It is galling that the government takes another slice on dividends and capital gains after it has already charged additional tax on investing taxed income. But reconcile yourself with the thought that at least you have profits to be taxed.
Tax is always complicated, and huge manuals have been written on how to cope or get the best deal possible to frustrate the efforts of HM Revenue & Customs (HMRC). This chapter represents the merest skimming of the surface and is generalized as these things change continually.
Governments have tried to steer us towards some investment vehicles by tax incentives because they think they would be good for us or for the country. It would be foolish not to take advantage of any extra benefits provided by the tax office, but it would be just as silly to invest purely for the tax break. This is especially so as the management fees for some schemes need careful scrutiny to test whether the deal is still worth it after the professionals have had their share of the cream. So weigh the alternatives and go for the one that is best, judged by your personal criteria, and only go for the savings in tax if the investment would have made sense without them.
Governments are rather good at taking money off us. There is not only tax on getting into shares – called ‘stamp duty’ – but also on the benefits from most kinds of investment, both on the income and the capital appreciation. Dividends, including scrip issues and bonus shares, count as income and therefore are subject to Income Tax. Most companies pay dividends net of tax.
HMRC publishes some useful booklets on tax, including one on capital gains tax (CGT), available from all tax offices.