Tax on savings and investments Tax-free options
There’s not huge amount of choice when it comes to investing tax-free, however the returns you receive on your money will be wholly yours.
Tax free options: quick summary
The table below will help you to clarify whether your savings or investment income is tax-free or not. There aren't many savings or investment products that are tax-free, so make sure you check these out first.
| Tax-free | |
|---|---|
| Type of investment income | Notes |
| Cash Isas | n/a |
| Child trust funds | But if share-based, dividends taxed at 10% which can’t be reclaimed |
| Financial spread bets | High risk and you can lose more than you invest |
| Friendly society tax-exempt plans | But dividends taxed at 10% which can’t be reclaimed |
| National Savings Certificates | n/a |
| National Savings children’s bonus bonds | n/a |
| Premium Bond prizes | n/a |
| Save-as-you-earn accounts | n/a |
| Self-invested personal pension | But dividends taxed at 10% which can't be reclaimed |
| Stocks and Shares Isas | But if share-based, dividends taxed at 10% which can’t be reclaimed |
| Tax rebate interest | n/a |
| Venture Capital Trust Dividends | Apart from 10 per cent tax credit which can’t be reclaimed |
Isas
In April 2008 new Isa rules came into effect, removing the 'mini' and 'maxi' distinctions. As a result, there are now just two types – cash Isas and stocks and shares Isas.
Cash Isas
Cash Isas are completely free of income tax and capital gains tax. They are available to UK residents over the age of 16.
In 2012-2013 you can pay up to £5,640 into a cash Isa. You can also switch previous years’ Isas to new Isa providers if you wish, and this won’t affect your current year's allowance.
You can also transfer any money held in a cash Isa into a stocks and shares Isa.
Stocks and shares Isas
Stocks and shares Isas aren’t completely tax-free, because dividends on shares the Isa invest into are paid with 10% tax already deducted.
Unfortunately, you can’t claim this tax back, even if you are a non-taxpayer.
You have to be at least 18 years old to invest in a stocks and shares Isa.
You can save up to £5,640 tax-free in a cash Isa in 2012-13.
Rules for 2012-13
In 2012-2013, the total annual Isa allowance is £11,280.
You can choose to invest the whole of this allowance into a stocks and shares Isa if you wish, or divide it up accordingly, paying up to £5,640 of it into a cash Isa and the rest into a stocks and shares Isa.
However you cannot exceed the £11,280 limit in any one year.
For further information, see our guides to stocks and shares Isas and , or if you're ready to take the plunge have a look at our Best Rate cash Isas.
National Savings & Investments
National Savings & Investments (NS&I) offer several tax-free products including a cash Isa, savings certificates (fixed-interest and index-linked) and children’s bonus bonds.
Winnings on premium bonds and the lottery are also tax free.
Child trust funds & Junior Isas
Child trust funds are investment funds for children are also tax free, and can be rolled over into an Isa when they mature on your child’s 18th birthday.
There are two types of child trust funds: cash child trust funds (CTFs) which are completely tax-free, and share-based CTFs which, like stocks and shares Isas, have dividends paid to them with 10% tax already deducted. This can’t be claimed back.
Share-based CTFs include stakeholder CTFs – a type of child trust fund which can't charge more than 1.5% each year in management fees but has certain investment limitations.
Junior Isas replaced CTF's in November 2011. The total amount you can invest is £3,600- this can be all in one type of account or split between a Junior Cash Isas and a Junior Stocks and Shares Isa.
For further information on these investments, see Junior Isas explained and our Best Rate cash CTFs.