What taxes may I be liable to pay if I have a personal account?

Income tax

As you may be aware, you will be receiving dividends (from your equity funds) and interest payments (from your fixed interest funds) within your personal account even though these are not displayed in your Wealthsimple account as separate receipts. This is all down to the fact that your investments are made up of something called "accumulation" units.

"Accumulation" units immediately use the proceeds of any dividend and interest payments and reinvest them into additional units in the fund. This ensures that your cash works as hard as possible for you, by being invested in the market, and not sitting idly. In essence, your dividend payments are all reflected in the overall return and value of your investments.

Even though you don’t see these dividend and interest payments, unfortunately you may still be liable to pay tax on these! How these are taxed depends on whether they have come from your equity funds (dividends) or your fixed interest funds (interest).

Dividends (from your equity funds)

Everybody has a dividend allowance of £2,000 per annum (for the current tax year). Therefore, if the overall level of dividends you have received (including any dividends you may have received outside of the portfolio) is lower than this dividend allowance, you will have no tax to pay! Please note that you do not need to tell HMRC if your overall dividends are within your dividend allowance for the tax year.

If you have received dividends in excess of £2,000 per annum in a given tax year, you will have to report these to HMRC via self assessment and you will be taxed according to your income tax band.

If you received dividends in excess of £2,000 in the last tax year, we strongly recommend that you speak to a professional accountant.

Interest payments (from your fixed interest funds)

UK residents have the following Personal Savings Allowances which means that any interest received from your fixed interest funds is tax-free if it is within the limits below:

Basic Rate Tax Payer: £1,000.
Higher Rate Tax Payer: £500.
Additional Rate Tax Payer: £0.

For example, if you are a basic rate tax payer and received interest below £1,000 from your Wealthsimple portfolio, you will not have any tax to pay.

If you received interest in excess of your Personal Savings Allowance in the last tax year, we strongly recommend that you speak to a professional accountant.

Capital Gains tax

Every time a sale is made within your personal account, you will either make a gain or a loss on the individual fund.

You will be liable to pay capital gains tax on any gains made in excess of the current capital gains tax exemption (£12,500 for the 2019/20 tax year).

Please note that you only need to report the gains on your tax return if (i) you have made gains of more than the capital gains tax exemption (£12,500 for the 2019/20 tax year), and/or (ii) any of the disposals that you have made are over £50,000.

This also includes any gains you may have made in taxable account outside of your Wealthsimple portfolio.

If you have made capital gains of over £12,500 in the tax year, we recommend that you seek professional advice from an accountant.

Learn more about Personal accounts here!