Postby bob.fraser@towrylaw. » Mon Jul 28, 2008 7:45 am
The growth in value of the PEP/ISA is taxed as capital gains, but are exempt.
Income tax may be chargeable depending on how the underlying funds are invested. Funds that are invested in assets that provide "interest", such as corporate bond funds, are tax free. There is no income tax. Funds that are invested in assets that provide "dividends" that are taxed at source, such as UK equity funds, are not taxed in the PEP/ISA but the 10% tax credit cannot be reclaimed. So technically these are no tax free, and income tax has been paid. However, there is no higher rate liability. This was just dear Gordon raiding PEPs/ISAs in exactly the same way he raided the pension funds.
Your advisors should be able to explain this to you, and should be helping you allocate your assets to the IHT solution.
Bob Fraser
Chartered Financial Planner