Tax on Investments: Dividends and CGT

By Tom Ashby, Editor · Updated 10 October 2026

7 min read · Facts checked against official sources on 10 October 2026

In short

Investments in an ISA or pension aren't taxed as they grow. This guide covers investments held outside them.
Dividends above the £500 allowance are taxed at 10.75%, 35.75% or 39.35% in 2026/27, depending on your income.
Gains above the £3,000 Capital Gains Tax allowance are taxed at 18% or 24%.
Interest, including from bond funds and cash on a platform, uses your Personal Savings Allowance.
Selling and buying back within 30 days doesn't reset your gain, but buying back inside an ISA works differently.

Dividend allowance, 2026/27: £500
Capital Gains Tax allowance, 2026/27: £3,000
CGT rates on shares and funds: 18% / 24%
Sale proceeds that must be reported in Self Assessment: £50,000

On this page

What tax do you pay on investments?
How are dividends taxed?
How is interest on investments taxed?
How does Capital Gains Tax work on shares and funds?
What if you make a loss?
Do you need to tell HMRC?
How to reduce tax on your investments
Related guides
Sources

If you hold shares, funds or ETFs in an ISA or a pension, you don’t pay tax on the dividends, interest or gains they make while they stay there. Outside those accounts, usually in what platforms call a general investment account, three taxes can apply: tax on dividends, tax on interest and Capital Gains Tax when you sell at a profit. This guide explains each one for the 2026/27 tax year, the allowances that cover small amounts, and when you need to tell HMRC.

What tax do you pay on investments?

Tax	What it’s charged on	Tax-free allowance, 2026/27	Rates, 2026/27
Dividend tax	Dividends from shares, and dividend distributions from funds	£500	10.75%, 35.75% or 39.35%
Income tax on savings	Interest, including interest distributions from bond funds	£1,000, £500 or £0 depending on your tax band	20%, 40% or 45%
Capital Gains Tax	Profits when you sell, give away or otherwise dispose of investments	£3,000	18% or 24%

The rate you pay depends on your income tax band, so the same dividend or gain can be taxed differently for different people. Scottish taxpayers pay Scottish income tax rates on wages and pensions, but dividends, savings interest and capital gains are taxed at the UK rates above, using the UK income tax bands to decide which rate applies.

How are dividends taxed?

Everyone gets a £500 dividend allowance each year. Dividends above that are taxed according to which income tax band they fall into:

Band	Dividend tax rate, 2026/27
Basic rate	10.75%
Higher rate	35.75%
Additional rate	39.35%

The basic and higher rates went up by 2 percentage points from 6 April 2026, under the Finance Act 2026. Dividends that fall within your £12,570 Personal Allowance aren’t taxed at all.

To work out your band, dividends are added on top of your other income. That means a pay rise or a large pension withdrawal can push some of your dividends into a higher band.

Example (based on GOV.UK’s worked example): someone with £29,570 in wages and £3,000 of dividends pays income tax on £17,000 of wages after their Personal Allowance. Of the dividends, £500 is covered by the allowance and £2,500 is taxed at 10.75%, which is about £269.

Fund distributions

Funds pass on their income as either dividend distributions or interest distributions. A fund can only pay interest distributions if more than 60% of it is in interest-paying investments, such as a bond fund. Interest distributions are taxed like savings interest, not dividends.

Accumulation units still count

If you hold accumulation units, the income is reinvested rather than paid out, but HMRC taxes it as if you had received it. Outside an ISA you may owe tax on income you never saw in cash. The upside is that this reinvested income is added to what the units cost you for Capital Gains Tax, so you aren’t taxed on it twice. Overseas reporting funds work in a similar way through “excess reportable income”.

How is interest on investments taxed?

Interest is taxed as savings income. Your Personal Savings Allowance lets you earn £1,000 of interest tax-free if you’re a basic-rate taxpayer, £500 at the higher rate, and nothing at the additional rate. If your other income is low, the starting rate for savings can make up to £5,000 more tax-free.

From 6 April 2027, tax rates on savings income rise to 22%, 42% and 47%, under the Finance Act 2026. That will make interest from bond funds and cash held outside ISAs more expensive in tax terms.

