The information provided in this document is based on our understanding of the laws and regulations as at the date of publication, but it is not exhaustive and does not constitute legal or tax advice. You should consult your tax adviser to ensure the information is relevant to your facts and circumstances.
The value of investments can fall as well as rise, and you may not get back the full amount you invest. Eligibility criteria, fees and charges apply.
This article is here to help you better understand what tax you have to consider when investing. As a NatWest Invest customer, we will provide you with a tax report each year so you know what you may need to declare to HMRC, and this article helps you understand why.
If you’ve invested in a Stocks and Shares ISA, this is a tax-efficient wrapper and you do not have to pay UK tax on any profits and/or income from your investments in the Stocks and Shares ISA. (There are, however, limits set by HMRC on how much you can pay into an ISA each year and rules on what you can invest in).
If you only hold a Stocks and Shares ISA with NatWest Invest, this article will be useful information to know but not directly relevant to you. If, however, you’ve invested in what’s known as a General Investment Account (or GIA), the following information on tax will likely apply to you.
The two main types of tax to think about when you have an investment are:
So those are the types of tax, but how do they work for the Personal Portfolio Funds?
Just like getting an income from employment, you can get an income from an investment, and you may need to pay tax on it.
How much tax you need to pay on this income depends on your income tax band i.e., basic rate, higher rate or additional rate and the type of your investment.
The type of your investment matters because it determines whether the income is classed as either interest or dividends, which are taxed differently.
If you’re invested in a fund that has 60% or more of its money invested in bonds (a technical term for a loan issued by a company or government that pays interest) and/or held as cash, such as the Personal Portfolio Defensive Fund, the income is classed as interest.
Helpfully, there is an allowance set by the government called the Personal Savings Allowance which may be available to you. This allowance reduces the amount of tax you need to pay on interest you earn from your savings and investments (except ISAs). Like many other allowances, it applies per person, per tax year.
For example:
You’re a basic rate taxpayer and your investment is made up of 60% or more in bonds or cash. You earn £50 of income from this investment.
This £50 is classed as interest.
Because you’re a basic rate taxpayer, the Government allows you to receive £1,000 in interest from your savings and investments before you need to start paying tax on it. This means the £50 you’ve received will not be taxed (provided, if you’ve earned interest on other savings and investments (excluding ISAs), this does not exceed the £1,000 limit).
If you’re invested in a fund that has less than 60% of its money invested in bonds and/or held as cash, such as the Personal Portfolio Cautious Fund, Personal Portfolio Balanced Fund, Personal Portfolio Ambitious Fund and Personal Portfolio Adventurous Fund, the income is classed as dividends.
Similar to interest, there is an allowance you can use to reduce the amount of tax you pay on dividends. This allowance is called the Dividend Allowance.
For example:
You’re a basic rate taxpayer and your investment is made up of less than 60% in bonds and cash. You earn £2,500 of income from this investment.
This £2,500 is classed as dividends.
Under the Dividend Allowance, you can receive up to £500* in dividends before you start to pay tax on your dividends. This means that, in the case of this example, you don’t have to pay tax on the first £500 of your dividends, but you may need to pay tax on the £2,000 that is over the Dividend Allowance.
In summary, income tax may need to be paid when you receive (or are considered to have received) an income from an investment, but there are allowances in place to limit the amount of tax you pay.
*2024/25 tax year allowance
If you’ve invested with us through NatWest Invest, we will send you a tax certificate and a tax report each year telling you how much income you have earned on your investments with us (excluding ISAs). We will only send you tax documents if you earned income on your investments with NatWest Invest.
The tax certificate and the tax report both include the same information about income. You do not need to report this information twice. The tax report contains additional information about your capital transactions. The tax report is a new document for the tax year 2023/24.
If you only hold a stocks and shares ISA with NatWest Invest, you do not have to pay income tax and you will not receive a tax certificate or tax report.
The income produced by the Personal Portfolio Funds is reinvested, instead of being paid out as cash to your bank account. This means your investment gains in value, rather than paying out an income to you.
More information about taxable income from Personal Portfolio Funds for tax years up to and including 2022/23 can be found here.
When you invest, you’re generally looking to make a profit on the money you’ve invested.
When you sell an investment, any profits may be subject to tax called Capital Gains Tax (CGT).
For example:
You bought an investment for £500 and later sold it for £1,000. This means you made a profit of £500 (£1,000 minus £500).
This profit (or gain) might be subject to CGT at the rate set by government. For example, if you’re a basic rate taxpayer, the gain may be taxed at 10% (or at 20% if you're a higher rate tax payer). However, there is an allowance and some considerations to take into account, which may reduce the amount of CGT you pay.
The CGT allowance currently allows for £3,000* of capital gains per person, per tax year before CGT is charged. You’re also allowed to take into account any capital losses (the opposite of capital gains) when working out your profit and how much CGT you would need to pay.
If you invested through NatWest Invest, you may also be able to reduce the taxable gain through any reinvested income amounts potentially subject to income tax but not paid to you (i.e., accumulation distributions).
In summary, CGT may need to be paid when you sell an investment for a profit, but there are various allowances in place to limit the amount of tax you pay.
*2024/25 tax year allowance
If you’ve invested with us through NatWest Invest, from the tax year 2023/24 onwards we will send you a tax report each year containing details of your purchases and disposals. This will include a calculation of any capital gains or losses arising on your disposals.
If you’ve only invested in an ISA, there’s no CGT payable and you will not receive a tax report.
The income produced by the Personal Portfolio Funds is reinvested rather than paid out to your bank account and is added to the cost of your investment for CGT purposes, so that you get relief when you sell the investment.
More information about capital gains from the sale of Personal Portfolio Funds for tax years up to and including 2022/23 can be found here.
This is only a short summary of the main types of tax you should be aware of. If you want to know more you can find more information on Government websites.
You can find out more about the Income tax rates and allowances from the Government.
You can find out more about capital gains tax and the relevant tax rates from the Government.
Everyone’s financial situation is different so if you’re unsure whether you need to pay tax or not you should seek independent tax advice.
Whether you’re an experienced investor or just finding out what investing is, we’ve got a range of articles to help you understand more about investing.
We regularly update our articles depending on what’s happening in the market so check back for future updates.
