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How are your investments taxed?

However you make your money, it is going to be taxed. You might have a variety of incomes that come from investments, and it can be hard to know how UK tax laws work with each of them. In order for you to accurately account for all of your income and expenses, it is essential that you know exactly how much you are going to be taxed.

Income tax

You will already be familiar with income tax if you earn over 11,850 a year from your work. However, money earned from investments is also seen as an income, so it will be subject to income tax. The amount of income tax you pay on your investments, just like with salary and wage earnings, depends on how much you earn. Income tax comes into effect no matter how you are earning your money, whether it is through a salary or through investments, or through a combination of both.

  • You pay 0% if you earn up to 11,850
  • You pay the 20% basic rate tax for any income between 11,850 and 45,000
  • You pay the 40% higher rate tax for income between 45,000 and 150,000
  • You pay the additional tax rate if you earn over 150,000

Capital Gains Tax

This is a tax on profits, rather than earnings. However, the amount of Capital Gains Tax (CGT) you pay does depend on which tax band you are in. If you are in the basic tax rate, then the rate you pay is dependent on how much profit you gain. If your total investment earnings and your other incomes in total are still within the basic tax rate, then you will pay 10% on your profits from the investment. You will pay 20% on any profits earned above the basic tax rate.

Please note that you will not pay CGT if profit comes from a stock and shares ISA or you give or sell the shares to your spouse or civil partner.

Dividend tax

If you earn money through investment Quality dividends, then you will also pay tax on that. Dividends differ from profits in that profits are from when you sell your shares, whereas dividends are the regular payments you get from the share being a portion of the company’s earnings. With a stock trading chat room, you can get expert help on how to make investments that will pay regular dividends.

You have a tax-free dividend allowance of 2,000. If your dividend earnings go above this, then you will pay dividend tax. If you fall into the basic tax rate, then you will pay 7.5%. If you fall into the higher tax rate, then you pay 32.5%, and with the additional rate, you will pay 38.1%.

Stamp Duty on shares

You also pay taxes when you buy shares. However, the type of tax you fall under depends on how you buy your shares. If you use paper stock forms, then you pay Stamp Duty, and if you buy online, then you will pay Stamp Duty Reserve Tax. If you buy more than 1,000 worth of stocks using paper forms, then you will be taxed 0.5% through Stamp Duty. The amount you pay is rounded up to the nearest 5. Stamp Duty Reserve Tax is the same as Stamp Duty, except that the amount you pay is rounded up or down to the nearest penny.