Home > Savings & Investments > What is Investment Income?

What is Investment Income?

By: J.A.J Aaronson - Updated: 2 Sep 2012 | comments*Discuss
Investment Income Definition Vehicle Tax

For the majority of individuals, the only taxable income that needs consideration is their salary. This is taxed at source, meaning that your tax bill is deducted directly from your wage packet, unless you are self-employed. However, an increasing number of people are looking towards various forms of investment in a bid to increase their income.

There is a huge variety of investment types available, some of which are more tax efficient than others. But regardless of whether or not your investment will be taxed (and it is highly likely that it will be), it is important to understand the distinction between earned income and investment income.

Investment Vehicles

Essentially, investment income is any income that is derived from what is known as an ‘investment vehicle’. This vehicle could be a savings account, shares, property, or any other form of investment. The income you earn from this vehicle could take the form of Dividends, interest or capital gain, although there are a number of other ways in which you could accrue investment income.

If you have ever read the annual report of a public company, you are likely to have seen a section entitled ‘investment income’. This means precisely the same for companies as it does for individuals, and is the area in which the organisation declares the portion of their profits that are due to the investment of surplus money. As has been mentioned, the vast majority of most individuals’ income is that which is earned through employment. However, as savings are built up the potential for investment becomes higher and an investment portfolio can be developed.


Investing has become considerably easier in recent years. Many people now have an ISA (Individual Savings Account), which is a tax-free savings account. Income accrued through interest on your ISA is not subject to Income Tax and you do not, therefore, need to worry about paying anything in these cases. However, more and more banks and other financial institutions are beginning to market user-friendly investment vehicles, such as mutual funds, towards regular consumers who have some extra cash that they want to put to use.

Until the financial year ending 1985, investment income was subject to an extra tax above and beyond the regular rate of income tax. This, in itself, put a considerable number of individuals off investing as it was more difficult to ensure that one was adhering to the Tax Code. The Income Tax (Trading and Other Income) Act 2005, however (and previously the Income and Corporation Taxes Act 1988) now defines earned income and investment income in much the same way. Different types of investment income, however, are taxed at different rates – for example, dividends are taxed differently to savings.

Declaring and paying your investment income tax is generally simple. In many cases, the tax will be deducted at source, or absorbed into the price of the investment, as with many types of share transfer. If you are required to fill out a Self Assessment at the end of the tax year, you will also need to declare any investment income on this form. Again, tax is paid differently depending on the type of investment, and you may wish to consult other articles in this section for more information on the correct ways to pay.

You might also like...
Share Your Story, Join the Discussion or Seek Advice..
Why not be the first to leave a comment for discussion, ask for advice or share your story...

If you'd like to ask a question one of our experts (workload permitting) or a helpful reader hopefully can help you... We also love comments and interesting stories

(never shown)
(never shown)
(never shown)
(never shown)
Enter word:
Latest Comments
  • Kenthen
    Re: What Does Road Tax Pay For?
    I often wondered if it's legal for the council to close public roads for pedestrian usage unless it's for repair or some other road…
    11 August 2019
  • Oky
    Re: How Will My Second Job Be Taxed?
    Hi if I work for 2 agency. One job is 40 hour per week and other is 12 or 20 hours per week, only for one week it will be.…
    7 August 2019
  • Jo-jo
    Re: How Will My Second Job Be Taxed?
    I have main job at 24 hours a week and earn £198 a week if I take on a 2nd job at 10 hours a week at £9.04 an hour how much…
    3 August 2019
  • Jules
    Re: Should I be Paid Mileage Allowance?
    Im a carework i dont get paid any mileage i only get 25p per visit but my calls are 5 & 6 miles apart how do i claim some…
    24 July 2019
  • San
    Re: What is My Tax Code?
    Hello I have a first job and I am earning 290 a week and have been charged 60 for that first wage and I have started a second job for weekend…
    18 July 2019
  • MH829567
    Re: What Does Road Tax Pay For?
    Road Tax doesn't pay for anything cos it don't exist. Vehicle Excise Duty or CAR tax pays for the environmental effects of the…
    9 July 2019
  • Sandra
    Re: Payment of Pensions
    I want my pension to be paid weekly not monthly can this be changed ?
    5 July 2019
  • Sandra
    Re: Payment of Pensions
    I want my pension to change from monthly to weekly can thus happen?
    5 July 2019
  • vic
    Re: How Will My Second Job Be Taxed?
    my son is at uni and works on a sat for 8 hrs, he has just started a full time summer job until uni goes back and has been…
    4 July 2019
  • Jane
    Re: How Will My Second Job Be Taxed?
    Hi, I've recently been offered 2 part time positions (very similar roles) and am wondering if I could accept both offers? In…
    4 July 2019