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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 There are conditions around the age of the individual and the funds can only be withdrawn without a penalty to fund a first home, on reaching 60 years old or on diagnosis of a terminal illness.For more information, see the Lifetime ISAs and help to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.Note that it was confirmed at Autumn Budget 2024 that the Labour Government will not

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 purposesSTOP PRESS: The remittance basis is to be abolished from 6 April 2025, although this only applies to foreign income and gains arising on or after that date. The remittance basis rules still apply to unremitted income and gains arising before that date but remitted later. The legislation is included in Finance Bill 2025. For more details, see the Abolition of the remittance basis from 2025/26 guidance note.This 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

Foreign pension income

Foreign pension incomeSTOP PRESS: The remittance basis is to be abolished from 6 April 2025, although this only applies to foreign income and gains arising on or after that date. The remittance basis rules still apply to unremitted income and gains arising before that date but remitted later. The legislation is included in Finance Bill 2025. For more details, see the Abolition of the remittance basis from 2025/26 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 the tax implications of contributing to an overseas pension see the Treatment of pension contributions to non-UK pension schemes 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. For taxation of pensions generally, see the Pension income and lump sum allowances from 6 April 2024 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

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

Pension planning for owner-managed businesses

Pension planning for owner-managed businessesThis guidance note considers the role pensions can play in tax planning for sole traders, partnerships and owner-managed companies. It addresses pension contributions from the perspective of the individual and from that of the business. In an owner-managed business context, personal, family and business issues have a part to play and interaction with levels of other income, child benefit claims, transitional profits arising from basis period reform and close company national insurance are relevant. The types of pension scheme best suited to OMBs are considered. See also the Pension contributions by owner managed companies guidance note. Pensions and the family businessThe payment of pension contributions by family businesses is an area of tax planning which is often overlooked. Below, we will consider some planning possibilities for the proprietors of owner-managed businesses, considering both unincorporated and incorporated businesses.Sole trader and partnership pension optionsWhen we are talking about unincorporated businesses, there is no real concept of the business making the contribution on behalf of the owner, as these are always treated as personal contributions of the individual, whether they are a sole trader or a member of a partnership. No tax relief is available for the business, as it is part of the distribution of any profit. Contributions for employees of the business are dealt with in the same way as they would be for any employer.Personal pension contributions receive basic rate relief at source, with any higher rate relief being given by extension of the basic

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

Interest received net or gross

Interest received net or grossInterest can best be thought of as compensation for the use (or retention) by one person of a sum of money which belongs to another. Therefore, in order for a payment to be interest, there must be a principal sum on which the interest is calculated and both amounts (the principal and the interest) must be due to the same person. For further discussion of the meaning of interest, see Simon’s Taxes E1.405.Unless the interest is specifically exempt (see ‘Exempt interest’ below), it is taxable. This is explored further in the Taxation of savings income guidance note.The most common forms of interest are the amounts paid by banks or building societies on deposits, although interest may also be paid by companies on amounts loaned by the person. This guidance note discusses whether the interest is either paid to the recipient gross (no tax deducted, also known as untaxed income) or net (after tax has been deducted, also known as taxed income). The amounts are reported in different boxes on the tax return. See below.Irrespective of whether a person receives the interest gross or net of tax, it is the gross amount that is used to calculate the income tax due. See the Taxation of savings income guidance note. After the overall tax liability has been calculated, any tax already collected by the payer is deducted from the liability. See the Proforma income tax calculation guidance note.It is the amount of interest that arises to the

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