topic 9 - tax wrappers

Question 1

Subscription limits

Answer 1

• Limits of the amount saved each tax year
• Provided that annual subscription limit is not exceeded, an individual can choose to split their investment in any proportion they wish across different ISA types

Question 2

Additional permitted subscriptions

Answer 2

• APS allowance applies when an individual’s spouse/civil partner dies
• Protects the tax benefits around savings held in an ISA
• Allows surviving spouse to make an additional ISA subscription to the value of the deceased’s ISA holdings
• Applies for 3 years from the date the person died

Question 3

Tax reliefs

Answer 3

• Investors are exempt from income tax and CGT on their ISA investments
• Even unit trusts and OEICs which would usually be liable to income tax on interest or dividend distributions and to CGT on encashment

Question 4

Venture Capital Trusts

Answer 4

• Is a company whose shares are listed on the stock exchange, run by an investment manager
• Normally spreads the monies raised from investors over a range of different companies
• Usually viewed as high risk, so the income tax reliefs granted make the proposition more attractive
• Income tax relief at up to 30% is given on an investment up to £200K per tax year
• Any dividends paid by the VCT from the permitted maximum investment are tax free
• Any capital gains are exempt from CGT

Question 5

Enterprise Investment Scheme

Answer 5

• Involves direct investment in a company that is eligible for the scheme rather than a listed company which does it on their behalf (eg VCTs)
• Also seen as high risk so tax reliefs are offered:
  o Income tax relief up to 30% on an investment up to £1million per tax year
  o The CGT on any capital gains that are reinvested is deferred
  o Capital gains from investment in the EIS are exempt from CGT, provided the shares have been held for at least 3 years