FAQ for Tax in the United Kingdom
This post is about taxes on investments as they affect those of us subject to UK tax and using Trading 212.
The previous UK tax year ended, 5 April 2024. Today (8 April 24) I have updated this post with data for taxes on dividends and capital gains in the year 6 April 2023 - 5 April 2024. Taxes for 23-24 must computed and paid by 31 January 2025. Some information about ISAs is also here.
There is already a lot of information about UK tax in our community forum. However, this short FAQ may help to bring a lot of information into one place. It contains links to other posts for those who want to learn more. All this information can be found on HMRC pages about Tax on savings and investments, but sometimes it is buried amongst more than you really need to know. Here are the things that are going to affect UK investors making the types of investments that are available on the Trading 212 platform. The information here is not professional tax advice, but rather personal experience of community members in completing their own tax returns. It has already been proofread by some others and can be corrected if any errors are discovered or HMRC rules change. Please let me know if you think anything is unclear, wrong, or you would like other information. Trading 212 per se has not participated in writing this post.
When figures are used below for illustration they are for the 23-24 tax year. Some of these change year to year. Rates and thresholds for a tax year can be found here and here.
In the just completed 2023-24 tax year, and the forthcoming 2024-25 tax year, dividends are taxed at rates 8.75%, 33.75% and 39.35% for basic, higher and additional rate taxpayers respectively.
General
What is the UK tax year?
The UK tax year is from 6 April one year - 5 April the following year.
Point to note: a dividend is taxable according to the tax year in which its official payment date falls (which may be several days before you receive it from Trading 212). This means that you cannot rely only on the export of data from the History covering the period 5 April one year - 6 April next year. You may need to look at what has been happening some days after 6 April as dividends with official payment dates before 6 April come in. You can look up the official payment dates in many places, One such for US shares is nasdaq.com.
Does Trading 212 pay any of my taxes for me?
Depending on your tax residency and the type of your account, a withholding tax on earned interest will apply. The most common of these is the 15% tax that is withheld on US shares dividends (reduced by US-UK tax treaty from the standard 30% because Trading 212 will have completed for you a W8-BEN form.) Other taxes that are deducted by your broker are transaction taxes (like the 0.5% stamp duty when buying UK shares, or FINRA fees when selling US shares), and foreign withholding taxes on dividends.
It is not realistic for a broker to figure your taxes for you. Consider an investor who buys AAPL shares on two platforms. The broker of neither platform knows the investor’s average price for AAPL shares and so cannot figure out what is the gain or loss when they are sold. A broker also does not know your total income and so cannot know at what rates you dividends will incur tax. HMRC has aspirations to make things more automatic through its “making tax digital” programme. But for now, tax preparation is something each investor has to spend a fair amount of time upon, or hand-off to an accountant. There does exist commercial software that can help when figuring taxes. But many people find that the self-assessment site of HMRC, plus some work with a few spreadsheets, is all they need.
What information will I need to do my taxes?
To complete your tax return and figure your taxes you will need to know many things, such as your wages and PAYE tax taken off. But here we focus on investment income. As regards that you need:
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Your total dividend income in the tax year. This should be the gross amount, before any withholding taxes have been deducted,
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The total of withholding taxes deducted. These totals should be figured separately for each foreign source (US, Ireland, France, etc) since the allowable foreign tax credit rates may differ. You can look up the allowable rates on the HMRC pages at.
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Knowledge of dividend payment dates and the exchange rates pertaining those days. E.g. AAPL paid a gross dividend of $0.205 per share on my 100 shares of $20.50 on 11/02/21. The exchange rate that day was $1 = ÂŁ0.7718. So my gross dividend was 20.50 x 0.7718 and 15% of that was withheld as US tax. A good way to find exchange rates on days throughout the tax year is with a Google sheet and the command
=GOOGLEFINANCE("USDGBP", "price","06/04/2020","05/04/2021")
It is fairly easy to produce everything you need from the csv export of Dividend and Order data from the Trading 212 history, in combination with some Google functions, such as above, and some lookup of official dividend dates.
- The cost amounts and proceeds amounts for all shares you have sold during the tax year, together with dates bought and sold so you can apply the correct matching rules to figuring your cost basis and gains (or losses).
When must I tell HMRC about my investment income?
The self-assessment tax return is due by 31 January following the end of the tax year. So you have almost 10 months to assemble data and complete your return.
How do I report to HMRC?
If you are already completing a self-assessment tax return then you will enter all dividend and capital gains income there.
