Tax treatment depends on your individual circumstances and may be subject to change in the future. If you are in doubt you should seek professional advice. We cannot offer advice on tax. The tax summary we provide relates to the position of a UK resident individual taxpayer (not including trustees or personal representatives). Other categories of taxpayer should consider their own circumstances.
Your Cash Return is comprised of three parts:
Capital Repayment goes towards repaying your original investment, the amount you have lent. Repayments of the amount lent are not subject to income tax.
Investment Income is treated as income from a tax perspective and will be taxed according to your income tax band. It should therefore be declared on your tax return when you are required to complete a return (e.g. because the income is not covered by available allowances or because any tax deducted from interest payments does not discharge your full tax liability). Depending on the type of investment, your investment income is treated as interest or as a dividend which are taxed differently — see below.
Bonus should be treated as interest from a tax perspective.
Fixed, Inflation-linked, and Event Driven return investments
For the majority of the investments on Abundance the investment income is treated as interest from a tax perspective. This is the case for all investment types on Abundance except variable return investments. Your Cash Return will therefore be taxed according to your income tax band and should be declared on your tax return.
For some of the investments on Abundance, the company or council issuing the investment is required to deduct a proportion of your interest payments, equivalent to the basic rate of income tax (currently 20%), and pay this to HMRC directly. Please see our Help Centre article on Withholding Tax for more information.
Variable return investments
With a variable return investment, your income will be taxed in the same way as a dividend on a share. This is because the size of your investment income is linked to how the underlying project performs. The amount of dividend tax you pay depends on whether you are a non-taxpayer, basic rate, higher rate or additional rate taxpayer. See here for more information.
You have a dividend tax-free allowance of up to £2,000 in the 2022/23 tax year. Any dividend returns over that amount are taxed according to your income tax band. Any dividends you receive will be treated as part of your taxable income (even to the extent covered by the allowance) when determining the applicable tax band for your taxable income.