Investment Tax Simplified: How Does It Work?

What you should know about tax on investments

Taxation can be confusing for the best of us. Let’s try and break down in simple terms how investing will affect your taxes in 2024/25.
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ISA Allowance - £20,000

For ISAs: if you have an ISA, you can invest up to £20,000 per year completely tax free¹. There are many types of ISAs, such as cash ISAs, stocks and shares ISAs and innovative finance ISAs. You can have multiple accounts in each type, but you can only open and fund one account per ISA type each year. You can have, and fund, multiple ISAs, including ISAs of the same type (with the exception of Lifetime ISA), within the tax year. However, all ISAs combined must remain within the overall ISA allowance limit of £20,000. This allowance resets every April, so it’s wise to try and utilise this allowance before you lose it. 

Capital Gains Allowance - £3,000

For General Investment Accounts: If the profit you make when you sell your shares or investments exceeds £3,000², you will pay Capital Gains Tax (CGT) on the additional profits.

If you are a higher or additional rate taxpayer you will pay 28% CGT on your gains from residential property and 20% on your gains from other chargeable assets.

‍If you are a basic rate taxpayer you will pay 10% CGT on your profits over £3,000³. If your profits take your total earnings into the next tax rate, your CGT will be that of a higher rate taxpayer.

Dividend Allowance - £500

Each tax year we also get a dividend allowance (a dividend is a reward paid to shareholders for their investment in the company, and it usually originates from the company's net profits). For the current tax year this is £5004. This means that we can receive £500 worth of dividends (outside of an ISA or pension) and pay absolutely nothing in dividend tax. For more detail, read this article on tax allowances on our Learning Hub.

Remember, tax treatment depends on individual circumstances and may be subject to change. Your capital is at risk when you invest.

1. Individual Savings Accounts (ISAs)
2. Capital Gains Tax rates and allowances
3. Capital Gains Tax: what you pay it on, rates and allowances
4. Tax on dividends

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