SAIM2310 - Interest: exemptions: tax-free savings income: ISAs, PEPs and CTFs

Individual Investment Plans

Probably the most common type of exemption from tax on interest is where the income arises in an individual investment plan. Chapter 3 of Part 6 of ITTOIA05 contains the powers for the Treasury to make regulations for exemptions for certain investments. Two sets of regulations have been made under ITTOIA.

  • Personal Equity Plans (PEPs) (SI469/1989).
  • Individual Savings Accounts (ISAs) (SI1870/1998).

Similar powers are provided by The Child Trust Fund Act 2004 under which the following regulations have been made:

  • Child Trust Funds (CTFs) (SI1450/2004)

The regulations set out the rules under which plan managers operate, as well as the rules for investors, which include the limits on the amounts that can be invested in each tax year.

PEPs have been replaced by stocks and shares ISAs. The last date on which a PEP could be opened was 5 April 1999. PEPs in existence at that date could continue, but no further subscriptions could be made. Investors pay no tax on any of the income they receive from their PEP savings and investments. They do not have to declare income and capital gains from PEP savings and investments or even tell their HMRC office that they have a PEP.

ISAs began on 6 April 1999. Investors pay no tax on any of the income they receive from their ISA savings and investments. They do not have to declare income and capital gains from ISA savings and investments or even tell their HMRC office that they have an ISA.

A Junior ISA is a long-term savings or investment account, in the beneficial ownership of a child, and from which the child (but no-one else) may withdraw funds after their 18th birthday. A Junior ISA may be opened for a child born on or after 3 January 2011.

A Child Trust Fund account is a long-term savings or investment account, in the beneficial ownership of a child, and from which the child (but no-one else) may withdraw funds after their 18t h birthday. A CTF was opened for each eligible child born between 1 September 2002 and 2 January 2011. The scheme is closed to new accounts but it continues to operate for existing accounts.

See the HMRC website (https://www.gov.uk/individual-savings-accounts) for further information on ISAs, PEPs and CTFs.