Saving investment tax
This article describes various ways to save tax on your investments.
Types of investment
Different types of investment exist, catering for the various needs of the investor. They include:
- Children's Bonus Bonds
- UK life assurance endowment policies
- Enterprise Investment Schemes
- Enterprise Zones
- Gilt's (UK Government Stocks and Bonds)
- Individual Savings Accounts (ISAs)
- Investment bonds
- Various national savings accounts
- Pension Schemes
- Venture capital trusts
- Bank/building society accounts
Individual Savings Accounts (ISA)
You can invest up to £7,000 into a Maxi ISA or £3,000 into a Mini cash ISA, £3,000 into a mini stocks and shares ISA, and £1,000 into a life assurance ISA. See the ISAs article for more information.
Gains on void ISAs
If you have subscribed to more than one life insurance Individual Savings Account (ISA) during the tax year, the most recent policy will be voided. If you have made a gain on this policy you will have to pay the tax due. Your ISA provider should inform you of this in writing. This needs to be included in boxes 12.6 to 12.8 on your self assessment tax return.
Life insurance gains
If you have a gain on a life insurance policy and there is a notional tax credit attached to it, you should enter the details in boxes 12.3 to 12.5 of your tax return. If there isn't any notional tax you should enter the gross figure in box 12.2. If you are unsure whether there is a tax credit you should ask your insurance company or financial adviser.
Pension premiums paid
If you are claiming for pension contributions made during the year, you should ensure your date of birth is entered in box 22.6 of the self-assessment tax return.
Charitable giving
Deeds of covenant were replaced by the new gift aid scheme on 6th April 2000. Existing deeds of covenants will continue to run until the end of their term.
With no minimum donation, all gift aid payments qualify for basic rate tax relief. Higher rate tax payers can claim back 18% tax relief through their tax office.
Payroll giving (payments to charities made through the payroll) also attracts the tax relief as for gift aid payments. For the next three years, the government will add 10% to any gift made through payroll giving.
Rental income
If you rent out a property owned by you, you must include on your tax return details of all income expected to be received during the tax year, even if it hasn't been received until after 5th April.
A property will qualify as furnished holiday lettings if it is in the UK and is available for holiday letting to the public for 140 days or more during the year. It must actually be let for 70 days or more during the year and must not be occupied continuously for more than 31 days by the same person, for at least 7 months of the year.
Rental losses
If you make a loss from your rental income in the year, you can carry this forward and set it against the rental income of the following tax years until it is used up.
Mortgage lenders
If you let out rooms in your home, or a separate property, and you have a mortgage on that property, you should inform your mortgage lender of the situation to ensure you are not breaching the contractual agreement between you. If your letting income falls within the rent-a-room scheme, most lenders will not have a problem.
Similarly you should also inform your insurer.
Rent a room relief
If you rent part of your home out you may be able to claim the rent-a-room relief (£4,250) to set against your letting income. You do not need to claim this if the expenses related to the letting are greater than the rent-a-room relief (eg advertising for tenant, wear and tear on furnishings supplied etc).
Stamp duty
Stamp duty is payable on property transactions where consideration is over £120,000. The bands are £120,000 - £249,999: 1%; £250,000 - £499,999: 3%; £500,000 or over: 4%. Thousands of pounds can be saved by legally avoiding the higher rates of stamp duty.
A common tactic is to sell homes for just below the thresholds (e.g. £249,999 or £499,999). Fixtures and fittings are then sold separately. Any object that can be removed from the home can be sold separately. These typically include curtains and carpets, although it has been known for standalone kitchens and baths to be sold separately.
This page was last reviewed on 03 April 2006. The information may not reflect changes in legislation made after this date.
This is only a guide to your tax position and should not be relied on in place of professional accounting or tax advice. Any calculated figures are illustrative and are based on the data you provided.
