Paying tax on investments/capital gains if not working

longwalks1

Theoretically, if you were not working and earning approximately £20,000 a year from investments (only £2,000 of it being earned in an ISA), would the same tax rate apply as you'd pay if you were in employment?

i.e. first £12,570 tax free, up to £50,270 you pay 20%?   Or is it different for profits earned from investments?

There's only £20k in an ISA at present as this years allowance has been used up.  will put another £20k into ISA in April. 

eskbanker

How would you be earning money from investments, i.e. dividends or gains from sales?  The former are treated as income tax (albeit with different rates from earned income) and the latter are subject to CGT, another different rate....

https://www.gov.uk/tax-on-dividends
https://www.gov.uk/capital-gains-tax/rates

longwalks1

Sorry eskbanker, i should of said - The money would be interest from reinvested dividends and withdrawing any growth over the year

uknick

Are you talking about investment funds or individual shares?

longwalks1

uknick said:

Are you talking about investment funds or individual shares?

Sorry Nick, investment funds.  No individual shares.

eskbanker

longwalks1 said:

Sorry eskbanker, i should of said - The money would be interest from reinvested dividends and withdrawing any growth over the year

I'm still not sure exactly what you mean by that - if you reinvest dividends then you simply have more units of that fund rather than 'interest', and 'withdrawing growth' doesn't really happen as such, but you could sell some units to retain a similar size of holding, provided the price has gone up of course!

Whatever you have in mind, you need to quantify the dividends or capital gains (that are crystallised on disposal), and then they're taxed in accordance with the rates specified in the above links, after accounting for the annual allowances....

longwalks1

thank you again eskbanker, and apologies for the delay in replying, 2 family funerals this last 4 weeks has thrown everything on the back burner. 

I was asking on behalf of a close friend who’s financial situation has changed recently.  They are very inexperienced with money and suddenly stressing over the position they are now in.  

I think I will pen out the predicament they are in with them and post a new thread, they’ve come into an inheritance and want to know how to make it work best for them. 

Thanks again everyone for your help