How does Capital Gains Tax work on shares and funds?

You may pay Capital Gains Tax (CGT) when you dispose of an investment for more than it cost. Disposing includes selling, giving it away (except to your spouse or civil partner) and swapping it for something else.

Your gain is broadly what you received minus what you paid, including dealing costs. Everyone has a £3,000 annual exempt amount; gains above it are taxed at:

18% on the part that falls within your basic-rate band
24% on the part above it

To work out which applies, add your taxable gains to your taxable income. These rates have applied since 30 October 2024.

Example: a basic-rate taxpayer with £30,000 of taxable income (after their Personal Allowance) sells shares at a £10,000 gain. After the £3,000 allowance, £7,000 is taxable. The basic-rate band is £37,700, so £7,700 of it is unused. The whole £7,000 fits within that and is taxed at 18%, which is £1,260.

The 30-day rule

If you sell shares and buy the same shares back within 30 days, HMRC matches the sale with the new purchase, not your original shares. You can’t sell at a loss and buy straight back just to create a tax loss, or sell and repurchase to “use” your allowance and reset your cost. Shares bought at different times in the same company are otherwise pooled at an average cost, known as the section 104 holding.

Bed and ISA

Buying back inside an ISA is treated differently, because ISA investments count as a separate holding. That’s why many people sell investments held outside an ISA and buy them back inside one, often called bed and ISA. The sale can still create a taxable gain, and the money you put into the ISA counts towards your £20,000 allowance. Over a few years this can move a general investment account into an ISA, using the CGT allowance each year. Our ISA allowance guide explains the limits.

Gifts to a spouse or civil partner

Transfers between spouses or civil partners who live together don’t create a gain or a loss. Couples sometimes use this so that both partners’ CGT allowances and tax bands are used. Gifts to anyone else, apart from charities, count as a disposal at market value, even if no money changes hands.

What if you make a loss?

Losses are deducted from your gains in the same tax year. Any loss left over can be carried forward to future years, where it’s used to bring later gains down to the annual allowance. You need to report a loss to HMRC within four years of the end of the tax year you made it, or you lose the right to use it.

Do you need to tell HMRC?

Dividends:

Up to £500: you don’t need to tell HMRC.
Between £500 and £10,000: if you don’t already fill in a Self Assessment return, you can ask HMRC to change your tax code or tell them through the income tax helpline, after 5 April and before 5 October.
Over £10,000: you must complete a Self Assessment return. Register by 5 October after the end of the tax year if you don’t already.

Capital gains:

If your gains are above the £3,000 allowance, you must report them and pay the tax.
You can report in a Self Assessment return, or, if you’re UK resident, use HMRC’s real-time Capital Gains Tax service by 31 December after the tax year. If you’re in Self Assessment, you must still include the gain in your return. Either way, the tax is due by 31 January after the end of the tax year.
If you’re in Self Assessment, you must also report disposals whenever your total sale proceeds were more than £50,000, even if your gains were within the allowance.

How to reduce tax on your investments

These are the legitimate, commonly used approaches. Whether they suit you depends on your circumstances.

Use your ISA allowance first. Up to £20,000 a year can go into ISAs, where none of these taxes apply.
Use pensions. Pension contributions get tax relief, and investments grow free of income tax and CGT inside the pension. See our guide to pension tax relief.
Bed and ISA existing holdings over time, using each year’s CGT allowance.
Use both partners’ allowances where you’re married or in a civil partnership.
Keep records of what you paid, including dealing costs, so you can work out gains accurately. Platforms usually provide tax statements for general investment accounts.
Check reporting fund status for overseas funds and ETFs. Gains on non-reporting funds are taxed as income rather than CGT. Our ETF guide explains this.

Tax rules can be complicated if you have several sources of income or large gains. HMRC’s Self Assessment helpsheets explain the detail, and a regulated adviser or accountant can help with your own situation.

Sources

Our guides are general information and education, not personal financial advice. If you are unsure whether an investment is right for you, speak to a regulated financial adviser. Capital at risk. Investments can fall as well as rise, and you may get back less than you put in.