Tax on savings and investments Types of saving and investment income
Your tax will generally be calculated depending on the type of savings or investment you have and what other income you receive. It is incurred once you exceed your personal allowance, the personal savings allowance or the dividend allowance.
Tax on savings income is paid at 20%, 40% or 45% in 2016-17, depending how much other income you have, while tax on dividends from investments is paid at 7.5%, 32.5% or 38.1%..
Types of savings and investment income
There are three main types of savings and investment income you may have to pay tax on:
Income from savings
Savings income is the money you receive in the form of interest – as opposed to dividends.
You are likely to accrue this type of interest on:
- Bank or building society accounts
- National Savings & Investments products
- Corporate bonds
- Permanent interest-bearing shares (Pibs)
- Local authority investments
- Unit trusts or open-ended investment companies (Oeics) that invest mainly in interest-bearing products
Annuities that you buy voluntarily – as opposed to those you buy with the proceeds of a pension fund – also come into this category. However, part of the income you receive is treated as a tax-free return of capital, so not all of your gains are taxable.
Income from dividends
The second type of income on which you may be taxed is dividend income. This comes from:
- Shares you own in companies
- Investment trusts
- Unit trusts and Oeics that invest mainly in shares
Income from life insurance investments
The third type of investment income you might receive is income from life insurance investments, such as with-profit and investment bonds.
- Which? Money Helpline- our experts answer your tax queries
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