CISI IAD Tax-Efficient Investing

Question 1

What is the annual ISA allowance for 2025/26 and what types of ISA are available?

Accepted Answer

£20,000 per year across the ISA family, including Cash ISA, Stocks & Shares ISA, Innovative Finance ISA, and Lifetime ISA (with a £4,000 sub-limit for Lifetime ISA)

Answer

The ISA annual subscription limit is £20,000 for 2025/26. The ISA family includes Cash ISA, Stocks & Shares ISA, Innovative Finance ISA, and Lifetime ISA (capped at £4,000 per year within the £20,000 limit). All returns are free of UK income tax and capital gains tax.

Question 2

What are the key tax advantages of saving into a pension in the UK?

Accepted Answer

Pension contributions receive income tax relief at the contributor's marginal rate, funds grow free of UK income tax and capital gains tax within the pension, and at retirement 25% of the fund can be taken tax-free with the remainder subject to income tax

Answer

UK pensions benefit from three-stage tax advantages: (1) contributions attract income tax relief (basic, higher, or additional rate), (2) funds grow free of UK income tax and CGT within the pension wrapper, and (3) at retirement, typically 25% (up to the lump sum allowance) can be taken tax-free, with the balance taxable as income.

Question 3

What is the 'annual allowance' for pension contributions in 2025/26?

Accepted Answer

£60,000 (or 100% of earnings if lower)

Answer

The annual allowance for tax-relievable pension contributions in 2025/26 is £60,000 (or 100% of earnings if lower). Contributions above this limit are subject to an annual allowance charge at the individual's marginal rate of income tax.

Question 4

What is the 'carry forward' rule for pension contributions?

Accepted Answer

The ability to use unused annual allowance from the previous three tax years to make pension contributions above the current year's annual allowance

Answer

Carry forward allows individuals to use unused annual allowance from the three previous tax years (in order, oldest first) in addition to the current year's annual allowance, enabling larger one-off contributions — subject to having sufficient earnings and having been a member of a registered pension scheme in each year.

Question 5

What is 'bed and ISA' as a tax planning strategy?

Accepted Answer

Selling investments held outside an ISA and immediately repurchasing the same investments within an ISA wrapper, thereby sheltering future gains from CGT, though the sale crystallises any existing gain

Answer

Bed and ISA involves selling existing investments held in a general investment account and using the proceeds to subscribe to an ISA, then buying back the same investments within the ISA. This eliminates future CGT and income tax on those assets, though the initial sale may trigger a CGT liability.

CISI Investment Advice Practice Test

CISI Investment Advice Practice Test

CISI IAD Tax-Efficient Investing