When you turn on Wise Interest, you’re investing in units in a fund. If you’re a UK tax resident, there are two types of taxes you might become liable for when using Interest — Capital Gains Tax and Income Tax.
You won’t need to pay taxes if your gains — including ones from other savings and investments — fall within your allowances. We also give guidance on how to get a statement from us to help work out any tax liability. If you're unsure, please speak to your tax, legal and accounting advisors.
You can request a tax statement to show how much income and capital gains you might need to declare from your use of Wise Interest. Get help with your tax return if you’ve already turned on Interest.
Capital Gains Tax
You may be liable to pay Capital Gains Tax if you move money out of your Wise Interest balance or Jar — through spending, sending, or simply moving money to another account. This will trigger Wise to sell units in the fund, known as disposing.
You won’t need to pay any Capital Gains Tax in this scenario if your gains fall within your Capital Gains tax-free allowance. If your capital gains exceed this allowance, which includes gains from other investments (not just Wise), any disposal becomes subject to Capital Gains Tax.
You may have to pay Income Tax when you use Wise Interest, but only if it falls outside your personal savings allowance — this includes interest earned elsewhere (not just Wise).
Wise Interest uses a fund that sometimes generates Excess Reported Income (ERI). ERI is profit the fund makes that hasn't been distributed to investors. However, for UK tax purposes, ERI is treated as if you’d received it. So if you’ve exceeded your personal savings allowance, you’ll be subject to Income Tax.
Here’s a fictional example of how someone might become liable to pay both Capital Gains Tax and Income Tax when using Wise Interest.
Andrew uses Wise. He has some existing savings and investments, so he’s already over his personal savings and Capital Gains tax-free allowances. He turns on Interest for a Wise balance of 10,000 GBP on 1 January 2020. At the time, each unit in the fund costs £100, so 10,000 GBP buys 100 units.
By 30 September 2020 his share of ERI is 0.50 GBP per unit. That means he’s liable to pay Income Tax on 50 GBP of ERI (0.50 GBP x 100 units). The 50 GBP of ERI would be taxed at the ordinary UK Income Tax rate, reducing the amount of Capital Gains he’ll owe — you can see how this is calculated below.
On 31 December 2020, Andrew withdraws all of his money. Over the last year he hasn’t spent or sent any money and has gained 1,000 GBP on his initial 10,000 GBP. This is because each unit in the fund is worth 110 GBP by this date.
1,000 GBP minus the 50 GBP ERI means Andrew’s gain is 950 GBP.
This 950 GBP gain is then taxed at the UK Capital Gains Tax rate.
As he’s already over his allowances, Andrew would need to declare this income and capital gains in his end of year tax return.
As well as government tax-free allowances, there may be other reliefs available to mitigate income and Capital Gains Tax. Speak to a legal advisor, accountant or tax advisor if you want to learn more.
Figuring out if you need to file a UK tax return
It’s unlikely you’ll need to file a tax return solely from your use of Wise Interest if you’re within your capital gains and personal savings UK tax-free allowances. If you exceed these allowances, which includes any other interest income and capital gains (not just from Wise), you’re likely to need to file a return.
You can use HMRCs website to check if you need to submit a tax return. Income from Wise Interests counts as “income from outside the UK” which you may need to pay tax on if you’re above your allowances.