Understanding how much UK investment tax you have to pay can significantly impact the money you invest. But there are ways of minimising the amount you have to pay tax on your savings. We here at Moneyfarm will help to guide you through the tax maze.
| When is the UK income tax rate charged? | When your income is above your personal allowance |
| What are the most tax-efficient investments in the UK? | ISAs, private pensions, EIS and SEIS startups, VCTs, NS&I products, and dividend-paying stocks |
| How do my UK investments get taxed? | Via income tax, capital gains tax, and dividend tax |
| How much dividend is tax-free in the UK? | £2,000 |
Do you have to pay taxes on your investments?
The answer to the question of whether or not you have to pay UK investment tax is yes, and no. It depends on the following:
- Whether or not your income in any tax year is higher than your personal savings allowance (PSA). With your PSA, you don’t have to pay tax on the first £1,000 interest if you are a basic rate taxpayer or £500 if you’re a higher rate taxpayer. The allowance for additional rate taxpayers is 0.
- Whether any dividend income exceeds the dividend allowance, which is currently set at £2,000 per annum. Any earnings above the allowance will be charged dividend tax at 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35% for additional rate payers.
Taxable Income Allowances
Here is a table showing some of the available UK investment tax allowances.
|
Allowance / Threshold |
2023/2024 |
2022/2023 |
| Personal Allowance |
£12,570 |
£12,570 |
| Personal Savings Allowance | £1,000 / £500 / £0 | £1,000 / £500 / £0 |
| Personal Allowance Income Limit | £100,000 | £100,000 |
| Starting Rate for Savings Allowance | £5,000 | £5,000 |
| Capital Gains Tax Allowance | £6,000 | £12,300 |
| Pension Annual Allowance | £40,000 | £40,000 |
| ISA Allowance | £20,000 | £20,000 |
| Inheritance Tax Allowance | £325,000 | £325,000 |
| Lifetime Allowance | £1,073,100 | £1,073,100 |
| Dividend Tax Allowance | £1,000 | £2,000 |
| Marriage Allowance | Up to £1,260 | Up to £1,260 |
| Married Couples Allowance | £10,375 | £9,415 |
| Property Allowance | £1,000 | £1,000 |
| Blind Person’s Allowance | £2,870 | £2,600 |
| EIS relief limit on £1 million | 30% | 30% |
| SEIS relief limit on £200,000 from 2023/24 | 50% | 50% |
| SITR relief limit on £1 million | 30% | 30% |
| VCT relief limit on £200,000 | 30% | 30% |
Tax on buying and trading shares in the UK and in the US S&P 500
If you invest in individual shares, the tax on stock trading in the UK is as follows. You will probably pay tax or duty to the tune of 0.5% of the transaction value. In addition, you will pay SDRT (Stamp Duty Reserve Tax) if you purchase shares electronically.
If you acquire shares via a stock transfer form and the value of the transaction is more than £1,000, you will pay stamp duty on UK shares.
You might also have to pay Capital Gains Tax (CGT) if, when you sell shares, they have gained in value more than the Capital Gains Tax Allowance, which is currently set at £12,300.
As well as capital gains on shares UK domiciled, you might also be required to pay UK capital gains tax on foreign shares.
As an individual who is not a U.S. citizen, or other U.S. person, if you want to diversify your investment portfolio by buying S&P 500 stocks for a UK ISA, you will initially have to complete a W-8BEN form. Then be expected to pay a 15% withholding tax on dividends or income.
UK investment tax on Unit Trusts and OEICs
As part of their investment strategy, some investors can include unit trusts or open-ended investment companies (OEICs) types of investments in a general investment account. Both products are similar, but whereas unit trusts are divided into units, which can be bought or sold by UK investors, OEIC funds are operated by companies that sell shares instead of units.
As far as the UK investment tax situation goes, all income, whether or not it is taken, is regarded and taxed as investment income in the UK. You can learn more about the taxation of OEICs, and unit trusts on the web.
UK investment tax on property
When you buy land or property, you will be required to pay Stamp Duty Land Tax (SDLT) to HMRC, usually within 30 days of completing the purchase. The Gov.UK website shows the threshold for property types and their values.
If you sell a second home or a buy-to-let property, and it has gained in value since it was purchased, any gain will be subject to capital gains tax. According to the UK government, CGT charged on residential property is 18% (or 10 % gains from other chargeable assets) for basic rate taxpayers and 28% (or 20% gain from other chargeable assets) for higher and additional rate taxpayers. The threshold for CGT for UK tax year dates 2022 to 2023 is £12,300.
