How much tax does a person pay in UK on earning from stock market?

okhajut

There are a many different types of taxes that apply in the UK. What type of taxes apply to money earned through stock market and how is the tax amount calculated?

grumiofoundation

If stays within an ISA or pension - £0. 


If outside held outside tax-wrapper e.g. stocks and shares ISA then will depend on amounts involved and if you are basic, higher, additional rate tax payer. 

Capital gains tax is tax on profit - so is only ever due upon disposal of assets. 
https://www.gov.uk/tax-sell-shares
https://www.gov.uk/capital-gains-tax

Will pay tax on dividends paid above the £2000 dividend allowance. 
https://www.gov.uk/tax-on-dividends


In addition when buy stocks may have to pay stamp duty.
https://www.gov.uk/tax-buy-shares

okhajut

I am a bit confused about ISAs here. Pleaes correct me if I am wrong but when we want to buy stock, we first open an "investment acount" with a "stock broker". This stock broker could be our own bank or it could be some other "online platform". Now where does an Individual Savings Account (ISA) come in all of this? Is the investment account supposed to be opened as a savings account?

Finally, is "Stocks and shares" ISA, the same thing is the Individual Savings account (ISA) that you mentioned or they are different type of savings accounts?

dunstonh

You can pretty much run unwrapped holdings to around £150k-200k without paying tax too if you use your annual allowances.

I am a bit confused about ISAs here. Pleaes correct me if I am wrong but when we want to buy stock, we first open an "investment acount" with a "stock broker". 

Most people dont use stock brokers any more. Most people buy funds. Stock brokers are only required for direct shares (which is typically not suitable for new investors).  Investment platforms are used allowing access to most funds (and shares and other direct assets).   You would not open an investment account.    That generally indicates what is known as a "general investment account" (GIA) and is not a tax wrapper.  i.e. you would be subject to taxation outside of the annual allowances.  You would open an ISA and only use a GIA if you have used your ISA allowance.  Pensions are another tax wrapper that many use for investment purposes (not just retirement planning).

This stock broker could be our own bank or it could be some other "online platform". 

There are not many banks that do stockbroking nowadays.   Some do but its not what it once was.

Is the investment account supposed to be opened as a savings account?

Savings accounts have nothing to do with investing.   

Finally, is "Stocks and shares" ISA, the same thing is the Individual Savings account (ISA) that you mentioned or they are different type of savings accounts?

ISA is a term that covers a range of tax free options.   A Stocks and Shares ISA is an ISA but so could a cash ISA or help to buy ISA or lifetime ISA etc. 

DireEmblem

Think of your General Investment account, or ISA, as a container to store your stocks and shares that you trade with your 'broker'.

A general investment account does not have any limits on how much you could contribute each year, but could be taxable.  In the UK, you get 12.3k of capital gains 'free' allowance each year.

You can have several types of ISAs, and in aggregate, you can only invest up to 20k of new money per year.  Any assets held in any ISA is non-taxable.

A cash ISA allows you to earn interest on your deposit.
A stocks and shares ISA allows you to invest in stocks and shares.  
A Lifetime ISA allows you to earn interest on your deposit, or invest in stocks and shares - but has restrictions on how you can access your funds.

Are you a UK citizen, and are you looking to understand the best place in order to grow your savings?  If so, the first place you need to start, is what are your goals?

okhajut

I am a British citizen, truth be told, since the boom of Tels and Zoom share prices, I have become interested in investing money in the stock market. The money is going to be "long term invested" i.e I intend to put it in there for 5-10 years. I am thinking about how to start. Most of advice I have come across so far is related to funds, they are considered more safe. The boom days of Tesla and Zoom share price maybe over but it can't hurt to invest a few thousand £s there to get started - is my belief at the moment. I plan to invest upto 10k£ in this year but I will see how things proceed as I get more information.

MaxiRobriguez

"It can't hurt" = "I can't lose"

Stick to diversified funds or get burned. Zoom has lost 40% of its value since October. That time is coming for Tesla as well. You have been warned.

[Deleted User]

I wouldn't put money in Tesla now, the value is potentially overpriced vs the company revenue, production etc. Time to do it was in 2010 like this guy
FOMO is a powerful driver  

ChilliBob

dunstonh said:

You can pretty much run unwrapped holdings to around £150k-200k without paying tax too if you use your annual allowances. 

Presumably this 150-200k figure is based on projected dividend yields from a sum of this size or something? Curious to know more detail.

As regards stamp duty, if you were to dip into shares, presumably that's something you need go keep track of, what you buy, how much etc and declare on self assessment each year. 

bowlhead99

ChilliBob said:

dunstonh said:

You can pretty much run unwrapped holdings to around £150k-200k without paying tax too if you use your annual allowances. 

Presumably this 150-200k figure is based on projected dividend yields from a sum of this size or something? Curious to know more detail.

If you had £100k of equity funds producing 2% dividends and £50k of bond funds distributing 2% interest, overall you would have £2k of dividend income and £1k of interest income; both of these amounts would fit within standard dividend and interest allowances for basic rate taxpayers.  Extra dividends are only taxed at 7.5% for basic rate taxpayers, and on the interest side some people will benefit from the 0% starter rate for savings income.

If you have £150-200k of investments and they go up in value by 6-8% in the year on top of the income they produce (which may be optimistic over the long term), that's capital growth of about £12k on the £150-200k; you could sell the lot after one year to create the £12k of gain, and find it to be within your annual CGT exemption of £12300. However, most people wouldn't sell the whole lot, just some smaller portion, and would be moving £20k of their unwrapped assets into ISAs each year as well as probably some money into pension, so the capital growth wouldn't exceed what they are moving into their tax wrappers and the overall amount unwrapped may fall rather than grow.

As regards stamp duty, if you were to dip into shares, presumably that's something you need go keep track of, what you buy, how much etc and declare on self assessment each year. 

Stamp duty is simply a tax paid on shares at the point you buy them on the stock exchange (including shares of individual UK companies or investment trusts). You have to pay the tax when you do the transaction. So you don't need to keep separate records of it. It simply forms part of the cost of buying the shares, and the grand total cost of buying the share (including related stamp duty and any transaction fee from your platform or stockbroker) is the relevant cost for when you later do a capital gains tax calculation on the eventual disposal.

For example you want to buy 2000 shares priced at £1 each and your platform charges £10 per trade. The cost of the shares will be (2000 x £1 = £2000) + (0.5% stamp duty x £2000 = £10) + (£10 dealing fee); total cost for the 2000 shares is £2020, so £1.01 per share all in.  You never need to add up all the stamp duties separately for a self assessment form because it is nothing to do with income tax, it is simply a transaction tax, a bit like VAT. If you later sell half the shares for £2 each you will have sales proceeds of £2000 for those 1000 shares which had an allowable cost of £1010 (at £1.01 each), and the profit is a £990 capital gain. 

ChilliBob

Thanks, that's really interesting and useful. First I heard about stamp duty was when I had to sell my work scheme shares back and I had to sign something for the purchaser for stamp duty. Good to know its basically zero hassle