Facts about funds
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- Paying tax on your investments
Paying tax on your investments
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The money you make investing in funds held outside an ISA or pension is taxable depending on your personal tax allowance. The IMA publishes a guide on how to complete your tax return in respect of your investments. |
Tax is payable on income received from funds
Income tax could be due if you receive income in the form of dividends, interest or property income distributions, even if you reinvest the income to buy more units or shares in the fund. If you have accumulation units, income earned from the fund is automatically reinvested back into the fund instead of being paid to you, but income tax could still be due on the income earned.
In all cases, you will have to complete a self-assessment tax form. The fund manager will provide you with tax vouchers showing the amount of tax that has been paid. You should keep these safe.
Tax is payable on investment income at your highest marginal rate. If you are a non-taxpayer or a basic rate taxpayer and your income (including that from your investments) is below £35,000 (the basic rate tax band for 2011-12) then no further tax is payable.
Higher rate and additional rate taxpayers will have additional tax to pay.
Our guide shows you how to complete the investment section of the tax form. You need to do this and pay any tax due by 30 January in the year following the tax year in which the tax is due.
Capital gains tax may be payable on profits made when you sell
Capital gains tax arises only when you sell assets. You have an annual tax-free allowance for Capital Gains Tax. If the total profits you made are less than the tax-free allowance in any tax year, then you have nothing to pay. If you have made losses in earlier years you may be able to deduct them from any profits made. The CGT allowance is £10,600 for the tax year 2011-12.
Profits over and above the annual allowance are taxed at 18% for those whose income and profits combined comes to £35,000 or below (those within the basic tax rate band). If your income, or your income and profits take you over this amount, then you will be taxed at 28%.
For more information on how your investment might be taxed and to download a self-assessment tax form, go to HM Revenue & Customs' website.
Save tax by investing in an ISA or personal pension
Money invested in funds held in an ISA or personal pension are not liable to income tax or capital gains tax. (When you come to draw your pension, the income is subject to tax.)
Find out more about investing in ISAs
Find out more about investing in pensions