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In short: In the UK 2026/27 tax year, gains on shares and funds are taxed at a flat 18% within your unused basic-rate band and 24% above it, after a £3,000 tax-free allowance. There is no minimum holding period — how long you held the asset does not change the rate. Dividends are taxed at 10.75% / 35.75% / 39.35% above a £500 allowance (the two lower rates rose on 6 April 2026). Interest is taxed at ordinary rates of 20% / 40% / 45%, with a Personal Savings Allowance of up to £1,000. A Stocks & Shares ISA (£20,000/year) makes all of this UK-tax-free. For ETFs, reporting-fund status is decisive — non-reporting funds are taxed as income.

Capital Gains & Investment Tax in the United Kingdom (2026)

Kontoo editorial team · Updated 06/25/2026 · 8 min read

If you hold shares, funds or ETFs in the United Kingdom, three separate taxes can touch your money: Capital Gains Tax when you sell, dividend tax on payouts, and income tax on interest. Each has its own rate and its own tax-free allowance. The 2026/27 tax year (6 April 2026 to 5 April 2027) brings higher dividend rates and some quietly important rules for offshore ETFs. Here is the calm, complete picture.

Use your wrappers first. A Stocks & Shares ISA shelters all dividends, interest and gains from UK tax, up to £20,000 paid in per year.
Check fund status before buying. For ETFs held outside an ISA, confirm the fund has UK reporting status — otherwise gains are taxed as income, not at lower CGT rates.
Track your allowances. £3,000 of gains, £500 of dividends and £500–£1,000 of interest can be tax-free each year, depending on your band.
Report via Self Assessment if you hold investments outside an ISA and your gains, proceeds or income cross the reporting thresholds.

What matters

Capital Gains Tax (CGT) on shares and funds. CGT is a flat-rate tax, but the rate you pay depends on where the gain sits once stacked on your income. For 2026/27, gains on shares, funds and ETFs are taxed at 18% to the extent they fall within your unused basic-rate income tax band, and 24% above that. Higher- and additional-rate taxpayers effectively pay 24% on the whole gain. Since the October 2024 alignment, these are the same rates as for residential property — there is no longer a lower rate for ordinary assets. Each individual has an Annual Exempt Amount of £3,000; gains below this are tax-free, but it cannot be carried forward. Capital losses offset gains in the same year and, if claimed, carry forward indefinitely. Crucially, the UK has no minimum holding period and no short/long-term split — time held does not change the rate. (Share-matching rules — same-day, the 30-day rule, then the pooled Section 104 average cost — only determine your purchase cost.)Dividends. Dividends sit in their own schedule on top of your other income, after a £500 Dividend Allowance taxed at 0%. Following the Autumn Budget 2025, rates rose from 6 April 2026: the ordinary (basic) rate is now 10.75% (up from 8.75%), the upper (higher) rate 35.75% (up from 33.75%), and the additional rate stays at 39.35%. Which rate applies depends on the band the dividend falls into once stacked on your other income.Savings interest. Bank interest, gilt and bond interest, and interest-type fund distributions are taxed as savings income at ordinary rates of 20% / 40% / 45% for 2026/27. (The announced rise to 22/42/47% only takes effect from April 2027, not this year.) A Personal Savings Allowance gives 0% on the first £1,000 of interest for basic-rate taxpayers, £500 for higher-rate, and £0 for additional-rate. A separate Starting Rate for Savings can shelter up to £5,000 of interest at 0% for those with low non-savings income, phasing out by £1 for every £1 of such income above the £12,570 Personal Allowance — so it is gone once that income reaches £17,570.The wrappers. A Stocks & Shares ISA (£20,000 subscription limit for 2026/27) makes all dividends, interest and gains entirely free of UK tax, with nothing to report. Pensions (SIPPs) give tax relief on contributions and tax-free growth inside the wrapper; withdrawals beyond the 25% tax-free lump sum are taxed as income.

ExampleImagine you sell ETF units outside an ISA in 2026/27 with a £9,000 gain, and you are a higher-rate taxpayer. The first £3,000 is covered by the Annual Exempt Amount. The remaining £6,000 is taxed at 24% (because you are above the basic-rate band), giving £1,440 of CGT. Separately, suppose the same ETF paid £900 in dividends: the first £500 is tax-free, and the remaining £400 is taxed at the higher dividend rate of 35.75%, or about £143. Total tax: roughly £1,583. Held inside an ISA instead, the same gain and dividends would be entirely UK-tax-free.

