.py

@@ -0,0 +1,137 @@
+"""Property tests for other investment income in household income.
+
+Income tax charges other investment income (interest on National Savings and
+Investments products, gilts and other securities, and from trusts) as savings
+income through taxable_savings_interest_income, exactly as it charges bank
+interest. HBAI counts investment income, which the Family Resources Survey
+defines as the interest and dividends received on savings and investments,
+NS&I products and gilts included. So every household income measure must
+count a pound of other investment income as it counts a pound of bank
+interest. Household net income used to take off the tax on it without adding
+the income, so the interest lowered net income.
+
+Each generated case is simulated three times: with no interest, with the
+amount as bank interest and with it as other investment income.
+"""
+
+import numpy as np
+import pytest
+from hypothesis import HealthCheck, example, given, settings
+from hypothesis import strategies as st
+
+from policyengine_uk import Simulation
+
+pytestmark = pytest.mark.usefixtures("cloned_uk_tax_benefit_system")
+
+YEAR = 2027
+EMPLOYMENT_INCOME = [0, 8_000, 13_000, 30_000, 60_000, 110_000, 200_000]
+# Every third pay level (£13,000 and £110,000) is in Scotland.
+SCOTTISH = [i % 3 == 2 for i in range(len(EMPLOYMENT_INCOME))]
+CASES = 21
+# Each case is simulated with no interest, bank interest and other investment
+# income, in that order.
+PEOPLE = 3 * CASES
+VARIABLES = [
+    "income_tax",
+    "market_income",
+    "capital_income",
+    "household_market_income",
+    "household_gross_income",
+    "household_net_income",
+    "hbai_household_net_income_before_reset_to_zero",
+]
+
+amount = st.one_of(
+    st.floats(min_value=0, max_value=2_500),
+    st.floats(min_value=0, max_value=60_000),
+    st.sampled_from([0.0, 500.0, 1_000.0, 5_000.0]),
+)
+amounts = st.lists(amount, min_size=CASES, max_size=CASES)
+
+
+def person_index(i):
+    return i % CASES % len(EMPLOYMENT_INCOME)
+
+
+@pytest.fixture(scope="module")
+def sim():
+    people = {
+        f"person_{i}": {
+            "age": {YEAR: 40},
+            "employment_income": {YEAR: EMPLOYMENT_INCOME[person_index(i)]},
+            "savings_interest_income": {YEAR: 0},
+            "other_investment_income": {YEAR: 0},
+        }
+        for i in range(PEOPLE)
+    }
+    households = {
+        f"household_{i}": {
+            "members": [f"person_{i}"],
+            "region": {YEAR: "SCOTLAND" if SCOTTISH[person_index(i)] else "LONDON"},
+        }
+        for i in range(PEOPLE)
+    }
+    return Simulation(
+        situation={
+            "people": people,
+            "benunits": {
+                f"benunit_{i}": {"members": [f"person_{i}"]} for i in range(PEOPLE)
+            },
+            "households": households,
+        }
+    )
+
+
+def run(sim, drawn):
+    interest = np.asarray(drawn, dtype=float)
+    none = np.zeros(CASES)
+    sim.set_input(
+        "savings_interest_income", YEAR, np.concatenate([none, interest, none])
+    )
+    sim.set_input(
+        "other_investment_income", YEAR, np.concatenate([none, none, interest])
+    )
+    sim.reset_calculations()
+    return interest, {
+        variable: sim.calculate(variable, YEAR).astype(float).reshape(3, CASES)
+        for variable in VARIABLES
+    }
+
+
+def tolerance(*values):
+    """A penny plus float32 rounding on the amounts involved."""
+    return 0.01 + 1e-6 * sum(np.abs(v) for v in values)
+
+
+SETTINGS = settings(
+    max_examples=25,
+    deadline=None,
+    derandomize=True,
+    database=None,
+    suppress_health_check=[HealthCheck.too_slow],
+)
+
+
+@SETTINGS
+@given(amounts)
+@example([2_000.0] * CASES)
+def test_other_investment_income_counts_like_bank_interest(sim, drawn):
+    interest, r = run(sim, drawn)
+    # Income tax charges the two alike, and so does every income measure.
+    for variable, (_, bank, other) in r.items():
+        assert (np.abs(other - bank) <= tolerance(bank, other)).all(), variable
+    # Market and capital income rise by the interest.
+    for variable in ("market_income", "capital_income", "household_market_income"):
+        none, _, other = r[variable]
+        change = other - none
+        assert (np.abs(change - interest) <= tolerance(other, interest)).all(), variable
+    # Net income rises by the interest less the tax on it: it never falls.
+    for variable in (
+        "household_net_income",
+        "hbai_household_net_income_before_reset_to_zero",
+    ):
+        none, _, other = r[variable]
+        change = other - none
+        margin = tolerance(other, none)
+        assert (change >= -margin).all(), variable
+        assert (change <= interest + margin).all(), variable

policyengine_uk/variables/household/income/capital_income.py

@@ -12,6 +12,7 @@ class capital_income(Variable):
 
     adds = [
         "savings_interest_income",
+        "other_investment_income",
         "tax_free_savings_income",
         "dividend_income",
         "individual_savings_account_dividend_income",

policyengine_uk/variables/household/income/hbai_household_net_income.py

@@ -7,6 +7,9 @@
     "employment_income",
     "self_employment_income",
     "savings_interest_income",
+    # National Savings, gilt and other securities interest, which income
+    # tax charges as savings income (taxable_savings_interest_income).
+    "other_investment_income",
     "tax_free_savings_income",
     "individual_savings_account_dividend_income",
     "dividend_income",

policyengine_uk/variables/household/income/household_market_income.py

@@ -7,6 +7,9 @@
     "employment_income",
     "self_employment_income",
     "savings_interest_income",
+    # National Savings, gilt and other securities interest, which income
+    # tax charges as savings income (taxable_savings_interest_income).
+    "other_investment_income",
     "tax_free_savings_income",
     "individual_savings_account_dividend_income",
     "dividend_income",

policyengine_uk/variables/household/income/market_income.py

@@ -16,6 +16,9 @@ def formula(person, period, parameters):
             "employment_income",
             "self_employment_income",
             "savings_interest_income",
+            # National Savings, gilt and other securities interest, which income
+            # tax charges as savings income (taxable_savings_interest_income).
+            "other_investment_income",
             "tax_free_savings_income",
             "individual_savings_account_dividend_income",
             "dividend_income",