Taxes can have a significant impact on investment returns, so it’s crucial for UK investors to understand how their income is taxed. Here’s a breakdown of key tax rules for investment income as of 2025.
Dividend Income
The dividend allowance for 2025 is £500 per year. Income above this threshold is taxed as follows:
- Basic rate: 8.75%
- Higher rate: 33.75%
- Additional rate: 39.35%
Tip: Hold dividend-paying assets within a Stocks and Shares ISA or pension to avoid this tax.
Capital Gains Tax (CGT)
The CGT allowance for individuals in 2025 is £3,000. Gains above this are taxed at:
- 10% for basic rate taxpayers
- 20% for higher and additional rate taxpayers
For residential property (excluding your main home), rates are 18% and 28% respectively.
Interest Income
Savings interest is covered by the Personal Savings Allowance:
- £1,000 for basic rate taxpayers
- £500 for higher rate taxpayers
- £0 for additional rate taxpayers
Tax-Efficient Accounts
- ISAs: Completely tax-free for income, gains, and interest.
- Pensions: Offer tax relief on contributions and grow tax-free, though income in retirement may be taxable.
Reporting and Deadlines
You must report investment income and capital gains via Self Assessment if you exceed the allowances. The deadline for online tax returns is 31 January following the tax year end.
Conclusion
Understanding the tax landscape helps UK investors make smarter choices. Use your allowances, shelter income in tax-efficient accounts, and keep good records to stay compliant and maximise returns.