Tax and Personal Savings & Investments

The taxation of investments and savings is complex and subject to frequent changes as successive governments seek to raise more taxes on income. Governments have also handed out rewards in the form of various savings products that are tax advantaged. It is important to take regular advice to ensure that you do not pay more tax than you have to so that you can make the most of your savings.

A brief overview of the tax treatment on savings and investments

Tax on interest income

Interest from savings accounts with banks and building societies is subject to income tax. Interest is usually paid net of basic rate (20%) tax.

Depending on the income tax bracket you fall into the gross amount of interest is subject to tax at 0%, 10%, 20%, 40% or 45%.

If you are not liable to tax on your interest (e.g. if your income is less than your personal allowance) you can apply to your UK bank or building society to pay your interest gross, by completing HMRC form R85.

If you have overpaid tax on your interest you can apply to HMRC for a refund.

Tax on dividend income

Dividends from UK companies, unit trusts and OEICs are paid net with an attaching 10% tax credit. If you are a basic rate taxpayer there will be no further tax liability on your dividend income. If you are a non-taxpayer, you cannot reclaim the 10% tax credit. If you are a higher rate taxpayer, the gross dividend will be subject to tax at either 32.5% or 37.5%, but you will receive relief for the 10% tax credit.

Easing the investment tax burden

There are many ways of reducing the burden of tax on your investments, but you should always take professional advice before acting.

Stocks and shares individual savings accounts (ISAs) offer freedom from Capital Gains Tax, and freedom from UK tax liability on interest from fixed interest securities and higher or additional rate tax on dividends. From 1 July 2014, interest on cash will also become free of UK tax in ISAs.

Cash ISAs provide deposits with tax free interest.

From 1st July 2014 the annual limit across all ISAs was increased to £15,000.

Onshore collective funds, such as unit trusts and OEICs, can be useful in CGT planning because changes to the underlying portfolio do not give rise to any immediate tax liability for the investor.

Offshore collective funds can offer some shelter from income tax, but at the cost of all gains being taxed as income.

Pension arrangements have a wide variety of tax benefits, not least of which is full income tax relief on contributions. Within a pension plan there is no UK liability to tax on income or gains and you can normally take up to 25% of the accumulated fund as a lump sum, free of any tax after you have reached the age of 55 years.

Life assurance based-investments may be able to help you save tax if you are a higher or additional rate taxpayer.

National Savings & Investments used to offer a wide range of tax free investment products. Currently the range is limited to a cash ISA, Children’s Bonds, and Premium Bonds.

Venture capital trusts (VCTs) and enterprise investment schemes (EISs) provide 30% income tax relief on investment and several other tax advantages, depending on the scheme. However, their underlying investments are made in small unquoted companies and the tax benefits must be balanced with the high risks involved and potential lack of liquidity.

How we can help

We can help you:

  • choose the most appropriate tax ‘wrapper’ for your chosen investments
  • understand the most effective tax strategies for drawing income and/or capital from your holdings
  • prepare tax calculations for your tax return
  • keep you up to date with the opportunities and pitfalls created as tax legislation changes.

We also have our own independent financial services company KSK Financial Solutions Ltd who work alongside us to ensure that you have a complete solution to your investment and savings planning.

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We can take away the worries of complying with self assessment by ensuring that your returns are accurate and filed on time and provide you with the peace of mind that you are paying no more tax than you should.

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Tax and Personal Savings & Investments

We can help you understand the complex rules of the taxation of savings and investments to ensure a complete solution to your investment and savings planning.

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