Investment Tax Breaks
You don’t have to give it all away. We’re talking about the money you made from your investments. Or anything else for that matter, but you’ll need to consult a different website for that.
Here’s the fine print you need to know: The tax year runs from 6th April to 5th April the following year. Any money made from investments each year will be scrutinised by the government. But, there are tax breaks and, up to a certain point, ways to avoid paying tax.
In this guide:
- Tax on interest earnings
- Tax on profit from selling shares or a buy-to-let property
- Tax on dividends
Tax on interest earnings
Made interest on your savings account or bonds? Before you pop those champagne bottles or fill your Net-a-Porter.com shopping basket, be warned! Any interest you earn is treated as income and taxed under the same rules as your salary from work ('income tax'). There is a tax break though, called the personal saving allowance (PSA) where basic-rate tax payers can earn £1,000 interest a year tax-free and higher-rate tax payers can earn £500 a year.
If you’re earning more interest than this (kudos to you!) then open a Cash ISA for your savings and a Stocks & Shares ISA to buy bonds. Any gains made through an ISA are tax-free but yearly deposits are limited.
Tax on profits from selling shares or a buy-to-let property, aka a 'Capital Gain'
If you sell shares or a buy-to-let for more than you bought them for, you make money. This is called a capital gain and will be taxed. The good news? The first £11,700 of capital gains each year are tax-free. Above this you'll pay tax depending on which income band you’re in…
| Your income band | Tax on shares and 'other assets' | Tax on property |
| Basic Rate Taxpayer (earning £11,851 to £46,350) | Depends on size of gain | Depends on size of gain |
| Higher Rate or Additional Rate Taxpayer (earning over £46,350) | 20% | 28% |
MOXI top tip: Capital gains tax is applied to many things including sale of shares, property that isn't your main home, personal possessions of £6,000 or more, and the list goes on. To check you're within your £11,700 yearly tax-free allowance, you’ll need to tot up all your capital gains. If you expect to go over, buy shares through a Stocks & Shares ISA.
Tax on dividends
So you own some shares of a company. You may receive some of the profit they make. The profit paid to shareholders is called dividends. You won’t pay tax on the first £2,000 each year. Above this you will pay tax depending on which income band you’re in…
| Your income tax band | Tax rate on dividends over £5,000 |
| Basic Rate (earning £11,851 to £46,350) | 7.5% |
| Higher Rate (earning £46,351 to £150,000) | 32.5% |
| Additional Rate (earning over £150,000) | 38.1% |
If you earn more than £2,000 from dividends each year then your might consider buying shares through a Stocks & Shares ISA.
