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ACCA Strategic Professional · Advanced Taxation (UK) · Investment and other expenditure that reduces tax liabilities

Grace, an additional rate taxpayer, has £50,000 to invest. She has already used her £20,000 ISA limit for 2025/26 and has made gains of £10,000 in the year on other shares, with no losses. Which statement about the tax efficiency of her options is correct?

Her gains outside the ISA are taxable at 24% on £7,000, being £10,000 less the £3,000 annual exempt amount, so the CGT is £1,680. The £20,000 ISA limit only restricts tax-free subscriptions; it does not stop her investing more outside an ISA.

  1. AShares held within the ISA give her a CGT annual exempt amount of a further £3,000 per ISA
  2. BGains outside the ISA are fully exempt as they are below the £20,000 limit
  3. CShe cannot invest more than £20,000 in total, in any form, without a charge to tax
  4. DHer £10,000 of gains outside the ISA are taxable at 24% on the excess over £3,000, giving £1,680Correct

Explanation

Outside the ISA, the gains of £10,000 less the annual exempt amount of £3,000 give £7,000 taxable at 24% = £1,680. The ISA limit restricts only tax-free subscriptions, not total investment, and there is no extra exempt amount per ISA.

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