3. Investment income

Question 1

Tax rules for savings income (3)

Answer 1

• If savings income is in first £5,000 f taxable income, tax at 0%
• Basic rate taxpayer: first £1,000 savings at 0%
  Higher rate taxpayer, first £500 savings at 0%
• First £2,000 dividends always taxed at 0%.

Question 2

What is the annual subscription limit for an ISA?

What are the two different types of ISA? Explain.

Answer 2

£20,000

Cash ISA: can be used by 16+. Not useful for those whos income already covered by nil-rate bands.

Stocks and shares ISA: chargeable gains exempt from capital gains tax - useful to those who make gains in excess of annual exempt amount (£12,000).

Question 3

When must you use the accrues interest scheme? (2)

Answer 3

• Nominal value exceeds £5,000

- Not transferred on death

Question 4

What planning opportunities arise for married couples in investment income? (4)

Answer 4

• Use of marriage allowance to increase personal allowance
• Utilise both nil-rate bands
• Utilise both ISA annual subscription limits
• Assets transferred at no-gain no-loss