Tax on Investment

Hello :slight_smile:

One thing that has been in the back of my mind is tax. I read somewhere on the gov.uk website that you may need to pay tax on investments. In the future if I wanted to withdraw my investment would I need to pay tax? Would I need to do anything specific?

Hi James :wave:

You’re right that you may need to pay tax on your investments, but this depends on a number of different factors.

Arguably the most prominent will be the type of account you’re investing in as some accounts can act as a ‘wrapper’, offering different forms of tax benefits or relief on the assets held within it. At the moment the accounts available with tickr are ISAs (Individual Savings Account) and GIAs (General Investment Account).

An ISA is a tax-free savings account and all UK tax residents are entitled to an annual ISA allowance. The allowance for the 2019-20 tax year is £20,000 (but this could change in future tax years). This means you can invest up to the ISA allowance in an ISA without paying any tax - so there’s nothing you need to do if investing in an ISA.

A GIA on the other hand is not a ‘tax-wrapper’. So any investments held in this type of account are subject to tax. There are different types of tax which may be applicable (such as, but not limited to, Capital Gains Tax and Dividend Tax) and these can be triggered at different times due to different actions/transactions. Usually you can pay them annually (e.g. through your tax return) or on an ad-hoc basis.

The different types of tax can also be different rates to each other, and different rates depending on whether you’re a Basic rate, Higher rate or Additional Rate tax payer. For many types of tax you can also have a ‘Personal Allowance’, which can differ between the different types of tax and the tax band you fall within.

It’s worth noting that they are other types of accounts and investment vehicles out there which can offer different forms of tax benefits and relief.

I hope this helps but as ever please get in touch if you have any more questions.

Lauren :blush:

4 Likes

Thanks Lauren! That’s makes sense, not anywhere near the £20k limit yet then lol

Hi,

I have a follow-on question - how does one know how much tax to pay? Assuming you have a GIA, does the amount of tax payable come up within the app when a withdrawal is made? And further, how do gains made in previous years impact in terms of your personal allowance? For example, say I invested £20 a month for two years and withdrew nothing, and then made a withdrawal, some of those gains would likely have been made in a previous tax year. How is this worked out?

Best wishes,
Stephen

Hey @Stephen :wave: welcome to the community :smiley:

Good question!

To preface my answer: we’re not tax advisers and if you want to find out how much tax you should be paying, you should seek help from a suitable adviser. We’ll be providing investment reports in the app which can help emphasis help you in working out your tax (we’re still in the discussions of finalising these) but tickr doesn’t work out your tax for you or tell you how much to pay - this is always you, as the investor’s responsibility (or your adviser’s).

Capital gains tax (CGT) is triggered when you have ‘realised gains’- basically if you make a profit upon selling an investment. So if a person were to sell an investment 2 years after they bought it, then the gains will be subject to CGT in the year of the sale - regardless of the fact the investment gained in value throughout 2 years. An investor would be able to use their CGT allowance for the year in which they sell, but they can’t carry forward any previously unused CGT allowance.

So if I purchase an investment for £20,000 in 2009, and sell it for £50,000 on the 01/10/2019, I’ve made a gain of £30,000. This £30,000 is subject to CGT tax in the 2019-20 tax year. And my 2019-20 CGT allowance can be used in relation to this sale.

You’re protected from CGT when investing in ISAs and SIPPs, but not GIAs.

Let me know if you want anything clarified / if it all makes sense to you! :+1:

Hi Rob,

Great explanation - I have a better understanding now. I probably do need some tax advisor assistance to fully clarify the situation, but I do get the gist of realised gains. To follow-on from your example though - say you put £200 into Tickr, and end up getting £50 return (I know, that’d be a great!). Then say you withdraw £100 - is tax only paid on the £50?

Haha so that’s a tricky question. With a tickr climate change portfolio your money is held across 5 different assets (Government Bonds, Green Bonds, Cash, A Clean Energy Fund and a Global Water Fund) and so the hypothetical £50 returns would be across all 5 different assets. The capital gains tax you would pay would be proportional to the specific returns from each of the different assets - which is what makes it complicated.

We don’t provide tax advice, calculating capital gains tax on a portfolio of ETFs, like a tickr portfolio can be complicated and will depend entirely on your own personal circumstances and the individual performance of your portfolio. Good news is that we can provide a tax report for you (just email into our customer support - hi@tickr.co.uk). I had a look around online and here’s a pretty comprehensive article from HMRC: https://www.gov.uk/capital-gains-tax