ABSTRACT
Over the past forty years in the United Kingdom three forms of personal saving have received particularly favourable tax treatment – pension schemes, individual life insurance, and the purchase of owner-occupied houses financed by mortgages. Not surprisingly, these have come to dominate the structure of personal savings. Direct personal saving, for example by direct investment in ordinary shares, has not in general received the same tax advantages, and indeed through investment income surcharge (only abolished in April 1984) and its predecessors has received distinctly unfavourable treatment. If a particular form of financial transaction receives more favourable tax treatment than another transaction that otherwise has a similar effect, it is not surprising to find that investors prefer to enter into transactions of the former kind and that such transactions thus flourish.
