Investments and Savings Tax Guide
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.
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:
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:
|Provider||Plan Name||Deposit Taker||ISA Option||Term||Maximum Potential Return||More Info|
|FTSE 100 Kick Out Deposit Plan||Investec Bank plc||Up to|
|More Info >|
|Capital protected deposit plan with the potential to mature after years 3, 4, 5 and 6. If the plan matures early it will return 5% times the number of years the plan has been in force. Also available for Cash ISA and ISA transfer.|
For savings and investments outside of your ISA allowance, income tax is charged on the interest or income.
Basic rate taxpayers
(people earning up to £35,000 for 2011/12)
|20% (normally automatically deducted from non- ISA savings)|
Higher rate taxpayers
(£35,001 to £150,000 annual income)
|40% (the difference from the 20% automatically deducted from savings is owed)|
Additional rate taxpayers
(above £150,000 annual income)
|50% (the difference from the 20% automatically deducted from savings is owed)|
Investing in stocks and shares mean you may receive dividend income from the shares invested in. All dividends are taxed the same way whether you hold shares directly or through a fund.
A 10% ‘tax credit’ is automatically deducted from share dividends.
From 6 April 2004 ISA investors were no longer able to reclaim the 10% dividend ‘tax credit’.
|Basic rate taxpayers||10% ‘tax credit’ automatically deducted|
Higher rate taxpayers
|32.5% – 10% ‘tax credit’ = 22.5% deducted on tax return|
|Additional rate taxpayers||42.5% – 10% ‘tax credit’ = 32.5% deducted on tax return|
If you sell out of a fund or sell shares and make a total ‘gain’ or profit above a certain level you may need to pay capital gains tax (CGT).
The annual exemption amount for 2011/12 is £10,600. This means no tax will be charged on one-off profits in a tax year below £10,600.
After reliefs are considered, basic rate tax CGT is charged at 18% and above basic rate at 28%.
Important Risk Information:
This website contains information only and does not constitute advice or a personal recommendation in any way whatsoever. The value of investments and income from them can fall as well as rise and you may not get back the full amount invested. The tax efficiency of ISAs is based on current tax law and there is no guarantee that tax rules will stay the same in the future.
Different types of investment carry different levels of risk and may not be suitable for all investors. Please ensure that you read the Important Risk Information for further details. Prior to making any decision to invest, you should ensure that you are familiar with the risks associated with a particular investment and should read the product literature. If you are in any doubt as to the suitability of a particular investment, both in respect of its objectives and its risk profile, you should seek independent financial advice.