PERSONAL FINANCE
Using a dealing account? You could be better off with an ISA or SIPP It makes sense to take advantage of the tax perks available to you when you invest
T
he surge in online brokers means that more and more people have opened trading accounts. But lots of newcomers to investing have opened the wrong account type that’s costing them hundreds (or even thousands) in tax that they could avoid. Many people who use online trading platforms will just opt for the standard account, often called a dealing account or general investment account. Many might think this is an obvious starting point for their investing journey. But actually, they could be far better off in a tax-efficient account that protects their investments from two different types of tax. WHAT IS A DEALING ACCOUNT? A dealing account is a basic investment account that most UK residents can open. There is usually a wide range of investment options available and there are no restrictions on how much you can invest or how often. You can even open a dealing account for a child, where a parent or grandparent is the trustee. You just open a dealing account, can transfer money in from your bank or debit card and then start investing in whatever you pick. Alternatively, you can transfer money into the account from other accounts you already have open. One of the big appeals is that there are no limits on when you can take out the money.
WHY ISN’T IT ALWAYS SO GREAT? Dealing accounts have no specialist tax perks, which means you’ll have to potentially pay two different taxes on the money. If your investments pay out dividends then you could be liable to pay dividend tax. Everyone gets a £2,000 dividend tax free allowance each tax year, meaning they can earn dividends up to that level before they have to pay tax. After that point you’ll pay tax at 8.75% for basic-rate payers, 33.75% for higher rate payers and 39.35% for additional rate payers. The next tax you could be liable for is capital gains tax. This is a tax on the growth of your investments, and is only paid when you sell that investment (which is called realising the gain). Again, there is a tax-free allowance, whereby you can generate up to £12,300 of gains on your investments each tax year before you have to pay capital gains tax. After that you’ll pay it at 10% for basic-rate taxpayers and 20% for higher and additional rate payers. With most providers you’ll get a tax statement after the end of the tax year stating how much you’ve generated in dividends and capital gains tax, which you can then use for your tax return. 28 July 2022 | SHARES |
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