View the related Tax Guidance about Lifetime ISA
Individual savings accounts (ISAs)
Individual savings accounts (ISAs)IntroductionIndividual savings accounts (ISAs) are tax-free funds in which UK residents can hold a range of different investments. Originally, these were cash or stocks and shares products held by those over 16 years of age, but in November 2011 the junior ISA was launched which allows tax-free cash accounts to be set up for the benefit of those under 16. See the Junior ISAs guidance note.Help to buy ISAs were introduced from 1 December 2015 as a tax-free cash account aimed at encouraging first-time buyers to save for a UK residential property. As well as receiving interest on the balance tax-free, the Government supplements the amount saved with a 25% bonus (up to a maximum of £3,000) when the property is purchased. These ISAs are closed to new savers with effect from 1 December 2019, although anyone with an existing help to buy ISA can keep saving into the account until 30 November 2029.Lifetime ISAs were introduced from 6 April 2017. Like the help to buy ISAs, the Government will supplement the amount saved with a 25% bonus (limited to £1,000 per year). There are conditions around the age of the individual and the funds can only be withdrawn without a penalty to fund a first home, on reaching 60 years old or on diagnosis of a terminal illness.For more information, see the Lifetime ISAs and help to buy ISAs guidance note.At Spring Budget 2024, the Chancellor proposed the introduction of a UK ISA for investments
Exempt assets for capital gains tax
Exempt assets for capital gains taxIn general terms, a charge to capital gains tax arises when a chargeable person makes a chargeable disposal of a chargeable asset. The disposal may produce a profit (known as a gain) or a loss.Chargeable person and chargeable disposals are discussed in the Introduction to capital gains tax guidance note. Details of how to calculate the gain or loss or given in the Basic calculation principles of capital gains tax guidance note.Assets are chargeable for capital gains tax purposes unless they are specifically exempt.Examples of exempt assetsIf assets are exempt from capital gains tax, this means that gains are not chargeable but also losses are not allowable. Common examples of exempt assets are discussed below.Only or main residenceAn individual’s only or main residence is usually exempt from capital gains tax, although the situation is more complicated when the individual owns more than one property. See the Principal private residence relief ― basic principles guidance note. CarsCars, defined as mechanically propelled road vehicle(s) suitable for the conveyance of passengers, are exempt assets for capital gains tax. Vans and lorries do not meet this definition; however, they are wasting chattels and so are exempt from capital gains tax under another provision (see below). ChattelsWasting chattels, defined as tangible, moveable property with a useful life of 50 years or less, are exempt assets. Greyhounds, racehorses, computers and plant and machinery are examples of wasting chattels. However, wasting chattels are chargeable assets if they qualify as plant or
Computing income for tax credits purposes
Computing income for tax credits purposesThis guidance note looks at the how the various components of income are calculated for tax credit awards.Migration of tax credits to universal creditNew claims for tax credits are no longer possible as they have been replaced by the universal credit for all claimants. Existing claimants will continue to receive tax credits until they are migrated to the universal credit system. Migration will take place when a change in circumstances is reported or when a migration notice letter is received. This is expected to be completed in 2024. There is information about migration notice letters on the GOV.UK website.See the Universal credit guidance note.Calculation of household income for tax creditsHousehold income for tax credits purposes is very similar to the taxable income of the claimant or the claimant couple. However, there are some key differences from the normal tax rules in both income and deductions.The statutory income definition is divided into four steps which you will need to work through in order. The income that is taken into account for both a single claim and a joint claim is the total income for the tax year irrespective of whether the claim is for an entire tax year. Where a claim relates to a part year, the income is calculated pro rata when the taper is computed. See the Computing the working tax credit and Computing child tax credit guidance notes for a discussion of how the maximum entitlement is tapered. Step 1 ― calculate
Foreign pension income
Foreign pension incomeSTOP PRESS: This guidance note may be affected by the changes to the taxation of pensions made by FA 2024, Sch 9 from 6 April 2024 onwards. The commentary below covers the rules that apply prior to that date. Before continuing your research, see the Abolition of the lifetime allowance guidance note.Overseas pensions are those paid by or on behalf of a person outside the UK. For these purposes, the Isle of Man, Jersey and Guernsey are classed as overseas.This note covers the taxation of income from such overseas pensions.For details of the other tax charges to consider when the individual takes a benefit from an overseas pension (or also on transferring pension funds overseas), see the Overseas pension schemes ― taxable events guidance note.For information on the UK state pension, see the State pension guidance note. For details of UK private pensions, see the Private pension income guidance note.Is it an overseas pension?The first step is to check whether the pension is in fact foreign and that it is indeed a pension rather than some other form of savings scheme which might have a different tax treatment.For example, since 6 April 2017 the UK has offered the lifetime ISA. See the Lifetime ISAs and help to buy ISAs guidance note. Lifetime ISAs are aimed at incentivising savings towards either a first house purchase or retirement, but they may not be regarded in other countries as a ‘pension’. The reverse may be true of other countries, such
Lifetime ISAs and help to buy ISAs
