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Tax and ISA Rules

You can find out how ISA Subscription rules and the role Capital Gains and Dividend taxes affect you and your investments here.

  1. ISA Subscriptions
  2. Capital Gains Tax

3. What is Dividends Tax?

4. Example Calculation

5. Dividends Tax Allowance

This information has been prepared for basic information purposes only and is aimed at UK taxpayers. The actual tax you would have to pay will depend on other income and investments and personal circumstances. This is not intended to provide, nor should it be relied on for tax advice. Tax treatment depends on individual circumstances and may be subject to change in the future.

ISA Subscriptions

What are ISA Subscriptions?

ISA Subscriptions allow you to save a set amount of money each tax year that is protected against UK Capital Gains and Dividends tax. The amount is £20,000 for the 2024/25 tax year.

You can subscribe to multiple ISAs of the same type (except for Lifetime ISA) within the tax year. All subscriptions must stay within the overall ISA limit of £20,000.

Capital Gains Tax on Investments

What is Capital Gains Tax and how does if effect the sales of investments.

Capital Gains Tax (CGT) is a tax on the profit you make when you sell or dispose of an asset that has increased in value. It’s important to note that it’s the gain that’s taxable, not the total amount you receive from the sale. More about tax when you sell your shares.

When you sell shares, the gain is calculated by subtracting the original purchase price (including any related costs) from the selling price. In the UK, individuals have a yearly CGT allowance. Which is, at the moment, £3,000 for the 2024/25 tax year. Which means gains up to a certain amount are free of CGT. Any gains above this threshold are taxed at rates depending on your income tax band.

How does the 2024 Autumn Budget affect the CGT you pay?

The recent Autumn Budget has increased capital gains tax (CGT) rates from 30 October 2024. For basic-rate taxpayers, the CGT rate has increased from 10% to 18%, while higher-rate taxpayers now face a rate of 24%, up from 20%. More about the increase in CGT rates. Note that when the gain is added to your income it may move you to a higher rate tax band. These changes apply to the gains you make that is above your yearly CGT allowance from the sale of investments not held in an ISA. 

Which investments in my Halifax account may attract CGT?

  • Shares
  • Exchange Traded Funds (ETFs)
  • Funds
  • Investment Trusts
  • Bonds

Gilts have a CGT exemption meaning you do not pay Capital Gains Tax when you sell Gilts.

Strategies to Mitigate Capital Gains Tax on sales of investments.

Capital Gains Tax (CGT) can significantly impact the returns on your investments. However, here are some things you could consider to mitigate your CGT liability when selling investments:

  1. Use Tax-Efficient Accounts: Capital Gains Tax is not applicable to investments sold from within an Individual Savings Account (ISA) or a Self-Invested Personal Pension (SIPP). If your investments are held outside an ISA, you can use a process called Bed and ISA to sell those shares to realise a gain and then immediately buy them back within an ISA. This way further gains on these investments won’t attract CGT.
  2. Utilise Your Annual Exemption: Each tax year, you have a yearly CGT exemption (£3,000 for the 2024/25 tax year). By spreading the sale of shares across multiple tax years, you can make full use of this exemption.
  3. Transfer Assets to a Spouse or Civil Partner: Transfers between spouses or civil partners are exempt from CGT. This allows you to use both individuals’ yearly exemptions, effectively doubling your tax-free allowance.
  4. Offset Gains with Losses: If you have incurred losses on other investments, you may be able to use these to offset gains, reducing your overall CGT liability.

We’ve discussed some of the things you can consider to help manage your CGT liability, ensuring your investment returns are tax-efficient.

However, it's important to consult with a financial adviser or tax adviser to tailor these strategies to your specific situation and ensure compliance with current tax laws. Information correct at 6 November 2024.

ISAs protect your investments from Capital Gains Tax

Any gains on investments within an ISA are not liable for UK Capital Gains Tax. You can move your existing investments into an ISA by a process referred to as ‘Bed and ISA’.

More information can be found about Capital Gains Tax and how it works on the Government website.

Tax on Dividends

What is tax on Dividends?

Everyone has a Dividend Allowance, which is £500 for the 2024/25 tax year. This means you can earn up to the allowance in dividends each tax year without owing tax.

Dividends are a portion of a company’s profits that are paid to its investors. The rate of tax you owe on dividends will depend on your income tax band. 

There is more information about tax on dividends on the Government website.

Example

Each year you have a Dividend Allowance. It is set at £500 for the 2024/25 tax year.  This means you can earn up to the allowance in dividends each tax year without owing tax.

For example, if you receive £2,900 worth of dividends in the 2024/25 tax year, £500 of those would fall within your Dividend allowance and wouldn’t be taxed. It would leave £2,400 that would be liable for tax.

In the 2024/25 tax year a basic rate taxpayer would owe 8.75% (£210), a higher rate taxpayer would owe 33.75% (£810), and an additional rate taxpayer would owe 39.35% (£944.40) on this dividend income.

This information has been prepared for basic information purposes only and is aimed at UK taxpayers. The actual tax you would have to pay will depend on other income and investments and personal circumstances. This is not intended to provide, nor should it be relied on for tax advice.

Dividend Allowances

You are entitled to an allowance of £500, in dividend income, for the 2024/25 tax year.

ISAs protect your investments from tax on your dividends

Any dividends on investments held within an ISA are not liable for tax on dividends. You can move your existing investments into an ISA by a process referred to as ‘Bed and ISA’.

More information can be found about tax on dividends on the Government website.

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Halifax Share Dealing Limited. Registered in England and Wales no. 3195646. Registered Office: Trinity Road, Halifax, West Yorkshire, HX1 2RG. Authorised and regulated by the Financial Conduct Authority under registration number 183332. A Member of the London Stock Exchange and an HM Revenue & Customs Approved ISA Manager.