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Tax on investments
If you earn an income from your investments, you might need to pay an amount of tax. You’re responsible for any tax due, but understanding the rules helps make things simpler.
Capital Gains Tax
Capital Gains Tax (CGT) applies to the profit you make when you sell or dispose of something that’s gone up in value. It’s only the gain that’s taxed, not the total amount you receive.
Your gain is the selling price minus what you paid, including any costs.
In the UK, individuals have a yearly CGT allowance of £3,000 for the current tax year. How much CGT you pay above the allowance depends on your income tax band.
You won’t pay CGT on gains earned within a UK pension scheme or ISA.
Tax on dividends
Dividends are payments a company makes when it shares some of its profits. Everyone has a dividend allowance, which is £500 for the current tax year. This means you can earn up to the allowance in dividends each tax year without paying tax.
You won’t pay tax on UK dividends within a UK pension scheme or ISA although taxes or fees could apply to foreign stocks and investments.
ISA subscriptions
ISA subscriptions allow you to save a set amount of money each tax year that is protected against UK capital gains and UK dividends tax. The amount is £20,000 for the current tax year.
You can subscribe to multiple ISAs of the same type (except for Lifetime ISA) within the tax year. All subscriptions must stay within the overall ISA limit of £20,000..
Tax-efficient investing
There are tax-efficient investment options you can consider, which could help to keep more of the returns you earn in your pocket. These include ISAs, pensions and a handful of gilts, schemes and trusts.
Investing for longer increases the likelihood of positive returns. Over a period of 5 years or more, investments usually give you a higher return compared to cash savings. But investments can go down as well as up in value, so you could get back less than you put in. Tax treatment depends on individual circumstances and may be subject to change in the future.
Managing your tax responsibilities
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