Lifetime ISAs and help to buy ISAsHelp to buy individual savings accounts (help to buy ISAs) were introduced from 1 December 2015 as a tax-free cash account aimed at encouraging first-time buyers to save for a UK residential property. As well as receiving interest on the balance tax-free, the Government supplements the amount saved with a 25% bonus (up to a maximum of £3,000) when the property is purchased.These ISAs are closed to new savers with effect from 1 December 2019, although anyone with an existing help to buy ISA can keep saving into the account until 30 November 2029.Lifetime ISAs were introduced from 6 April 2017. Like the help to buy ISAs, the Government supplements the amount saved with a 25% bonus (limited to £1,000 per year). There are conditions as to the age of the individual and the funds can only be withdrawn without a penalty to fund a first home, on reaching 60 years old or on diagnosis of a terminal illness.Help to buy ISAs and lifetime ISAs are discussed below. For details of general ISAs, see the Individual savings accounts (ISAs) guidance note. For details of junior ISAs, see the Junior ISAs guidance note.Giving investment adviceThe usual health warning applies here: you cannot give investment advice unless you are authorised to do so by the Financial Conduct Authority. You can tell your client about tax efficient investments but you must not recommend any based on the individual circumstances.See the Regulated investment advice guidance note.Lifetime ISAsThe
Tax efficient investments and pension planning
Tax efficient investments and pension planningOverviewTax efficient investments provide the investor with relief from one or more taxes for the current tax year, or are exempt from income tax and / or capital gains tax. Some investments have both attributes.The following tax efficient investments are discussed below:•individual savings accounts (ISA), including the lifetime ISA, help to buy ISA and junior ISA•child trust funds•National Savings products•life assurance polices or investment bonds•venture capital schemes, including enterprise investment scheme, seed enterprise investment scheme, venture capital trusts and social investment tax relief•pension contributionsEach type of investment has its own set of qualifying conditions, which generally includes a cap on the amount that can be invested in a particular period. This may be the tax year, or another period. The client’s holding of tax efficient investments needs to be considered as part of the tax year-end planning exercise, to achieve tax savings for the current year and potentially to manage the taxable income for future periods.Regulated investment adviceInvestment advice is a regulated activity under the Financial Services and Markets Act 2000. This covers advising on buying, selling or subscribing for a particular investment.Outlining the broad tax implications of the different categories of investments, such as enterprise investment scheme (EIS) shares or individual savings accounts (ISA) is not a regulated activity. However, if the adviser were to advise a client to take out these investments or, for instance, partially surrender their non-qualifying life insurance policy, this would be a regulated activity.To carry on a
Weekly tax highlights ― 18 March 2024
Weekly tax highlights ― 18 March 2024Direct taxesIncome Tax (Pay As You Earn) (Amendment) Regulations, SI 2024/305The Regulations simplify the reporting process for employers in respect of a salary advance made to an employee, so that the salary advance can be reported on or before the employee’s contractual pay day, thus avoiding having to report the advance and the regular salary payment separately. The reporting of the advance will be delayed until the remainder of the salary instalment is paid. The change applies from 6 April 2024.The Regulations differ slightly from the original draft version which HMRC had published for consultation, to make sure that the change only applies to advances of pay already earned by the time the advance payment is made.The CIOT had previously raised concerns around how delaying the reporting of advance payments could be seen as condoning the use of third-party providers who arrange salary advances in return for a fee. The explanatory notes to the SI provide that ‘Arrangements for making advances are matters between the employer and the employee, falling outside the remit of HMRC’ and ‘On the question of third parties, the reporting obligation will fall on the employer where a third-party scheme provider is acting on the employer's behalf.’The Social Security (Contributions) (Amendment No 3) Regulations, SI 2024/306 provide equivalent provision for NICs purposes.Income Tax (Pay As You Earn) (Amendment) (No 2) Regulations, SI 2024/355The Regulations deal with the situation where the deemed employer has failed to make deductions under PAYE
Autumn Statement 2023
Autumn Statement 2023Chancellor Jeremy Hunt delivered his Autumn Statement on 22 November 2023, setting out proposals to stimulate growth in the economy. There was also confirmation that there will be an Autumn Finance Bill 2023 which will legislate for some of the measures, with the rest to be legislated for in a later Finance Bill.The key changes / announcements made today are summarised below. Detailed analysis will follow in all of our usual sources.Personal taxesClass 1 NIC reductionIn a surprise move, with effect from January 2024, the Government has decided to reduce the main rate of employee NIC payable, from 12% to 10%. The rate applies to employee earnings between the Primary Threshold £242 per week (£1,048 per month) and the Upper Earnings Limit £967 per week (£4,189 per month). So for example, an employee earning £2,950 per month would see a reduction in NIC payable of £38.04 per month (£456 per year), from January 2024. It is anticipated the new employee rate will be applied for the remainder of the current tax year 2023/24, and for the whole of 2024/25.See Overview of tax legislation and rates (November 2023), para 2.1.The introduction of calculation rate changes partway through the tax year will present some challenges to payroll software, which will be expected to integrate the alterations quickly. The mid-year change may also present issues for individuals subject to an annual NIC calculation (eg company directors), especially those who are not paid at regular intervals.No changes have been made to
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