Tax treatment depends on your individual circumstances and may be subject to change in the future. This summary is provided for informational purposes only and relates to the position of a UK resident individual taxpayer. We do not offer advice on tax and if you are in doubt about your own position you should seek professional advice.
Investment return breakdown
Your investment return on Abundance is split into 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. Depending on the type of investment, your investment income is treated as interest or as a dividend which are taxed differently — see below.
Bonus - paid by Abundance rather than the issuing company or council, only applicable to certain investments. Bonuses paid as part of your investment return are treated as interest from a tax perspective.
Types of investment income
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.
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.
What is the Personal Savings Allowance?
From the 2016/2017 tax year you have a £1,000 (or £500 for higher rate taxpayers) tax free interest allowance. Additional rate taxpayers are not entitled to the personal savings allowance. This means the first £1,000 (£500 for higher rate taxpayers) of interest income will be free of income tax (but please see our article on Withholding Tax for information of when tax may be deducted from your returns). All investments on Abundance except variable return investments pay returns that are treated as interest.
What is the Dividend Allowance?
Since the 2016/2017 tax year, you have a tax-free dividend allowance and the dividend tax credit system which operated in earlier years ceased to apply. The tax-free dividend allowance for the 2021/22 tax year was £2,000 and is £2,000 for 2022/2023. Variable return investments pay returns that are treated as dividends.
Where can I find out how much I have earned on Abundance in a tax year?
If you're completing your tax return, you can find a breakdown of what you have earned on Abundance in a particular tax year. If you did not earn a return on Abundance in a tax year, that year won't appear as an option.
To view the tax section, click Manage in the menu at the top of the page when signed in to your account and then select Tax in the Money section. You'll also find the option to download a statement as a PDF.
Please note, the Tax section is only available in your Standard portfolio and not your IF ISA or SIPP portfolio (as returns are tax free in these portfolios).
What about taxpayers who are not individuals?
The position of companies, partnerships, trusts or unincorporated associations is complex and investors in these categories should get appropriate tax advice on their position. As a general rule, UK companies will pay corporation tax on their investment income and on capital gains.