7. Taxation of Direct Investments

Question 1

Savings Income - interest paid gross

Answer 1

Bank and BS interest is paid gross

Also includes NSandI products, Trusts and OEICs

Question 2

Savings Income - basic rate deducted at source

Answer 2

• interest paid by a company
• life annuities
• interest on gilts (usually paid gross but taxpayer can elect to receive net payments)

Question 3

Savings Income - reclaiming Tax deducted at source

Answer 3

Non-taxpayers can reclaim the 20% deducted

Where the interest falls within the PSA or is tasted at starting rate of 0%, taxpayers can also reclaim the deducted

Question 4

Savings Income - starting rate and PSA

Answer 4

The first £5,000 of savings income benefits from 0% starting rate of income tax

However, since income tax is charged first on non-savings income, then savings income falls outside the starting rate for most people

Furthermore, a PSA of £11,850 is available, which tapers off at £1 for every £2 over £100,000 salary

Question 5

Dividend Income

Answer 5

Dividend income is paid gross

£2,000 DA is available

Once exceeded, dividends are taxed at:

7. 5% - basic rate
8. 5% - higher
9. 1% - additional

Question 6

PSA and DA

Answer 6

PSA and DA still count towards an individuals rate tax bands

The current DA treatment has increased tax payments, due to directors / shareholders drawing dividends rather than a salary

Question 7

Property Income

Answer 7

Rental income is liable to income tax, but running costs (repairs, interest on loan) can offset this

Gov is restricting amount of tax relief for Loan interest to basic rate of 20% phased in over 4 years from 2017/18

Question 8

Capital Gains Tax

Answer 8

Shares and Property are subject to CGT when asset is sold

Gains from sale of primary residence are exempt from CGT

Gains made from sale of Gilts or Corporate Bonds are exempt from CGT