Before topping up a taxable account, fill your ISA: every pound of growth inside it is permanently free of UK CGT and dividend tax. To see how that compounds over decades, try our compound-interest calculator.

In depth

Accumulating vs distributing ETFs and 'deemed' income

A common assumption is that accumulating ETFs — which reinvest income rather than pay it out — defer tax until you sell. In the UK that is not how offshore funds work. Whether a fund accumulates or distributes makes no difference to whether income is taxed: both are taxed annually. With a reporting fund, any income the fund earns but does not distribute is 'Excess Reportable Income' (ERI), deemed to arise six months after the fund's reporting period ends, and taxed as a dividend or as interest depending on the fund type. The catch with accumulating funds is purely practical: no cash arrives, so you must find the ERI figure yourself (funds publish it) and report it. To prevent double taxation, ERI already taxed is added to your acquisition cost, reducing the gain when you eventually sell.

Reporting vs non-reporting: the most expensive choice

For UK investors, the single most important feature of an offshore ETF is its reporting-fund status. With reporting status, your eventual gain is taxed as a capital gain at 18% or 24%, you get the £3,000 annual exemption, and losses behave normally. Without it, the entire gain is treated as an 'offshore income gain' taxed at income-tax rates up to 45%, with no annual exemption and no CGT treatment at all. The difference on a large gain can be enormous. The reassuring news: the major retail ETF providers list HMRC reporting status for their funds, and most popular Ireland-domiciled trackers qualify. Always confirm before buying outside an ISA.

Foreign withholding tax, credits and the SIPP edge

Funds and direct shares that hold overseas assets often suffer foreign withholding tax on dividends or interest at source — commonly 15% on dividends under double-tax treaties. As a UK resident you can usually claim Foreign Tax Credit Relief, capped at the treaty rate, against the UK tax on that same income, claimed on the foreign pages (SA106) of Self Assessment. An important nuance: an ISA does not shelter foreign withholding tax — it is deducted abroad and generally cannot be reclaimed inside the wrapper. A SIPP can do better: under some treaties, notably the UK-US treaty, qualifying pensions receive a reduced or even 0% withholding rate on US dividends — a genuine advantage over an ISA for US-heavy portfolios.

Checklist

I have used or planned my £20,000 ISA allowance before investing in a taxable account
Any ETF I hold outside an ISA has confirmed UK reporting-fund status
I track my £3,000 CGT allowance and £500 dividend allowance each tax year
I keep records of Excess Reportable Income and foreign withholding tax for Self Assessment

Common myths

Myth: If I never sell, I never owe tax on my ETF.

Reality: Not for offshore funds. Reporting funds generate 'Excess Reportable Income' — income the fund earns but does not pay out — which is taxable every year even in an accumulating ETF where no cash reaches you. You must track it; only when you sell does it reduce your gain.

Myth: Holding shares for years cuts my Capital Gains Tax.

Reality: It does not. Unlike some countries, the UK has no long-term discount and no minimum holding period. The 18%/24% rate depends only on your income band and your £3,000 allowance, never on how long you held the asset.

Sources

Frequently asked questions

Is there a lower tax rate if I hold shares for a long time?

No. The UK has no short-term/long-term distinction and no minimum holding period for Capital Gains Tax on securities. A gain is taxed the same whether you held the asset for one week or twenty years — the rate (18% or 24%) depends only on your income band and the £3,000 allowance, not on time held.

Are my ISA investments really tax-free?

Inside a Stocks & Shares ISA, all UK dividends, interest and capital gains are entirely free of UK income tax and CGT, and you never report them. The one exception is foreign withholding tax on overseas dividends — that is deducted at source abroad and generally cannot be reclaimed inside an ISA.

What is an offshore 'reporting fund' and why does it matter?

Most listed ETFs are domiciled in Ireland or Luxembourg, so they are 'offshore' to the UK. If the fund has HMRC reporting status, your gains are taxed as capital gains (18/24%). If it does not, gains are taxed as an 'offshore income gain' at income-tax rates up to 45%, with no annual exemption — a costly trap to avoid.

All lessons · Glossary · Editorial · Kontoo does the math and explains – this is general education, not tax, legal or financial advice.

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