Tax liability on investments

mustangman · 19 August 2005 at 5:10PM

Can anyone please help with what may seem to be an obvious question.
I understand that tax "wrappers" such as ISA's allow you to escape from paying income tax.

However, if you hold any "unwrapped" investments such as windfall shares, PEP's or other funds, even for modest amounts. I assume that you will then be liable for tax. What I don't know is if this still applies even if any growth is re-invested to increase the investment. ie: is this still regarded as income, or is this a capital gains problem ?
Alternatively, does tax only have to be paid when you sell or realise the investment ?

I'm further confused in that, assuming I must pay tax, is it up to me to request a tax form and "fess up" to the revenue, or do they come looking when they are notified of transactions by fundholder etc.

As you can see I'm a bit worried, as well as a bit confused.

Can anybody out there help, or point me in the right direction.

Thanks if you can help.

NeilW · 19 August 2005 at 7:12PM

PEPs are 'tax free' in much the same way as ISAs are.

Investments are taxed in two ways. Firstly there is the income from the investment - normally in the form of a dividend or distribution. This has already suffered tax at the basic rate, so unless you are a higher rate tax payer there is nothing else to pay.

Normally Capital gains tax is due on an investment only when you dispose of an investment for a profit. The calculation is somewhat complex, however you need to have made more than £8,500 on the investments you dispose of within a tax year before it becomes an issue.

HTH

NeilW

dunstonh · 19 August 2005 at 8:31PM

Different investment tax wrappers have different tax handling. Nowadays, its possible to buy the same investment funds in a range of different tax wrappers (around 11 tax wrappers available).

There are tax wrappers where higher rate tax payers do not have to pay additional tax, for example. There are also some that avoid CGT.

Many windfall shares would have been "PEPed" on issue. I remember being snowed under doing them at the height of the privitisations and demutualizations. These still remain tax free. If you didnt PEP them, then CGT may be an issue with some.

mustangman · 21 August 2005 at 3:28PM

Thanks for your replies,

I think I am a little clearer now. It's the unwrapped funds etc. that I am still worried about. From your replies it would seem that I only have to tell the taxman when I sell them, and I would only have to pay tax above the CGT limit if this applied. ( abt. £ 8500 ). Can anyone confirm this.

Thanks if you can help.

sneekymum · 21 August 2005 at 9:43PM

Yep - you got it

Tax liability on investments

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