As regards income from buy-to-let investments, the income tax on rental property UK receipts will be subject to income tax.
Investing in crypto and taxation
When Bitcoin was first released in 2008, it heralded the dawn of a new and exciting type of currency – cryptocurrency. The first recorded transaction was made by Laszlo Hanyecz, who bought two pizzas for 10,000 BTC. Today, that amount of Bitcoin translates to around £140 million.
Given the phenomenal rise in the value of Bitcoin, today, there are over 9,000 different cryptocurrencies. Also, unprecedented increases in value still arise- e.g. Solana crypto increased in value by an astonishing 13,000% in 2021. It’s hardly surprising that some investors are tempted to invest in crypto in search of high return investments in the UK. However, crypto is extremely volatile and therefore considered a high-risk investment.
If you invest in crypto and sell your currency for more than you bought it, you will have to pay CGT. Also, if you trade large amounts of crypto, HMRC could believe you to be a trader. In that case, they will ask you to pay income tax on your trades rather than capital gains tax.
You’ll find a very handy capital gains tax calculator for UK shares and other things on the HMRC tax services section of the UK government website.
UK investment tax and pensions
When most investors begin their journey into the investment world, a private pension is one of the first types of investment they consider. This is because income from some pensions can be tax-free, but not on all.
For private pensions, you can get tax relief on pension contributions if your income tax exceeds 20% and pension contributions are 100% or less of your annual earnings. Pension tax relief also applies to your annual allowance and lifetime allowance.
You get government tax relief on pension contributions. For basic rate taxpayers, the tax relief is 20%, while the pension tax relief for high earners can be higher. Higher rate taxpayers can claim 20% additional tax relief for income tax at 40%, and 25% additional tax relief for income tax at 45%.
You can learn more about this from the “is pension income taxable” blog on the Moneyfarm website.
How to minimise investment tax
One of the first things to establish before you start investing is that there are ways of minimising the tax on investments in the UK. However, evading investment tax in the UK is a crime.
When you begin learning how to invest money, whether you’re considering how to invest £100,000 or a smaller sum, understanding about tax efficient investing for UK investors is key.
Understanding your tax band and what tax relief is available is essential. Understanding your short vs long term needs is also essential when investing.
One of the easiest ways of cutting through the UK investment tax maze, which can be confusing and full of twists and turns, is to invest in an ISA.
As ISA is what is known as a “tax wrapper.” It means that you will be protected from the taxman when you stay within your ISA allowance, which is currently £20,000 per annum. So you don’t have to be concerned with capital gains tax, income from dividends, or the growth of your fund. It is all tax-free. You don’t even have to list ISAs on your self-assessment tax return.
Also, your ISA investment does not affect your personal savings allowance.
There are other ways of being tax efficient and minimising your investment tax in the UK. Please speak to a certified financial advisor for more information.
FAQ
When do I need to pay investment tax in the UK?
Tax may be imposed on income made from your investments in the UK. The tax rate you may have to pay will depend on the type of investment and your income rate band. You may have to pay income, capital gains, and dividend tax on your UK investments.
How much is the UK investment tax rate on income and gains?
In the UK, income tax, capital gains tax, and dividend tax are charged on investments. The income tax for basic rate taxpayers is 20%, 40% for higher rate taxpayers, and 45% for additional rate taxpayers. With capital gains tax, basic rate taxpayers are charged 10% or 18%, while higher or additional rate taxpayers pay 20% or 28%. The dividend income rate for basic taxpayers is 8.75%, 33.75% for the upper rate, and 39.35% for the additional rate.
How can I reduce taxes on UK investment income and gains?
You can limit the taxes you have to pay on investment income and gains by utilizing your allowances, such as capital gains allowance, personal allowance, and dividend allowance. In addition, make use of tax-efficient investment vehicles such as individual savings accounts (ISA), unit trusts, national savings and investments (NS&I), private pensions such as self-invested personal pensions (SIPPs), and venture capital schemes such as EIS, SEIS and VCTs.
*As with all investing, financial instruments involve inherent risks, including loss of capital, market fluctuations and liquidity risk. Past performance is no guarantee of future results. It is important to consider your risk tolerance and investment objectives before proceeding.
