Income tax on savings and investments
By Ian Robinson
Article 3 of 4
See our round-up of savings products that guarantee you'll pay no tax on your returns.
Tax-free saving and investing is easier in 2016 than it was before the advent of the personal savings allowance and the dividend allowance, but there are a few products that mean you don't have to worry about tax, even if you exceed the new limits.
Cash Isas are completely free of income tax and capital gains tax. They are available to UK residents over the age of 16.
In 2016-17, you can pay up to £15,240 into a cash Isa. You can also switch previous years' Isas to new Isa providers without affecting your current year's allowance. It is possible to transfer money held in a cash Isa into a stocks and shares Isa.
Find out more: To find a good home for your savings and shelter it from tax, the Which? Money Compare tables let you search hundreds of savings accounts and cash Isa deals from providers large and small, so that you can find a good home for your nest egg.
Stocks and shares Isas
In 2016-17, the total annual Isa allowance is £15,240. You have to be at least 18 years old to invest in a stocks and shares Isa.
You can choose to invest the whole of your allowance into a stocks and shares Isa, put your full allowance into a cash Isa, or divide it between the two.
Find out more: Stocks and shares Isas explained – find out more about investing in this tax-free wrapper.
Junior Isas and child trust funds
Child trust funds are investment funds for children that 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, which are completely tax-free, and share-based child trust funds which, like stocks and shares Isas, have dividends paid to them with 10% tax already deducted.
Junior Isas replaced child trust funds in November 2011. The total amount you can invest in 2016-17 is £4,080 - this can be all in one type of account or split between a Junior Cash Isa and a Junior Stocks and Shares Isa.
Find out more: Junior Isas – find out the best rates available for this children's savings account.
National Savings & Investments
National Savings & Investments (NS&I) offers several tax-free products, including a cash Isa, savings certificates (fixed-interest and index-linked) and children's bonus bonds.
Prizes and winnings
Winnings on premium bonds and the lottery are tax free. This is also true of other gambling prizes - such as football pools, horse racing and the proceeds of spread betting.
- Last updated: April 2016
- Updated by: Ian Robinson