• Personal allowances are deducted from income before calculating IT at rates determined by the amount of an individual's income. The married couple's allowances are available only if at least one spouse was born before 6 April 1935. Relief for the married couple's allowances is restricted to 10%.
• The extra age allowances above the basic single personal and married couple's allowance are reduced by £1 for every £2 where total income is more than the age allowance threshold.
• The family element of children's tax credit is paid directly to the main carer and is not an income tax deduction. The maximum credit for 2004/05 is £545 (£1,090 for babies up to 1 year old). The credit is reduced by 6.67% of joint income over £50,000.
• Some income is taxed under schedules and cases, eg Schedule D Case 1 for trading income.

• Tax is normally charged on the profits of the 12-month accounting period ending in the tax year.
• In the tax year in which the business is started, tax is charged on the profits of that tax year, calculated by apportioning accounting periods if necessary. Any profits taxed twice are treated as overlap profits.
• Businesses that started before 6 April 1994 may have transitional overlap profits. These are profits assessed in 1997/98, but actually earned before 6 April 1997.
• In the tax year in which the business ends, tax is charged on the profits of the final period plus the profits of any previous accounting period ending in that tax year. Overlap profits are deducted.

• Income is taxed in the tax year in which it is received.
• Employers normally deduct tax from pay under PAYE. Most pensions are also taxed in this way.

• The taxable benefit of beneficial loans is the interest saved compared with the Inland Revenue official rate (5% in 2004/05). Loans up to £5,000 are exempt.
• Use of assets gives rise to a taxable benefit of 20% a year of the market value when the asset was first made available to the employee. There is a limited exemption for computer equipment.
• Living accommodation is taxed on gross rateable value (estimated for new properties) or rent paid by the employer if greater. If the property cost more than £75,000, there is an additional benefit based on the official interest rate.
• A company car has a cash equivalent based on its list price when new (up to £80,000) and the level of carbon dioxide (CO2) emissions in grams per km.
  The lower threshold (145g/km) will fall to 140g/km for 2005/06 and 2006/07. Cars at least 15 years old and valued at over £15,000 are taxed on the appropriate percentage of market value. The cash equivalent of fuel for private use is the appropriate percentage of £14,400.

* not meeting Euro IV emission standard. Otherwise petrol rates apply.

• Approved share and share option schemes can give tax benefits. The share incentive plan allows employers to give up to £3,000 of shares to employees tax-free. In addition, employees may buy up to £1,500 of shares out of pre-tax salary and the employer can match them 2 for 1. The enterprise management incentive scheme allows certain smaller trading companies to grant tax-advantaged share options of up to £100,000 per employee.

• Most investment income, other than dividends and rents, is taxed at 20% where the taxpayer's total income less allowances and reliefs is not more than the basic rate limit (£31,400).
• Investment income that falls within the starting rate band is taxed at the 10% starting rate.
• Taxpayers whose total income is more than £31,400 (higher-rate taxpayers) have to pay 40% tax (32.5% for dividends) on that part of their gross investment income that falls above the basic rate limit.

• The tax credit covers the full tax liability of shareholders whose total income less allowances and reliefs is not more than £31,400. But it cannot be repaid to non-taxpayers.
• Higher-rate taxpayers are taxed a total of 32.5% on that part of their gross dividends that falls above the basic rate limit. They therefore pay an extra 22.5% on gross dividends, equivalent to 25% of net dividends, after deducting the tax credit.

• To acquire shares in, or lend money to, a close company or partnership; to buy plant and machinery for use by a partnership or in one's employment (employees' car purchase loans are excluded); to contribute capital to a co-operative; to invest in an employee-controlled company; or to lend money to personal representatives to provide funds to pay inheritance tax. These loans are generally subject to special rules.
• Up to £30,000 to a person of 65 or over to buy an annuity. The loan must have been made or agreed before 9 March 1999 and be secured on the main residence. Relief is at 23%. Relief is not lost if the borrower remortgages or moves home.

Relief is not available for interest on loans to acquire enterprise investment scheme shares or for interest on a personal overdraft.

Investments with special tax rules

Individual Savings Accounts (ISAs)
An individual aged 18 and over can invest up to £7,000 in an ISA as a mixture of cash, life insurance and stocks and shares.
Up to £3,000 can be in cash and up to £1,000 can be put into a life insurance policy. The stocks and shares component can include equities, qualifying gilts, unit and investment trusts and open-ended investment companies (OEICs).
Income and gains in an ISA are generally tax-free but the 10% tax credit on dividends can no longer be claimed.

ISAs replaced two previous tax-free investment vehicles;

• TESSAs (tax exempt special savings accounts) which were essentially deposit accounts; and
• PEPs (personal equity plans) which can hold the same kinds of investments as the stocks and shares components of ISAs

There are three types of ISA.

• A maxi ISA may include all three types of investment component and must offer a stocks and shares component. The cash and life insurance components are subject to the limits above; the stocks and shares component is subject only to the overall £7,000 limit. An individual can invest in only one maxi ISA in a tax year.
• Mini ISAs include just one of the three types of investment component. An individual who does not invest in a maxi ISA in any tax year can invest in up to three mini ISAs - one of each type. A maximum of £3,000 can be invested in a mini stocks and shares ISA, £3,000 in a cash ISA and £1,000 in a life insurance ISA.
• TESSA-only ISAs can only include the capital from a matured TESSA. The transfer must take place within six months of the maturity date, so no new accounts are available after 5 October 2004. It can be held in addition to other ISAs. Alternatively, capital from a matured TESSA can be transferred into the cash component of a maxi ISA or a mini cash ISA on top of the usual limit.

Teenagers aged 16 and 17 can invest up to £3,000 a year in the cash component of an ISA. If the money comes from a parent, the tax benefits may be lost.

Life assurance based investments
Life assurance based investments, e.g. investment bonds, can provide tax advantages for some individual and trustee investors.

• UK life assurance companies pay tax on their underlying investments at 20% on their realised capital gains, savings and non-savings income. The tax on UK dividends is satisfied by the 10% tax credit.
• For the investor, the proceeds of regular premium qualifying policies are not subject to income tax or capital gains tax, unless they are encashed or premiums ceased within the first 10 years or three quarters of the policy term whichever is the shorter.
• The proceeds of UK non-qualifying policies, e.g. single premium bonds, are potentially subject to higher rate tax (less a credit of 20%) on the policy gain. Up to 5% of the original investment can be withdrawn each year without a tax charge at the time.

Enterprise Investment Scheme (EIS)
Investors can obtain tax relief at 20% on the cost of subscribing for shares in a qualifying unquoted company. The relief is limited to £200,000 a year and is subject to several conditions. Any profit on selling the shares is tax-free although relief can be claimed for losses. An investment in EIS shares may also qualify for deferral of CGT on realised gains. This relief is not subject to the £200,000 limit.

Venture Capital Trusts (VCTs)
Investors can obtain tax relief at 40% (in 2004/05 and 2005/06) on up to £200,000 of the amount subscribed by investing in a spread of unquoted companies through a VCT. The qualifying conditions and tax benefits for IT and CGT are similar to those for the EIS, but CGT deferral is not available for investments made after 5 April 2004. In addition, dividend income is tax-free, although tax credits cannot be paid.


National Savings and Investments Certificates (NSICs)
National Savings and Investments certificates are exempt from tax on their interest. They are available on a fixed interest or index-linked basis.