What's taxed and how to avoid tax with ISAs
The tax details shown here are accurate from 6 April 2011 for the 2011/2012 tax year, and are subject to change.
| How much can I save in an ISA? | Stamp duty tax | Dividends in ISA investments | Non-ISA savings and investments
| Capital gains tax
When it comes to saving and investing it pays to know how tax affects your returns and to make the most of allowances. Here we outline some of the key facts you need to know.
ISAs (Individual Savings Accounts) allow you to save and invest without paying income tax or capital gains tax on the returns you make. In the case of cash ISAs this means you can effectively save tax free.
With stocks and shares ISAs you can avoid paying tax on returns you make classed as income or capital gains. However, some taxes do apply to stocks and shares ISA investments so they are known as tax-efficient investments.
From 6 April 2011 the ISA annual allowance (for UK residents, over 18) is:
- For stocks and shares ISAs: £10,680
- For cash ISAs: £5,340
In the 2011 Budget the government confirmed it would introduce a Junior ISA, available from autumn 2011.
Stamp duty is charged on shares invested in regardless of whether you are investing in an ISA.
On company shares 0% stamp duty is charged up to £1,000 and 0.50% on investments above £1,000.
This does not apply to new share issues. Investing through a fund – known as an open ended investment company – the fund manager pays this and passes on the charge to investors.
It is known as stamp duty reserve tax (SDRT) for electronic transactions.
Dividends from shares automatically have a 10% tax credit deducted which cannot be reclaimed for stocks and shares ISA investments. See below for more about dividend tax credits.
See the table below for some examples of cash ISAs: