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ACCA Applied Skills · Taxation (UK) · Property and investment income

Which statement about the tax treatment of an individual's ISA investments is correct?

Income and gains within an ISA are exempt from income tax and capital gains tax. ISA interest and dividends are not taxable, so they do not use the nil rate bands, and subscriptions receive no income tax deduction.

  1. AIncome and gains arising within the ISA are exempt from income tax and capital gains taxCorrect
  2. BInterest from a cash ISA is taxable but covered by the savings nil rate band
  3. CISA dividends count towards the £500 dividend nil rate band
  4. DISA subscriptions are deducted from total income in computing taxable income

Explanation

ISAs are tax-exempt wrappers: income and gains within them are not taxed. ISA income therefore does not use up the savings or dividend nil rate bands. Subscriptions are made from taxed income and give no income tax deduction.

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