If you are not yet completing a self-assessment tax return you may need to register to do that on the HMRC web site. You will need to this if you have dividend income above ÂŁ1,000, have capital gains tax to pay, or have capital gains tax to pay but have sold assets of more than ÂŁ50k, or have losses you wish to carry forward. See
https://www.gov.uk/capital-gains-tax/work-out-need-to-pay
These are figures for 2023-24. In the forthcoming 2024-25 tax year the dividend allowance is reducing to ÂŁ500 and the capital gains allowance to ÂŁ3,000.
When are taxes due?
HMRC operates a system of advance payments (called “on account”) and a catch-up payment (called “balancing payment”). Consider taxes for the year 6 April 2023-5 April 2024. Here are the key dates, with bold for the items concerned with the 23-24 tax.
- by 31 January 2024 tax return for 22-23 to be filed. Balancing payment for 22-23 and on account payment for 23-24
- by 31 July 2024 on account payment for 23-24
- by 31 January 2025 tax return for 23-24 to be filed. Balancing payment for 23-24 and on account payment for 24-25
The “balancing payment” can be a refund to your bank account if the “on account” payments have been too much, or it may credited against the following year’s “on account”.
How do I pay?
The easiest way is by bank transfer directly to the HMRC bank account. The payment details are given in your self-assessment account.
ISAs
Are any profits in an ISA ever reportable or taxable?
No. You do not need to tell HMRC about anything happening in your ISA. If you deposit ÂŁ4,000 and are lucky enough to see it grow to ÂŁ400,000, there is no UK tax to pay. Not then, or when you someday withdraw it. The only taxes you will pay when investing in the ISA shelter are transaction taxes (like the UK stamp duty on UK shares) and any foreign dividend withholding taxes.
But beware. The tax shelter is only for UK taxes. If you move abroad and/or become a taxpayer in a different country the profits in your ISA account will be taxed by that country as in any normal account. This may create a lot of work, as you may be required to figure the original cost basis of your shares for capital gains tax in the new country. People usually cash in their ISAs completely before moving abroad.
How much can I add to my ISA each year?
Currently you can add ÂŁ20,000. As of April 6 2024 this can be spread across multiple ISAs even of the same type. You could save ÂŁ10,000 in a cash ISA, ÂŁ2,000 in a stocks and shares ISA, ÂŁ1,000 in another stocks and shares ISA,ÂŁ3,000 in an innovative finance ISA and ÂŁ4,000 in a Lifetime ISA. The funding must be cash. HMRC rules do not allow you to transfer-in shares to a stocks and shares ISA.
What are the rules about the number of ISAs I may have?
You can have several S&S ISAs open and can trade in them, with different providers whenever you like. From 2024 you can now add to multiple ISAs. HMRC will know if you try to deposit more than ÂŁ20k in total, as the ISA providers send HMRC the taxpayer identification numbers of those who have put money into an ISA with them,
Must I open a new ISA with Trading 212 at the start of each tax year?
No. All your ISA with Trading 212 is considered to be one pot. You may be asked to reconfirm that you are eligible for an ISA, but there is no sense in which some portion of the money/shares is permanently attached to a particular tax year. If you decide to transfer out during year in which you have already made a partial contribution of your ÂŁ20k allowance it can become complex. Usually, one would only transfer out the entirety of an ISA.
Is the Trading 212 ISA flexible?
No. You cannot withdraw money and then put it back in later. For example, suppose you deposit ÂŁ11k. It grows to ÂŁ22k. You take ÂŁ12k out. You can only put ÂŁ9k back in, since that is your remaining allowance out of ÂŁ20k.
Capital Gains Tax (Invest account)
What is the annual exempt amount?
The annual exempt amount for 23-24 was ÂŁ6,000, but it reduces to ÂŁ3,000 in 24-25. This means that you do not pay capital gains tax for 23-24 if your realised net gains were no more than ÂŁ6,000. If your gains were more than ÂŁ6,000k you pay tax on the gain above this amount. This allowance cannot be carried over from one tax year to the next. So care is needed to make sure it is well-used.
How do I figure my capital gains tax liability?
You add up all the sales which have resulted in gains. You add up all the sales that have resulted in losses. Everything must be figured in GBP. You will need to know the original costs to compute the gains and losses. Make sure to read below “What are the share matching rules?”
Suppose the gains add up to G. Suppose the losses add up to L. You are taxed on G-L-6,000 if this is positive, and have 0 tax if this is negative. The tax rate depends on the tax band in which the capital gains income falls when regarded as the top layer of your income. If this is basic rate (all income <50271) the tax is 10%. If this is higher rate (income >50270) the rate is 20%. You might pay tax at both 10% and 20% rates if your capital gains (after deduction of the allowance) causes a crossing of the 50270 boundary.
