Savings and investments tax
The type and amount of tax will depend on the nature of the savings or investments, and how much tax you pay.
For higher-rate taxpayers, interest on savings and returns from investments can be subject to hefty taxes. Tax can swallow up to half your returns.
Interest from savings accounts with banks and building societies is subject to income tax. Your bank or building society will usually deduct 20% of your interest 'at source', then pay the remainder to you.
Interest on savings is subject to income tax at 0%, 10%, 20%, 40% or 45%, depending on the income tax bracket you fall into when your interest from savings is added to any other sources of income you have (jobs, investments etc).
Anything above £150,000 is taxed at 45%.
Reclaiming tax on your savings
If you don't pay tax or if tax is being deducted at a higher rate than your personal tax band you need to reclaim tax from the taxman. Phone or write to your local tax office.
One way to stop tax eating into your money is to put your cash into tax-efficient savings and investment account such as an Individual Savings Account (ISA). The interest on your ISA will not be taxed, potentially saving you hundreds or thousands of pounds.
Annual limits on ISAs
Because of their tax advantages, there is an annual limit on how much money you can put into ISAs. The annual limit for the 2014-15 tax year is £11,880*. This limit will increase each year in line with inflation.
Up to £5,940 of your annual limit can be saved in a Cash ISA. The remainder can be invested in a Stocks and Shares ISA.
Alternatively, you can use your full £11,880* allowance to invest in a Stocks and Shares ISA with one provider.
You can reduce your tax bill further by structuring your savings, so they're owned by the lowest-rate taxpayer in your family or household.
*Allowance applies from 6 April 2014 to 30 June 2014. From 1 July 2014 the allowance will be £15,000.
Returns on investments can be subject to income tax, Capital Gains Tax (CGT) or both.
Capital Gains Tax
Capital Gains Tax (CGT) is a tax on the gain or profit you make when you sell something that you own, such as shares or property.
This tax year there's a tax-free allowance worth £11,000 for each individual, so you'll only be charged CGT for gains on assets above this level.
CGT rates are 18% for basic-rate taxpayers and 28% for higher and additional-rate taxpayers.
Tax on dividends
Dividends on shares (payments a company makes to its shareholders) are subject to income tax. 10% is deducted at source before payment.
There are three different income tax rates on UK dividends, depending on your income level: 10% (basic-rate taxpayers); 32.5% (higher-rate taxpayers); 37.5% (additional-rate taxpayers).
Non-taxpayers cannot reclaim the 10% deducted at source.
Tax on buying shares
When you invest in UK shares you're taxed on the transaction. This is known as Stamp Duty Reserve Tax (SDRT) for electronic transactions and Stamp Duty for transactions.
You can find out more about taxes on shares at www.gov.uk.
ISAs can be used for tax-efficient investments, as well as savings. A Stocks and Shares ISA can include individual shares or bonds, or pooled investments, such as investment trusts.
The main advantage of investing in a Stocks and Shares ISA is the potential for higher returns than with a Cash ISA, which pays interest at regular periods. Of course, like any investment, the value of a Stocks and Shares ISA can fall as well as rise, which means you might not get back the money you invest.
Important information and assumptions
Laws and tax rules may change in the future. The information here is based on our understanding in April 2014. Your personal circumstances also have an impact on tax treatment. All figures relate to the 2014-15 tax year, unless otherwise stated.