Investment Companies

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Individual Savings Accounts (ISAs) are a wrapper product that offers UK savers a way to save or invest their money within a tax–favoured structure. The tax benefits of investing in an investment company within an ISA means that you do not pay tax on the returns you receive from your ISA investments.

If your investment company is not held within an ISA any income that you receive or profit that you make may be subject to tax.

The two taxes that are applicable are Income Tax and Capital Gains Tax:

Income Tax
Income from investment companies (in the form of dividends for example) is liable to tax but tax is already deducted at a basic rate before the income is paid out so basic rate taxpayers will have nothing further to pay. Only higher rate taxpayers are liable for extra income tax.

Capital Gains Tax (CGT)
This is payable on any gains you make from your investments ie if you started with an investment of £10,000 and that has grown to £20,000, capital gains tax is due on the £10,000 gain.

Although you will be liable to Capital Gains Tax when you cash in your investment, you will not have to pay any tax if the total realised gains you make in that tax year from all your investments are within your annual Capital Gains Tax allowance (currently £9,600 for 2008/2009).

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