Understanding UK investment taxation is crucial for managing your investments effectively and minimizing tax liabilities. Here’s an overview of the main types of taxes that affect UK investors:

1. Capital Gains Tax (CGT):

• What it is: CGT is a tax on the profit you make when selling an asset (e.g., stocks, funds, or property) for more than you paid for it.
• Rates: For the 2024/25 tax year, basic rate taxpayers pay 10% on gains, while higher and additional rate taxpayers pay 20%. On property, rates are 18% and 28%, respectively.
• Tax-Free Allowance: There is a CGT annual exemption of £6,000 (for 2024/25), meaning you can make gains up to this amount without paying tax. Any gains above this limit are subject to CGT.
• Tax Planning: Using tax-efficient accounts like ISAs or offsetting gains with losses can help reduce your CGT liability.

2. Dividend Tax:

• What it is: This is the tax on income you receive from dividends paid by companies in which you own shares.
• Rates: For the 2024/25 tax year, the dividend tax rates are:
  • 8.75% for basic rate taxpayers.
  • 33.75% for higher rate taxpayers.
  • 39.35% for additional rate taxpayers.
• Tax-Free Allowance: The dividend allowance is £1,000, meaning the first £1,000 of dividend income is tax-free. Anything above this is taxed according to your income tax band.

3. Tax-Free Allowances:

• Stocks and Shares ISA: Investments in a Stocks and Shares ISA grow tax-free, meaning you won’t pay CGT or dividend tax on profits and income earned within the ISA. The annual contribution limit is £20,000 for the 2024/25 tax year.
• Pensions (SIPP): Contributions to pensions receive tax relief, and investments grow tax-free. Withdrawals are partially tax-free, with 25% of the pension pot accessible tax-free at retirement.

Summary:

• CGT applies to profits from selling assets, with a £6,000 tax-free allowance.
• Dividend tax applies to dividend income above £1,000, with rates depending on your income tax band.
• Using tax-efficient accounts like ISAs and pensions can help you avoid or reduce taxes on your investments, allowing more of your money to stay invested.