Investors Chronicle reader Mr K Daly asks: "In the reader portfolio article (Investors Chronicle 11 October issue), your expert Jeremy Le Sueur stated: 'You should transfer all your non-individual savings account (Isa) holdings into your wife's name. Any income received from shares by a basic-rate taxpayer has no further tax to pay.'
"However, my impression is that basic-rate taxpayers pay a 10 per cent levy on dividends. Also Isas are sold on the basis that there is no dividend tax liability. So, (ignoring capital gains (CGT) tax issues) is there any point in a basic-rate taxpayer using an Isa? Perhaps tax credits are a factor - any clarification would be welcome."
Mr Le Sueur, managing director of 4 Shires Asset Management, replies: "The 10 per cent levy (advance corporation tax) is deducted at source from the company, so that is not part of the equation when calculating income in a tax context.
"There are two main reasons why it is worth holding Isas for a basic-rate taxpayer. First, as your portfolio builds in size, you will become liable for CGT if you make net realised (ie, from selling assets) profits of more than £10,900 in any year. The second reason is that income paid to you from fixed-interest securities held outside an Isa will have a tax charge at the marginal rate (unlike shares). When you are older you may feel it is better for you to have a higher percentage in reliable income generators such as fixed-interest securities. The income you receive out of an Isa in such holdings will therefore be tax-free."
