Topic 9 Flashcards
Tax can be charged at two stages in an investments life, what are they
While the funds are invested
When the funds are drawn or income is paid out
What are the 5 different types of ISA
Stocks and shares isa
Cash isa
Innovative finance isa
Help to buy isa (now closed)
Life time isa (LISA)
Eligibility rules for isa’s
Minimum age for investing in a stocks and shares, innovative finance or lifetime Isa is 18 years old
Lifetime Isa has a maximum age of 40
A cash Isa can be opened by anyone aged 16 or over
An Isa investor must be generally resident in the uk for tax purposes
An Isa can only be held in a single name
Lifetime isas have different eligibility rules
What is ‘additional permitted subscriptions’
On death Isa holdings are designated as continuing account of a deceased investor and remain so until the earlier of the following
Administration of the estate
Closure of the account
3rd anniversary of death
What is the time frame for ‘additional permitted subscriptions’
Cash isa - 3 years from the date that the person died or 180 days after administration of this estate is complete
Stocks and shares isa - 180 days after administration of the estate is complete
What are the main rules of a Lifetime ISA (LISA)
Can be opened by people aged between 18 - 40
Savings made before the age of 50 attract a bonus of 25% (paid by government)
In 2017/18 the bonus was paid annually but since 6 April 2018 it is paid monthly which enables intrest to be earned on the bonus
Maximum £4000 per year
Underlying investment choices are same as those in cash and stocks and shares isa
Savings into a lifetime Isa form part of the annual Isa allowance rather than been in addition to it
Savings can be used to purchase 1st home and/or retained to provide benefits in retirement from the age of 60
Savings including the bonus can also be withdrawn from the when the account holder is terminally ill
A 25% penalty is applied if funds are withdrawn early
An individual may contribute to both help to buy isa and a lifetime isa but the bonus payment from only one of these Isa’s can be used towards the purchase of a first home
What is a child trust fund
A child trust fund is a tax free savings account for children it was introduced in 2005 to encourage savings on behalf of children and was available to children born on or after the 1st of September 2002
When child trust funds were introduced the intention was that the government would make contributions to them However government contribution ceased in 2011
Trial trust funds are no longer available to new savers although existing ones can be retained as a vehicle for family and friends to save for a child alternatively a child trust fund may be transferred into a junior Isa
Summarise the main characteristics of a child trust fund
At the time the child trust fund was introduced each individual fund each individual fund began with an initial payment provided by the government in the form of a voucher sent automatically to the child benefit claimant if the child’s family was eligible for the full child tax credit the initial payment was £500 for others it was £250
The government payment was reduced to £50 for children born on or after the 1st of August 2010 Or £100 for those families eligible for 4 full child tax credit
The parent or carer used the voucher to open a child trust fund account
The account remains in force until the child’s 18th birthday at which point the child has access to the money in the account and can use it for any purpose they wish there is no access to money in the account before the child’s 18th birthday
The child’s parents remain responsible for the child trust fund until the child is 16 after which the child can manage their own account
What 3 types of child trust fund are there
Deposit type savings accounts which are bank and building society accounts that offered fixed or variable rates of interest
Share accounts that can hold a range of investments similar to those available in a stocks and shares Isa
Stakeholder child trust fund accounts
What is a venture capital trust
A venture capital trust is a company whose shares are listed on the stock exchange it is run by an investment manager by an investment manager the venture capitalist trust normally spread the money raised from investors over a range of different companies
Investment into a venture capital trust is normally viewed as high risk viewed as high risk so income tax reliefs are granted to make the proposition more attractive
What tax reliefs are available for venture capital trusts
Income tax relief at up to 30% is given on an investment of up to 200000 pound per tax year
Any dividends paid by the venture capital trust from the 200000 pound permitted maximum investment are tax free
Any capital gains are exempt from capital gains tax
A venture capital trust must be approved by hmrc and must meet certain conditions to gain approval
What is a enterprise investment scheme
They are designed to encourage investment in certain smaller high risk companies by the provision of tax relief
Enterprise investment schemes involve direct investment in a company that is eligible for the scheme
They are seen as high risk so tax reliefs are offered
What tax reliefs are offered for enterprise investment schemes
Income tax relief at up to 30% is given on an investment of up to one million pound
Capital gains tax on any capital gains that are reinvested is deferred
Capital gains from investment in the enterprise investment scheme are exempt from capital gains tax provided that they enterprise investment scheme shares have been held for at least 3 years
