Over the course of the festive season we’ll be bringing you an advent calendar’s worth of tax and financial tips. Some of them might even be a little Christmassy! Day 6, and the campers are considering…
Tax free investments
Interest rates are at historic lows at the moment but they won’t remain at these levels forever. It’s therefore important to utilise as many tax-free investments as possible.
Interest, dividends and gains from the various ISA products are completely tax free regardless of how much you receive.
For other investments there are also a raft of allowances built into the tax system. Those with earnings up to the personal allowance will have the first £5,000 of interest taxed at 0%. Interestingly, dividends are not counted as earnings in this context.
In addition to this, there is the availability of the personal savings allowance. This means basic rate taxpayers can earn £1,000 of interest tax free. This drops to £500 for higher rate taxpayers.
Furthermore, there is the dividend allowance which means that the first £2,000 of dividends received on share investments is tax free.
All added together, some people (admittedly with very specific circumstances) will be able to earn £20,500 without paying any tax whatsoever.
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