If your total losses exceed your total gains then you will have a net loss. That loss can be carried forward and used against gains within the next four years.
What about shares priced in other currencies?
Suppose I bought 100 AAPL at $200 per share when $1 = ÂŁ0.7200. Later, I sell then for $210 per share when $1 = ÂŁ0.7100. My gain is
(100 x 210 x 0.7100) - (100 x 200 x 0.7200) = 510.
This is just to make clear that it is a rookie mistake, and incorrect, to compute the gain as the USD gain converted to GBP, as in
Incorrect: 100 x (210 - 200) x 0.7100 = 710.
In terms of the information shown on the Trading 212 platform 510 is “Return”, 710 is “Gain/loss”, and 510-710= - 200 is “FX impact”. [Note. Will need to look a bit more into this. It is not yet clear to me if the “Return” figure in the app is gross or net of fx fees that have been (will be) paid on purchase (sale).]
Can I deduct currency conversion fees from my taxable profits?
Unfortunately HMRC do not allow currency conversion fees to be a deductible cost. The only allowable costs are broker commissions, of which Trading 212 has none.
So suppose I bought 100 AAPL at $200 per share when $1 = ÂŁ0.7200. Later, I sell then for $210 per share when $1 = ÂŁ0.7100. My gain is
(100 x 210 x 0.7100) - (100 x 200 x 0.7200) = 510.
But since Trading 212 has a 0.15% fee, my actual cost would have been 100 x 200 x 0.7200 x 1.0015 and actual net sale proceeds 100 x 210 x 0.7100 x 0.0085, for an actual gain of
(100 x 210 x 0.7100 x 0.9985) - (100 x 200 x 0.7200 x 1.0015) = 466.04
Unfortunately, HMRC require that I declare my gain as 510.
There remains a question of what exchange rate to use. For capital gains it seems reasonable to use the rate recorded in the trade History or Contract note from Trading 212, excluding any fx fee. For dividends one can use the rate from Googlefinance for the day of payment. From HMRC’s perspective the key is consistency of your approach over time.
What are the share matching rules?
When you sell shares you need to figure out how much they cost to buy so you can figure your gain or loss. Usually you will use the average GBP cost per share over all past purchases of presently owned shares.
However, things are trickier when you have bought and sold shares in the same company on the same day, or have sold them and then repurchased others in that company within 30 days. Read this HMRC page and the section about How to identify the shares disposed of.
This tool may help
CGTCalculator online capital gains calculator for UK share trades
What about CFD gains and losses?
See HMRC pages about CFDs. There is a nice example of how to figure this. Overnight interest is a deductible expense. Someone who makes lots of trades will have many lines of transaction to report. When completing a self-assessment tax return there is an option for attaching your own printout of transactions.
HMRC pages about selling shares
HMRC pages about CFDs
Dividend Tax (Invest account)
What is the annual dividend allowance?
Your dividend income is always taxed as your highest slice of income, like the top layer of a cake, sitting above your other income from wages, bank interest and renting our property. So if you have wages and bank interest totalling ÂŁ47k and dividends totalling ÂŁ4k, then if the higher rate band starts at ÂŁ50270k, you will have ÂŁ730 of dividends falling in the higher rate band. Currently the tax rates in the basic, higher and additional rate bands are 8.75%, 33.75% and 39.35%. The additional rate band starts at ÂŁ125,140. At income of ÂŁ100,000 the personal allowance of ÂŁ12,570 is gradually withdrawn 1 for 2, until it disappears completely at 100,000 + 2 x 12,570 = 125,140.
The dividend allowance was ÂŁ1,000 (23-24) and will be ÂŁ500 (24-25). Unfortunately, it is applied to your lowest taxed slice of dividend income. For instance, if you have wages and bank interest totalling ÂŁ47k and dividends totally ÂŁ4k, you would have ÂŁ3k dividends in the basic rate band (up to ÂŁ50270) and then ÂŁ730k dividends in the higher rate band. The dividend allowance will apply to the lower taxed slice, reducing the tax on the ÂŁ3k in the basic rate band to 8.75% on ÂŁ1k. You will additionally owe 33.25% on the ÂŁ730 that remains in the higher rate band.
How do I figure my dividend tax liability?
You add up the GBP value of all the dividends whose official payment dates fall in the tax year. Your dividend income will be taxed as your highest slice of income, with the lowest slice of ÂŁ500 being given a nil rate tax. This means that some of your dividends will be taxed 0%. Others may be taxed 8.75%, and some 33.75% or 39.35%, depending on where they fall. But so far as filling in your self-assessment form is concerned, you will enter separate totals for the sum of dividends from UK companies, and sum of dividends from different foreign sources. Typically, Vanguard and iShares ETF dividends are Irish source. US companies are, of course, US source. You will enter each on a separate line. For each country there is a maximum amount of foreign tax credit that can be claimed against withholding tax, e.g. 15% for both Ireland and US.
