Q. A friend of mine said that with the tax changes coming into force in April, there is no longer any point in investing in ISAs (Individual Savings Accounts). Is this true?
A. From April, individuals will have a “Personal Savings Allowance” of £1,000 if they are a basic rate taxpayer, or £500 if they are a higher rate taxpayer. Interest will also be paid without deduction of tax. Furthermore, there will be a Dividend Allowance of £5,000 for all taxpayers. If your income from savings and investments is within these limits, and is always going to remain so, then the benefit of ISAs is limited to capital gains tax. There is also an annual allowance of £11,100 for capital gains before tax becomes payable, so your friend has a point for many people. However ISAs still have the advantages that if interest rates improve and your savings income exceeds the limits, you should still have no tax to pay if your savings income exceed the limits. Additional rate taxpayers do not benefit from the Personal Savings Allowance, so ISAs remain valuable to them, and those who get paid dividends from their own company might also appreciate protecting their investment dividends from taxation. The other major benefit of ISAs is that you simply do not need to think about the tax once your money is sheltered in an ISA. Finally, for those who receive child benefit, this is withdrawn when taxable income exceeds £50,000. Savings and dividend income might be within the allowances, but it is still “taxable”, and still counts towards the assessment for Child Benefit. You could say: “ISAs are dead… long live ISAs”. All UK resident adults can invest £15,240 into ISAs in this tax year and the next, and if this allowance is used every year, it is amazing how much the funds can build up over the years.
Q. My husband and I have rented the house that we have lived in but about 15 years ago we purchased an investment property so that we always had an interest in the property market. The house we bought was always let until late last year. Unfortunately we have not been able to find a new tenant and have decided to sell the property. A friend has mentioned we will need to pay capital gains tax, but surely as this is the only house we have ever owned, that wouldn’t be the case?
A. If you make a gain on this property then you will be potentially liable for Capital Gains Tax (CGT). This is because it was not your main residence and only the main residence is exempt from CGT. However, you can offset the costs of buying and selling and also the cost of any improvements that you have made to the property. However, maintenance costs cannot be offset because they should have been set against the income you have received. Do not forget that you both have an allowance before capital gains tax is due of £11,100 each. Consequently, if after all the “take offs” the gain is in excess of £22,200 then you will be liable for Capital Gains Tax. The rate of tax payable depends on your total income in the year of disposal and is currently 18% for basic rate taxpayers and 28% for higher rate taxpayers.
If you have a question you would like Trevor to answer, please email it to: yourmoney@rwpfg.co.uk or post it to Your Money, Rutherford Wilkinson Ltd, Northumbria House, 21-23 Brenkley Way, Blezard Business Park, Newcastle upon Tyne, NE13 6DS.
