Savings
Interest of up to £1,000 from savings such as bank and building society accounts, unit trusts, and trust funds, can be sheltered from tax by the Savings Allowance. Availability of the allowance depends on your tax band.
The allowance applies across the UK. Scottish taxpayers therefore need to assess their savings position based on UK rates.
Individual Savings Accounts (ISAs)
ISAs are sometimes referred to as a tax ‘wrapper’ for investments: they allow you to make a tax-efficient investment, rather than dealing directly in the investment market and facing the tax consequences attaching.
The tax benefits here are considerable. ISAs are free of income tax and capital gains tax and do not impact the availability of the savings or Dividend Allowance.
Anyone over the age of 18 (or 16 for a cash ISA), who is resident in the UK, can open an ISA: for Lifetime ISAs, applicants must also be under the age of 40. Crown servants and their spouses not living in the UK are also eligible. Junior ISAs are available for children under 18.
There are four types of ISA: cash ISAs, stocks and shares ISAs, innovative finance ISAs and Lifetime ISAs. The total you can invest in any tax year is set by the government: for the tax year 2022/23, it is £20,000. This can be allocated across the different types, as you choose.
Although you cannot hold an ISA with, or on behalf of, someone else, you and your spouse each have an ISA subscription limit: this means you can invest £40,000 between you. It is also possible to open and manage an ISA for someone lacking the mental capacity to do so for themselves. This is done by applying to the Court of Protection for a financial deputyship order. In Scotland, application would be to the Office of the Public Guardian in Scotland.
Planning potential: review your position each year
ISA limits cannot be carried into future years. Use it before 5 April 2023, or lose it.
ISA subscription limits
Looking forwards, once the capital gains tax annual exemption falls from 6 April 2023, ISAs become an even more important tool for tax planning.
Tax-efficient investments
The venture capital schemes, providing finance for new, higher-risk companies, continue to afford individual investors with a significant source of tax relief.
The Enterprise Investment Scheme (EIS), Seed Enterprise Investment Scheme (SEIS) and Venture Capital Trusts (VCTs) were subject to sunset clauses in the original legislation, but have now been given a new lease of life. The government has given a commitment to extend them beyond 6 April 2025, and is changing some of the detail of the rules to provide more generous relief. This is the case with the SEIS, which offers the potential for 50% income tax relief, and where, from 6 April 2023, the annual investor limit doubles to £200,000.Â
Please do talk to us for further details of any of these schemes.
Here to help
For other year end tax planning opportunities including potential for director-shareholders, income tax rates and allowances, tax and family, capital gains tax and Gift Aid, download our ‘Year End Tax Planning Guide’.
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