Investments and tax implications
Investing your money can mean that you become liable to UK tax being due. The amounts differ depending on the type of investment but it’s a part of research which needs to be carried out and considered before embarking on putting money into any kind of investment product.
Buy to Let
When purchasing a property to rent out, you will become liable for income tax. You’ll need to tell HMRC that you are now a landlord and arrange to make the payments when due otherwise you could face a penalty. If being a landlord is your main job, it’s registered as a business or you have more than one property you let, you’ll also need to look at making National Insurance payments.
The income must be reported through the Self Assessment scheme whether you own the property personally or through a company.
There are ways of reducing the tax bill and many of these allowances come through the maintenance and day to day management of the accommodation. Examples are letting agent’s fees and buildings and contents insurance.
Interest on savings
The majority of savings accounts attract a tax deduction on the interest gained each year. The rate is 20% and is deducted by the bank automatically.
There are ways to reclaim the tax however. This is income dependent and can mean that no tax is due or a refund can be requested on the tax paid.
Stocks and shares
When buying shares, an amount of 0.5% tax is charged. There are some schemes where the figure is 1.5%; these are known as clearance services or depositary receipt schemes.
If you are given shares or subscribe to a new issue of shares then there will be no purchase tax payable. Be aware that if you buy foreign shares then you will still be charged tax if the company has a share register in the UK.
When selling shares, you may need to pay Capital Gains Tax (CGT).
CGT can become payable if you make a profit from the shares on selling them. It depends on the type of shares and whether the gain is above the CGT threshold.
Some kinds of shares don’t attract CGT. These include:
- ISA or PEP shares
- Those given as a gift to a husband or wife
- Employer SIP shares
- Government bonds such as Premium Bonds
- Certain Corporate Bonds
Any CGT due must be paid directly to HMRC through a Self Assessment return.
If you receive a dividend from a company through being a share holder, you may also be liable for tax. This doesn’t apply to everyone though; only those classed as higher or additional tax payers will need to look into this and the costs involved.
If you aren’t facing a tax bill when receiving your dividend, you don’t need to tell HMRC unless you already submit a tax return.
Money received through investments abroad such as holiday homes or interest from bank accounts must be declared to HMRC. There’s also the possibility of a tax liability in the country of origin as well as the UK so seek professional advice so you know where you stand before entering into financial dealings outside the UK.