Video Transcript – Tax liability for earnings from savings and investments
Both when earning interest through savings or making a profit through investment at the time of selling your investment you may be liable to pay tax. In the first case, this is income tax and in the second case capital gains tax. However, there are tax free amounts, so if you only earn up to £500 of interest a year you do not need to pay income tax on it irrespective of your other income.
If you do not have much other income from employment etc. you do not have to pay tax on interest up to the personal allowance (currently £12,570). There is currently a capital gains tax allowance of £3,000 per tax year so if you sell some investments at a profit this is tax free up to £3,000. For the vast majority of young people therefore there will be no tax to be paid. Remember the tax year is from the 6th of April to the 5th of April of the following year. The rules change from year to year and you can find them on the Gov website: https://www.gov.uk/apply-tax-free-interest-on-savings and https://www.gov.uk/tax-sell-shares.