UK Capital Gains and Dividend Tax on Investments (2026)

If you invest in the UK inside an ISA or pension, tax barely concerns you. Outside those wrappers, in a general investment account, two taxes apply: capital gains tax when you sell at a profit, and tax on the dividends you receive. The allowances that used to soften both have been cut sharply in recent years, which is exactly why the wrappers matter so much. Here’s the picture. Rates and allowances change every year, so treat the numbers as a guide and check the current figures.

Capital gains tax (CGT)

When you sell an investment in a taxable account for more than you paid, the profit is a capital gain. Each person gets an annual tax-free allowance, but it has been cut dramatically, from over £12,000 a few years ago to around £3,000 now. Gains above that are taxed, with the rate on shares and funds depending on whether you’re a basic or higher-rate taxpayer (broadly in the region of 18% and 24% after recent changes).

A few practical points:

• The allowance is use-it-or-lose-it each tax year, so realising gains gradually can help.
• Losses can be offset against gains, which softens the bill in bad years.
• You only pay when you sell; unrealised gains aren’t taxed.

Dividend tax

Dividends you receive in a taxable account are taxed too. There’s a small annual dividend allowance, also heavily cut (to around £500), and dividends above it are taxed at rates that rise with your income tax band (roughly 8.75%, 33.75% and 39.35% for basic, higher and additional-rate taxpayers).

Note that with accumulating funds, the reinvested income can still be taxable even though you never received cash, via what’s called excess reportable income. It’s one more reason the wrapper matters.

The answer is usually a wrapper

Here’s why all of this often becomes academic: inside a Stocks and Shares ISA, there’s no CGT and no dividend tax, full stop. Inside a SIPP, your investments grow free of these taxes too, and you only pay income tax when you eventually draw the pension. For most people, the sensible order is to use these wrappers first:

1. Use your annual ISA allowance (around £20,000) before investing in a taxable account.
2. Consider a SIPP for retirement money, for the tax relief on top.
3. If you do hold investments outside a wrapper, you can often move them in over time (sometimes called “Bed and ISA”) to shelter future growth.

See best broker for a Stocks and Shares ISA and best broker for a SIPP for where to do this cheaply.

Keep records

If you do invest in a taxable account, keep clear records of what you bought, when, and for how much. CGT is calculated on the gain, and good records make the annual reckoning far less painful, especially across multiple purchases of the same fund.

The bottom line

Outside a wrapper, UK investments face capital gains tax on profits and tax on dividends, and the allowances that used to cushion both are now small. The simplest response is to use your ISA and pension allowances first, where these taxes mostly disappear. Given how often the rules change, and how they interact with your wider income, this is an area where a quick check with an accountant pays off.

Educational information, not personal or tax advice. UK tax rates and allowances change each year, so always confirm the current figures and your own position.