The government wants us to save, invest and prosper. Unfortunately, it also wants a share in the profits.
The returns on savings and investments can be substantially reduced by tax. And they can be taxed in several different ways. At Continuum we are looking at those taxes, and if there may be any ways to reduce them. There is some good news.
Income Tax
Interest earned on savings is classed as income, and so subject to income tax at your usual rate.
Fortunately, Personal Savings Allowance lets basic rate taxpayers earn up to £1,000 in interest tax free. This falls to £500 for higher rate taxpayers, while top rate taxpayers have no Personal Savings Allowance at all.
Dividend tax
You pay dividend tax on dividends from shares, and if you have a limited company and pay yourself in dividends.
Just as you have a personal savings allowance for tax-free interest on savings, you have a tax-free dividends allowance. For the 2025/26 tax year this is £500. Above this figure, you pay dividend tax depending on which income tax band you fall into.
For basic rate taxpayers, this is at 8.75%. For higher rate taxpayers it is 33.75%. Additional rate taxpayers pay 39.35%.
Capital gains tax
You pay Capital gains tax (CGT) on profits from the sale of assets, such as shares, property and other investments.
The tax-free allowance on capital gains is £3,000 for the 2025/26 tax year. Above that, the current CGT rates are 18% for basic rate taxpayers and 24% for higher and additional rate taxpayers.
Stamp Duty and Stamp Duty Reserve Tax (SDRT)
When you buy individual shares in a UK company, you usually pay 0.5% on the transaction.
If you buy the shares electronically, you’ll pay stamp duty reserve tax (SDRT). If you buy shares using a stock transfer form, you’ll pay stamp duty if the transaction is over £1,000.
You don’t pay if you subscribe to a new issue of shares in a company, if you buy shares in an ‘open ended investment company’ (OEIC), or buy units in a unit trust.
Tax on property income
Income from rental properties is taxed at the same rate as your other income, 20% for basic rate taxpayers, 40% for higher and 45% for additional rate payers.
However, the first £1,000 of your income from property rental is tax-free. This is your property allowance.
Landlords can benefit from a 20% tax credit on their buy-to-let mortgage interest payments.
If the rental property is owned through a limited company structure you count the rental income the same way as any other business income and pay tax accordingly.
So, what is the good news?
The good news that there are tax-efficient investment strategies that may help you reduce your tax liabilities.
- Put your investments in an ISA. ISAs let to invest up to £20,000 per year with no income tax to pay on interest, no dividend tax on stock investments, and no capital gain tax when you sell.
- Invest via your pensions. Growth within a pension fund is generally tax-free until withdrawal but instead of tax liabilities, contributions to a pension actually attract tax relief.
- Venture Capital Trusts (VCTs) and Enterprise Investment Schemes (EIS). These schemes offer tax incentives for investing in small, high-risk companies. Investors can benefit from income tax relief on investments and potential exemptions on capital gains.
- Share your investments with your spouse. You may be able to take advantage of your spouse’s various allowances if they have no investments of their own.
- Time your profits – and count your losses. Carefully timing your investments and withdrawals, to take full advantage of the allowances for each tax year and offsetting losses against gains may help reduce your liabilities for taxes such as CGT.
Getting some expert help
There may be other ways to reduce your investment tax burden – and some deep tax pitfalls to avoid. Planning how to reduce your taxes is part of planning to make the most of your investments. For some expert help with both, call us at Continuum
How tax on savings and investments works | MoneyHelper
Dividend tax explained – Which?
How rental income is taxed – Which?
Buy-to-let interest tax relief explained – Which?
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation you should seek independent financial advice before embarking on any course of action.
Tax-free allowances on property and trading income.
The value and returns of an investment are not guaranteed, investors may lose some or all of their investment. When investing Capital is at risk.
Investors in ISAs do not pay any personal tax on income or gains. Levels and basis of reliefs from taxation are subject to change and their value depends upon your personal circumstances.
A pension is a long-term investment; the fund value can go down as well as up and this can impact the level of pension benefits available. Pension Income could also be affected by interest rates at the time benefits are taken. Pension savings are at risk of being eroded by inflation.
The Financial Conduct Authority does not regulate taxation advice and some aspects of Buy to Let mortgages.
