Tax on savings and investments

In this section:

Tax on bank and building society accounts
Tax on UK dividends
Tax on foreign savings and investment income
Tax on buying shares
Tax on the sale of shares
Tax efficient savings and investments

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Tax efficient savings and investments

Tax efficient savings and investments

If you save or invest money, you'll generally have to pay tax on the interest or income you get, but there are some savings and investments that give you a tax-free return. If you're on a low income, you might not have to pay tax at all.

ISAs (Individual Savings Accounts)

ISAs are tax favoured savings and investment accounts. You can use them to save cash, or invest in stocks and shares. The maximum you can put in to an ISA is £7,200 in each tax year.

You don't pay any tax on the interest or dividends you receive from an ISA and any profits from investments are free of Capital Gains Tax (CGT). But this does mean that you can't use losses on ISA investments to reduce CGT on profits from investments outside the ISA.

More about ISAs from the Directgov website

National Savings & Investments (NS&I)

NS&I offer a totally safe way of saving and investing money because it's backed by the Treasury.

Tax-free savings and investment products from NS&I currently include:

Cash mini ISA - for savers aged 16 or over
Fixed Interest and Index Linked Savings Certificates - for savers aged seven or over
Children's Bonus Bonds - can be invested for five years on behalf of children aged under 16

NS&I also issue Premium Bonds. If you buy Premium Bonds, you won't get interest, but you can win tax-free prizes.

More about National Savings & Investments from the Directgov website

Current products offered by National Savings & Investments

Child Trust Fund (CTF)

If your child was born on or after 1 September 2002 and is awarded Child Benefit, you'll get a £250 voucher from the government - and an extra £250 payment if your income is below a certain level - to set up a CTF account. Once you've opened a CTF account, parents, family and friends can add up to £1,200 to the account each year.

Neither you, nor your child will pay tax on any income or any gains in the account until your child reaches age 18.

More about the Child Trust Fund from the Directgov website

Tax-free interest on bank and building society accounts

Banks and building societies usually take tax off interest at the rate of 20 per cent before they pay it to you. But if your taxable income is less than your tax allowances you can register to have your interest paid 'gross' (without tax taken off). If you're under 16, your parent or guardian will have to register for you. You can also claim back tax you've paid on your savings when you didn't need to.

Follow the links below to check the detail and next steps.

Check Personal Allowance rates

Getting tax-free interest or reclaiming tax on your savings and investments

Tax relief on pension savings

The government encourages you to save for your retirement by giving you 'tax relief' on pension contributions. Tax relief reduces your tax bill or increases your pension fund.

When you retire, providing your own pension scheme rules allow, you can usually take up to 25 per cent of your pension fund as a tax-free lump sum. Your regular pension income is then taxed in the same way as the rest of your income.

New pension laws from April 2006 mean you can save as much as you like into any number of pensions - and get tax relief on contributions of up to 100 per cent of your earnings each year, subject to an upper 'Annual Allowance'. (Savings above a separate Lifetime Allowance will be subject to tax charges.) Read our related article for the detail.

Tax relief on pension contributions

Pension rules from April 2006 - learn more on the Directgov website