Noobie question about taxes on investments

theshortstack

Hi there,

Currently all of my savings are in an ISA meaning that I don't pay any taxes on profits generated.

However, I've reached my ISA limit for this year and I'm curious as to how taxes work if I wanted to make savings/investments outside of that ISA.

Would I need to submit a tax return detailing all income from these investments at the end of January every year?

And what would I actualiy be taxed? Would there be a Capital Gains tax on all profits as well as an income tax charged at a percentage of my total annual income?

So, for example, as a hgher rate tax payer, if I make £1,000 on an investment, I would pay:

28% CGT = £280
40% Income Tax on remaing £720 =£288
Meaning that from my initial gain of £1,000 I am left with £432

Is that correct?

Thanks very much for your help,

colsten

On a given item, you pay either income tax or CGT, not both. There is a huge amount of information about this on the web, very easy to find wit a bit of googling.

Good summary: http://www.which.co.uk/money/tax/guides/tax-rates-allowances-and-amounts/how-much-tax-you-pay/

Linton

If you buy and sell investments you pay CGT on the profits over the CGT Allowance - currently £11000. So you probably wont pay CGT unless you are a very large or very careless investor. Note that if your investments simply rise in value but you dont sell there is no tax

In addition to capital gains your investment may supply an income in the form of interest or dividends. Interest is treated like bank interest - 20% taken at source and you may have to pay extra if you are a HR taxpayer. Dividends are tax free for basic rate tax payers but again there is extra to pay on HR tax.

You need to keep detailed records to include in your tax return.

You can avoid all taxes and any need to keep records if you put your investments into an ISA - which is what most people try to do.

jimjames

colsten wrote: »

On a given item, you pay either income tax or CGT, not both.

I know what you mean but to anyone reading at face value they might misunderstand.

You don't pay income tax on the sale of shares, purely CGT.

Shares/investments may also generate income which you would pay income tax on if you're a higher rate taxpayer. No additional tax is due if you're a standard rate taxpayer.

anamenottaken

theshortstack wrote: »

Hi there,

Currently all of my savings are in an ISA meaning that I don't pay any taxes on profits generated.

However, I've reached my ISA limit for this year and I'm curious as to how taxes work if I wanted to make savings/investments outside of that ISA.

Would I need to submit a tax return detailing all income from these investments at the end of January every year?

And what would I actualiy be taxed? Would there be a Capital Gains tax on all profits as well as an income tax charged at a percentage of my total annual income?

So, for example, as a hgher rate tax payer, if I make £1,000 on an investment, I would pay:

28% CGT = £280
40% Income Tax on remaing £720 =£288
Meaning that from my initial gain of £1,000 I am left with £432

Is that correct?

Thanks very much for your help,

Are you actually anywhere near being a higher rate tax payer?

Savings in an ISA are not an "investment" (unless you are writing about a stocks & shares ISA). The "profit" on normal cash savings is taxable interest, not a taxable profit.

Tax on interest is, by default, deducted by the institution paying it.

theshortstack

anamenottaken wrote: »

Are you actually anywhere near being a higher rate tax payer?

Yes, my income puts me in the higher tax bracket (40%) and the Self Assessment that I spoke of earlier on comes from a second income that I need to declare each year as it is outside of my standard PAYE pay cheque.

So I guess the reason for me asking this question (and thanks very much to everyone for their responses) is because I'm toying with the idea of trying Peer to Peer lending with some of my savings but I'm just curious as to how I would be taxed on that.

Having read through the first couple of posts, it seems that I wouldn't be paying any CGT until I'm earning £10k a year from it (which is not going to happen).

So therefore, I'm assuming that I'd need to declare any income from P2P in my annual tax return and I would therefore be charged my higher rate of tax (40%) on my income.

Is that correct?

Thanks,
Simon

InvestInPoker

Made a thread about this a while back

http://forums.moneysavingexpert.com/showthread.php?t=5041296&highlight=

You are in a different position to me tax wise but still some good replys on there..