Investment income

Question 1

What are the main savings income?

Answer 1

• bank
• bank society interest

Question 2

What are the other sources of saving income?

Answer 2

• interest from National Savings and Investments accounts, including both NS&I investment accounts and NS&I direct saver accounts
• interest from gilt-edged securities, or ‘gilts’, i.e. government bonds, such as treasury stock and exchequer stock
• interest from quoted company loan stock, also called company bonds, debentures or loan notes.

Question 3

Who applies to a starting rate of tax of 0%? (saving income)

Answer 3

• applies to all taxpayers where savings income falls into the first £5,000 of taxable income

Question 4

What is the saving income nil rate band?

Answer 4

• basic rate taxpayer £1,000
• higher rate taxpayer £500
• additional rate taxpayer £nil

Question 5

Savings income nil rate band?

Answer 5

• basic rate taxpayers £1,000
• higher rate taxpayers £500

Question 6

What is the procedure for applying the appropriate rates of tax to saving income?

Answer 6

1. Calculate income tax on non-saving income
2. Apply the different rates of tax on savings income in the following order:
   -starting rate
   - savings income nil rate band
   - normal rate (i.e. basic, higher and additional rates)

Question 7

Steps of income tax computation (with savings income)

Answer 7

• calculate the income tax liability on the different sources of income in the correct order
  -apply the correct rates of income tax
• set off of reliefs and the personal allowance

Question 8

What are the rate of tax on dividends?

Answer 8

• the first £2,000 of dividend income falls in the dividend nil rate band and is therefore tax-free
  Basic rate: first £37,700 - 8.75%
  Higher rate: £37,701 - £150,000 - 33.75%
  Additional rate: over £150,000 - 39.35%

Question 9

What is the objective of individual savings accounts ISA?

Answer 9

• is to enable the taxpayer to invest in an account hat will create income that is exempt from tax

Question 10

What is annual ISA subscription limit?

Answer 10

• for the tax year 2022/2023 of £20,000 per person, which can be invested in a cash ISA and/or a stocks and shares ISA

Question 11

When ISA can be opened what age?

Answer 11

• by any individual aged 16 or over who is resident in the UK
• however individual must be aged 18 or over to open a stocks and shares ISA

Question 12

What tax relief ISA offers?

Answer 12

• income (interest and dividends) is exempt from income tax
• disposals of investments within an ISA are exempt from capital gains tax

Question 13

What are the main types of ISA?

Answer 13

• cash ISAs
• stocks and shares ISAs

Question 14

What are the cash ISAs?

Answer 14

• for many basic and higher rate taxpayers, the savings income nil rate band (SNRB) means investing in a cash ISA no longer provides a tax benefit. This is because their savings income is within the SNRB and is therefore taxed at 0%
• ISAs will still be beneficial for additional rate taxpayers (who are not entitled to a SNRB) and all taxpayers whose SNRB is already fully utilised

Question 15

What are stocks and shares ISAs?

Answer 15

• will still be beneficial for taxpayers whose dividend nil rate band is already fully utilised
• chargeable gains made within a stocks and shares ISAs are exempt from capital gains tax

Question 16

How the accrued income scheme operates?

Answer 16

• under the scheme, interest on gilts is deemed to accrue on a daily basis
• the purchase price of gilt is apportioned between the income element and the capital element
• the income element is assessed as interest income for the seller
  -the same income element is deducted from the next interest payment received on the gilt by the purchaser, when computing the purchaser’s savings income for the tax year when the interest is received
• the scheme does not apply unless the total nominal value of gilts held by the individual exceeds £5,000 at some time during the the tax year
• the scheme does not apply unless the total nominal value of gilts held by the individual exceeds £5,000 at some time during the tax year
• the scheme does not apply if the gilts are transferred on death.