Investment tax to be aware of
Here's a quick summary of the UK investment taxes you might have to pay when investing. It's not comprehensive, so please use it for general guidance only. The rates and allowances apply to the 2016/17 tax year.
Capital Gains Tax
Capital Gains Tax (CGT) is a tax on the profit you make when you sell shares for more than you paid for them. If your overall gains for the tax year 2016/17 are more than £11,100 (your Annual Exempt Amount), you have to pay 10% CGT, or 20% if you're a higher / additional rate taxpayer. If your gains are less than £11,100, you won't have to pay any CGT. If you sell shares for less than you paid for them, your 'capital loss' can be used to offset capital gains.
Similar to paying tax on interest from savings accounts, you must pay tax on investment income you receive from UK companies and funds. For the tax year 2016/17, you won't have to pay tax on the first £5,000 you receive, but thereafter, basic rate tax payers must pay 7.5%, higher rate taxpayers must pay 32.5% and additional rate tax payers must pay 38.1%.
Stamp Duty Reserve Tax
When you buy UK shares via paperless transactions you have to pay Stamp Duty Reserve Tax (SDRT) which is charged at 0.5% (rounded up to the nearest penny). Most shares which are traded on the AIM market are free from stamp duty reserve tax.
How to shelter your investments from tax
Stocks and Shares ISAs are very popular with investors since they can save you tax whilst enabling you to withdraw your money at any time. They’re very tax-efficient compared to normal investment accounts:
- No further tax to pay on income you receive from investments
- No Capital Gains Tax
- No need to tell your tax office (HMRC) that you have an ISA
Tax law is complex and we can't replicate every rule, nuance or exemption here. No responsibility is taken for any decisions taken (or not taken) based on this information alone. If you are in any doubt as to the suitable course of action, we recommend you seek tax advice or contact HM Revenue & Customs. Remember that tax rules are subject to change and will depend on your personal circumstances.