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Investment Reliefs
The main tax incentives for investment
are:
* income tax deduction for
amounts invested - the rebate is either at a fixed
20%/30% or at the taxpayer's marginal
rate of tax (DED'N)
* tax exemption
on the income from the source (EXINC)
*
tax exemption on gains arising (EXGAIN)
* the ability to defer capital gains on other
disposals until the new investment is sold (DEFER)
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| The main types of tax-advantaged investments
are: |
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| Contributions made to one 'Maxi-ISA'
(max. £7,000 each year) or to separate 'Mini-ISAs'
(max. £3,000 in the 'cash component',
£4,000 in the 'share component').
Subscription limits increase to £7,200 in
2008/09 and rules on mini and maxi ISAs will change.
No restrictions on withdrawal. No relief for losses. |
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| No new contributions can be made to
PEPs after 5.4.99, but existing PEPs can continue
with their tax advantages. No restriction on withdrawals,
but money withdrawn cannot be reintroduced. No relief
for losses. To be combined with ISAs at a date to
be announced. |
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| 30% |
Yes |
Yes |
Not after 5/4/04 |
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| Relief is for subscription for new share
capital in approved VCT - a quoted company which
invests in small, unquoted trading companies. The
income tax relief becomes permanent if the shares
are held for 5 years, but gains (if any) are exempt
immediately. No relief for losses. Limit £200,000
pa. |
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| Relief is for subscription for new share
capital in small, unquoted trading companies. The
income tax relief becomes permanent, and gains are
exempt, if the shares are held for 3 years. Further
relief available for losses on disposal. Maximum
investment £400,000 per tax year. |
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The details of the contract with the
pension company may vary, but they must be within
the basic framework set down by tax law.
PPP premiums are paid net of basic rate tax. The
policyholder pays 78% and the Revenue pay 22%.
Higher rate relief is given where due by increasing
the basic rate band in the tax computation.
While the money is held within the pension fund,
it is exempt from taxes on income and gains, so
it grows faster than funds held directly.
When the policyholder takes the benefits under the
scheme, 25% of the accumulated fund can be drawn
as a tax-free lump sum, and the balance is used
to provide an income (which is taxable). The income
can be a purchased annuity for life, or an "alternatively
secured pension" in which the fund is still
identified and produces the income which is paid
to the pensioner.
Tax relief is due on an individual's gross contributions
up to £3,600 (£2,808 net), or 100%
of current year employed or self-employed earnings
if higher, up to £225,000 (in 2007/08).
When a policyholder takes benefits, the capital
value on which benefits are drawn (e.g. as a 25%
tax-free lump sum) are measured against a "lifetime
allowance" (£1.6m in 2007/08). If the
lifetime allowance is exceeded, there is a clawback
charge on the excess.
Employers can contribute up to £225,000 to
employees' pension funds, less any contributions
made by the individual. The employer can enjoy tax
relief on the cost under the normal rules for trading
expenses.
If a policyholder dies before taking any benefit
under the scheme, the fund usually passes to dependants
free of IHT. If death is during payment of benefits
and a capital fund is payable to dependants, it
is likely to be subject to IHT. |
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