Do I pay tax on dividends and capital gains inside a stocks and shares ISA?

Full answer

A stocks and shares ISA shelters everything inside it from UK tax. Dividends, fund distributions, bond interest and capital gains are all exempt, and crucially they do not consume your separate annual allowances. For 2026/27 those outside-ISA allowances are a GBP 500 dividend allowance and a GBP 3,000 CGT annual exempt amount; inside an ISA they are untouched and irrelevant. You also never have to report ISA income or gains on a tax return. Worked example: an investor holds a GBP 60,000 portfolio yielding 4% in dividends, so GBP 2,400 a year. Held outside an ISA, GBP 500 is covered by the allowance and the remaining GBP 1,900 is taxed at the dividend rates for 2026/27 (10.75% basic, 35.75% higher, 39.35% additional); a higher-rate taxpayer would pay GBP 679. Held inside an ISA, the entire GBP 2,400 is tax-free and the GBP 500 allowance stays available for any taxable holdings elsewhere. The same applies to gains: selling the holding for a GBP 10,000 profit inside the ISA costs nothing, versus up to 24% CGT outside after the GBP 3,000 exemption. The annual ISA subscription limit is GBP 20,000 for 2026/27. Many investors use 'bed and ISA' to move existing holdings inside the wrapper. Use the ISA calculator to project tax-free growth, and check the rules at gov.uk.

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More answers

• What is a Bed and ISA and how much tax can it save in 2026/27?
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