Current Savings And Investments

Question 1

Evaluate the Income Tax efficiency of existing S&I’s

Answer 1

• using Isas is tax efficient
• investing in Davids name is not tax efficient as he is a higher rate tax payer
• investing in J’s name is as she is a non tax payer
• savings interest in excess of Davids £500 PSA is taxed at 40%
• would be tax free though in June’s name as she has remaining personal allowance and £1000 PSA
• David is paying 32.5% tax on his dividends above the dividend allowance
• this is being dropped to £2000 from from April 2018
• dividends in June’s name would benefit from her unused dividend allowance
• and only pay 7.5% on the excess above this
• Basic rate tax is paid within the bond
• bond in davids name only
• any chargeable event would attract a tax charge of 20%
• if transferred to June then top slicing relief
• will mean no additional tax to pay

Question 2

Actions D &J can take to reduce income tax payable from non pension savings and investments

Answer 2

• use both isa allowances each year
• using cash holdings and /or David investment trust
• to increase tax free income
• transfer all cash holdings into June’s name
• this will allow all interest to be paid tax free
• as it’s will be within her personal allowance
• this will save 40% on Davids interest
• in 18/19
• switch most of David’s investment trust to June’s name
• so both £2000 dividend allowances are used
• and any dividends in excess of the allowance are taxed at 7.5% rather than 32.5
• transfer to June will be tax fee as they can use the interspousal exemption
• make regular gifts to charity to increase Davids basic rate band
• David could invest in a VCT
• to produce tax free income
• and gain 30% tax relief