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Examination Timing: 00H00M01S

Elizabeth owns shares in several companies and has some cash in savings which are held in an Individual Savings Account (ISA). During the tax year, Elizabeth received dividends and interest from her investments. At the end of the tax year, she sold the shares in one of these companies at a capital loss. Elizabeth also made a capital gain on the sale of her real property. 


Which of the following statements correctly describes the legal position in respect of the current tax year?

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Individual Savings Accounts (ISAs) are tax-advantaged savings and investment accounts. Dividends and interest earned on investments held within an ISA are not subject to income tax. Additionally, any capital gains made within an ISA are not subject to Capital Gains Tax (CGT). However, any capital losses incurred on investments within an ISA cannot be used to offset capital gains made on investments held outside the ISA. In Elizabeth's case, she will not pay tax on the dividends and interest received from her ISA investments, and she cannot use the capital loss from her ISA to offset the capital gain made on the sale of her real property.


Key Point: ISAs provide tax benefits on income and capital gains within the account. However, capital losses within an ISA cannot be used to reduce CGT liabilities on investments held outside the ISA.

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