Topic 9 Flashcards
Additional permitted subscription (ISAs)
On an ISA holder’s death, their spouse/civil partner can make an extra ISA investment equal to the value of the deceased’s ISA. They can do this by transferring the ISA assets into their name or by physically making an additional payment. The allowance applies even if the deceased left their ISA assets to someone else.
Enterprise investment scheme (EIS)
A tax efficient scheme to encourage investment into smaller, high-risk companies. Investment is into shares of qualifying companies. 30% income tax relief on investments up to £1m per tax year, (£2m for knowledge‑intensive companies) and CGT exempt – both require holding the shares for 3 years.
Venture capital trusts (VCT)
A form of tax efficient investment trust investing in smaller, high-risk company shares. Unlike an EIS, VCTs are collective investments – the VCT buys shares in a number of qualifying companies and the investor holds shares in the trust. 30% income tax relief on up to £200,000 investment per tax year (must be held for 5 years), dividends tax free and exempt from CGT.
tax
wrapper
is simply a tax shelter around an underlying investment that changes
the way the investment is taxed
Tax
Tax can
be charged at two stages in an investment’s life:
while the funds are invested;
when funds are drawn or income is paid out.
The main taxes that affect investments are income tax and
capital gains tax (CGT)
A stocks and shares ISA can include:
— shares and corporate bonds issued by companies listed on a recognised
stock exchange anywhere in the world, including Alternative Investment
Market (AIM) shares;
— gilt‑edged securities and similar stocks issued by governments of
countries in the EEA;
— UK‑authorised unit trusts and OEICs;
— UK‑listed investment trusts;
— life assurance policies on the sole life of the ISA investor;
— units in a stakeholder medium‑term investment product— shares acquired in the previous 90 days from an all‑employee
savings‑related share option scheme (SAYE)
A cash ISA can include:
— bank and building society deposit accounts;
— units or shares in UK‑authorised unit trusts and OEICs that are
money‑market schemes;
— stakeholder cash deposit products
an innovative finance ISA
an innovative finance ISA involves investing via a peer‑to‑peer (P2P) lender
A Help‑to‑Buy ISA
A Help‑to‑Buy ISA (now closed for new applications) was to help those
saving for their first UK home by adding a bonus to any savings they make
A Lifetime ISA
can be used to buy a first home (replacing the Help‑to‑Buy
ISA) or save for later lif
ELIGIBILITY RULES FOR ISAS
The minimum age for investing in a stocks and shares,
innovative finance ISA or Lifetime ISA is 18 years (Lifetime
ISAs also have 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, ie joint accounts
are not permitted.
Lifetime ISAs have different eligibility rules
ADDITIONAL PERMITTED SUBSCRIPTIONS
On death, ISA holdings are designated as a “continuing account
of a deceased investor” and remain so until the earlier of the:
administration of the estate;
closure of the account; or
third anniversary of death.
While no further funds can be added, the holding continues to
benefit from the tax advantages of an ISA
An ‘additional permitted subscription’ (APS) allowance
An ‘additional permitted subscription’ (APS) allowance applies
when an individual’s spouse or civil partner dies. The purpose
of the APS is to protect the tax benefits around savings held
within an ISA. It allows the surviving spouse/civil partner
to make an additional ISA subscription to the value of the
deceased’s ISA holdings.
The right to make a cash APS applies for three years from the
date that the person died, or 180 days after administration
of the estate is complete, whichever is later. For stocks and
shares, the time limit is simply 180 days after administration
of the estate is complete. The additional subscription can be
made with the manager who held the deceased’s ISA or with
another manager who agrees to accept the subscriptions. Its
value can either be the value of the deceased’s ISA at the date
of their death or at the point the ISA ceased to be a continuing
account of a deceased investor
ISA WITHDRAWALS
John invests £12,000 in a cash ISA on 6 April, when the full annual
subscription limit is £20,000. On 1 July of the same year he
withdraws £7,000, leaving a balance of £5,000.
If the ISA offers flexibility he could still invest £15,000 in the
remainder of the tax year (ie £20,000 – £5,000).
If the ISA does not offer flexibility, then the maximum he could pay
in, following the £7,000 withdrawal, would be £8,000 (£20,000 –
£12,000)
Lifetime ISA
A Lifetime ISA was introduced from 6 April 2017, with the aim of encouraging
younger people to save for their first home in the UK, to a value of up to
£450,000, and/or for their retirement. The main rules are as follows:
A Lifetime ISA can be opened by those aged between 18 and 40.
Savings made before the age of 50 attract a bonus of 25 per cent (paid by
the government)
Child Trust Fund
The Child Trust Fund (CTF), a tax‑free savings account for children, was
introduced in 2005 to encourage savings on behalf of children, and was
available to children born on or after 1 September 2002. When Child Trust
Funds were introduced, the intention was that the government would make
contributions to them; however, government contributions ceased in 2011.CTFs are no longer available to new savers