Where can I find the official payment dates of my dividends?
This is one place where the Trading 212 History is lacking. It only records the date you received the dividend. But you are taxed on the basis of the official payment date and with the exchange rate applicable on that date. One way to find payment dates is to look them up one by one (say, on nasdaq.com for US dividends). Or you can automate this by paying for a service like dividendmax.com. Or you can, for free, create a Yahoo portfolio, which will display for you dividend dates that you can scrape into a spreadsheet through the year. Though Yahoo has a bug and reports all such payment dates one day too early. At least it is a consistent mistake.
What is foreign tax credit?
Suppose you have received ÂŁ1000 worth of gross US dividends. You will have paid US withholding tax of ÂŁ150. Suppose your US dividends fall in the higher rate band (income above ÂŁ50270) and so are subject to UK tax of 33.75%. You will be able to take a credit and consequently pay HMRC only 337.50-150.
If your dividends had been subject to UK 8.55% tax then the 15% paid to the US will wipe out all of your UK liability. To find what tax credit you can take you should compute your tax bill both with and without the US dividends. The foreign tax credit you can take in the minimum of the difference between these two figures, and the US withholding tax you have actually paid.
The self-assessment form allows you to order your foreign dividends as slices in your taxable cake. Most times this will make no difference, but it might be useful if you had one set of ÂŁ1000 foreign dividends for which the allowable tax credit is 10% and another set of ÂŁ1000 for which it is 15%. If your other income is ÂŁ49000, and the threshold for higher rate tax is ÂŁ50270, then ÂŁ1000 of your dividends will be taxed at 8.75% and ÂŁ730 at 33.75%. You would like those for which the available credit is 15% to the ones taxed at 33.75%, rather than the other way around.
Warning. Sometimes the foreign tax credit you are allowed to take is less than that which has actually been withheld. For example, Ireland withholds 20% from Medtronic dividends. But the UK-Ireland agreement only allows for a 15% tax credit. So if your UK dividend tax rate if 33.75% then ÂŁ100 of MDT dividend will incur tax of ÂŁ20 (Ireland) and ÂŁ(33.75-15)=18.5 (UK).
What about ETFs?
Taxation of ETF dividends is more complicated than most people realise. Although an accumulating ETF pays out no dividends to investors, it is reinvesting dividends internally, and these are subject to UK dividend tax. To learn the amount of dividend reinvested you need to look on the issuer’s web site. For example, take iShares SWDA. In the Literature section you see a file called iShares reportable income 2020. Clicking there opens a spreadsheet. On line 57 we see that IE00B4L5Y983 had $0.9792 “excess of reportable income” (ERI) deemed paid 31/12/2020. This amount needs to be converted to GBP and entered on the tax return for 20-21. The exchange rate on 31/12/20 was 0.7541. So if I had 1000 shares I would have a dividend to declare of 1000 x 0.7541 x 0.9792 = £738.41. However, since this is new money I have added to my purchase cost I can increase my cost basis by £738.41 when someday I come to sell the shares.
One might hope this calculation could be side-stepped by investing in distributing ETFs. But they also can have ERI. Take Vanguard’s popular VUSA. Look at Vanguard’s page
Tax return information, go to he drop-down item called “Report to Participants (current and previous years)” and click on page VF plc Excess Reportable Income: 30 June 2020. We read on the second page that Vanguard S&P 500 UCITS ETF had “Excess of reportable income over distributions” of $0.0394 per share deemed paid 31/12/20. This is in addition to the 4 quarterly paid dividends that are also listed. This 5th ERI dividend should be reported the same way as we did above for SWDA.
OEIC funds?
Open ended investment companies (OEIC) are a type of investment not yet offered on the Trading 212 platform. However, they are very popular with investors. Typical names are Vanguard Lifestrategy 80% Equity, Fundsmith Equity and Lindsell Train Global Equity. This stub is a reminder that something will need to be written if Trading 212 were ever to start offering this type of investment. Like ETFs they present another set of fiddly tax wrinkles, particularly as regards the issue of “equalisation” and dividends in accumulating funds.
Further information
Where can I find more information?
See HMRC pages. HMRC also has a community forum where answers to many tax questions can be found Customer Forums - Community Forum - GOV.UK
HMRC is pretty good about responding (in day or two) to questions put to them via Facebook messenger. HMRC
There are also some existing threads in this community forum that are interesting:
Links to be added
