Savings and Investments - Magazine

20Pay less tax and save moneyPay less tax andsave moneyTax allowances can boostsavings and investment returnsTypes of saving andinvestment incomeWhether you must pay tax,and how much, generallydepends on what savings orinvestments, and what otherincome, you have. Tax onsavings interest is oftendeducted before you receiveit and is paid at 10%, 20%, 40%or 50%, depending on whatother income you have; tax ondividends is paid at 10%, 32.5%or 42.5%.Income from savingsSavings income is the moneyyou receive as interest (taxedor paid gross or tax free) asopposed to dividends. Savingslikely to gain this type ofinterest include: Bank orbuilding society accounts (e.g.savings/current accounts, orcash Isas) NS&I productsGilts Corporate bonds.Taxed, taxable, tax-freeThe main ways that savings andinvestment income is taxed are:Tax-freeThe income you receive doesn’tattract tax and you don’t haveto declare it, such as with Isas.Taxable and paidnet of taxWith this income, some tax hasalready been deducted, enoughto cover a basic-rate taxpayer’sliability. However, if you are ahigher-rate or additional-ratetaxpayer you will still have sometax to pay. Interest from bankand building society accountsand dividends from shares orunit trusts fall into this category.This type of savings andinvestment income is knownas taxed. With savings income,non-taxpayers can reclaim taxdeducted or arrange grosspayments, and starting-ratetaxpayers can reclaim some tax.Taxable, but paid grossThis income is taxable, buttax isn’t deducted before youreceive it, so you’re responsiblefor paying all the tax due. Thisincludes income from giltsand some NS & I products.Tax-free savings &investmentsIf you haven’t used your Isaallowance, it makes sense toopen a cash Isa, which is free ofincome tax and capital gains tax.The other type of Isa is a stocksand shares Isa (S&S Isa). Withthese, dividends on shares theIsa invests in are paid with 10%tax already deducted. You can’tclaim the tax back, even if you’rea non-taxpayer. In 2012/13, youcan pay £11,280 into an S&S Isa.Income from dividendsDividend income comes from:Shares you own in firmsInvestment trustsUnit trusts and Oeics thatinvest mainly in shares.Income from lifeinsurance investmentsDifferent tax rules apply toreturns from life insuranceinvestments, such as withprofitand investment bonds.Make sureyou pay the right taxand exploit any tax-freeinvestments or savingsto make the most ofyour moneywww.which.co.uk