When you turn on Wise Interest or Stocks, 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 or Stocks: 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. Speak to your tax, legal and accounting advisors if you’re unsure.
You can request a tax statement to show what income and capital gains you might need to declare from your use of Interest or Stocks. 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 Interest or Stocks balance or Jar — through spending, sending, converting 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 Interest or Stocks, but only if it falls outside your personal savings allowance, which includes interest earned elsewhere (not just Wise).
Wise Interest and Stocks use funds that sometimes generate Excess Reported Income (ERI). ERI is profit the fund makes that has not 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.
Learn more about ERI on gov.uk.
Here’s a fictional example of how someone might become liable to pay both Capital Gains Tax and Income Tax when using Interest or Stocks.
Andrew uses Wise. He has some existing savings and investments, so he is 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 of doing so, each unit in the fund costs 100 GBP, so 10,000 GBP buys 100 units.
By the period ending 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 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 that are available to you 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 or Stocks 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 work out if you need to submit a tax return. Income from Wise Interest or Stocks counts as ‘income from outside the UK’, which you may need to pay tax on if you’re above your allowances.
How to read your tax statements if you’re in the UK
Once you’ve downloaded your tax statement from us, there are two sections that you’ll need to check.
The Income section — on page 3
This section shows the income that you have earned during the period you used Interest or Stocks.
If you see Excess Reported Income — Interest — this relates to your use of Wise Interest. HMRC guidance says that this should be reported in the Foreign Pages (SA106) tax return as ‘Interest and other income from overseas savings’.
If you see Excess Reported Interest — Dividends — this relates to your use of Stocks. HMRC guidance says that Excess Reported Income dividends should be reported in the Foreign Pages (SA106) tax return as ‘Dividends from foreign companies’.
Check the HMRC guidance for more information.
The Capital Gains section — on page 4
The rows you’ll need to check in this section are:
number of disposal
gains in the year, before losses
losses in the year
This information can be used to complete the Capital gains summary (SA108). You can attach your Wise tax statement to your self-assessment tax return to provide details of disposals to HMRC.