Pillar Guide · Updated June 2026
UK Tax on Savings & Investments 2026/27
Earning interest, dividends or capital gains is one thing — keeping them is another. A decade of shrinking allowances has pulled ordinary savers and investors into tax that once only touched the wealthy. This guide pulls the whole 2026/27 picture together: the Personal Savings Allowance and the £5,000 starting rate for savings, the slimmed-down £500 dividend allowance and the 8.75%/33.75%/39.35% dividend rates, the £20,000 ISA shelter that escapes all of it, capital gains tax at 18% and 24% after a £3,000 exemption, the quirks of investment bonds and chargeable events, REIT property income distributions, and the tax-free world of Premium Bonds. We also flag the savings and property income rate rises coming in 2027/28.
The Personal Savings Allowance
The Personal Savings Allowance (PSA) lets you receive a chunk of savings interest each year with no tax. The size depends entirely on your income tax band — and it is the first line of defence against tax on bank, building society and most NS&I interest.
| Tax band | Personal Savings Allowance | Tax on interest above it (2026/27) |
|---|---|---|
| Basic rate | £1,000 | 20% |
| Higher rate | £500 | 40% |
| Additional rate | £0 | 45% |
With base rates higher than they were for most of the 2010s, a basic-rate taxpayer now needs only around £20,000 in a 5% easy-access account to breach the £1,000 PSA — so the allowance is far easier to exhaust than it used to be. Estimate the tax with the savings calculator.
The Starting Rate for Savings
Separate from the PSA, there is a starting rate for savings: up to £5,000 of interest taxed at 0%. It is designed for people with low earned income, so it tapers — the £5,000 band is reduced £1-for-£1 by any non-savings income (salary or pension) above the £12,570 Personal Allowance, vanishing once that income reaches £17,570.
Where it applies — typically pensioners and those living mainly on savings — it stacks on top of the PSA. Someone with little earned income could receive the £12,570 Personal Allowance, the £5,000 starting-rate band and the £1,000 PSA before any savings interest is taxed: over £18,000 of interest tax-free.
Dividend Allowance and Rates
Dividends from shares and funds held outside an ISA or pension have their own allowance and rates. The first £500 of dividends each year is tax-free (the dividend allowance), down from £2,000 just a few years ago. Above that, dividends are taxed at the following rates in 2026/27:
| Band the dividend falls in | Dividend tax rate |
|---|---|
| Basic rate | 8.75% |
| Higher rate | 33.75% |
| Additional rate | 39.35% |
Dividends are treated as the top slice of income, so they are taxed at the rate that applies once your other income is stacked beneath them. Model a dividend bill with the dividend tax calculator.
The £20,000 ISA Shelter
The Individual Savings Account is the everyday investor's most powerful tool. You can pay in up to £20,000 a tax year, split as you like across a Cash ISA, a Stocks and Shares ISA, an Innovative Finance ISA and a Lifetime ISA (with the LISA capped at £4,000 of the £20,000).
Everything inside the wrapper is exempt: interest, dividends and capital gains are all tax-free and never appear on your tax return. As the PSA, dividend allowance and CGT exemption have all been cut, the ISA has gone from “nice to have” to essential for anyone with meaningful savings or investments.
See the ISA types guide and project tax-free growth with the ISA calculator.
Capital Gains on Funds and Shares
Selling shares, funds or investment trusts at a profit can trigger capital gains tax. The annual exempt amount — the gain you can make tax-free each year — is just £3,000 in 2026/27, down from £12,300 in 2022/23.
Gains above the exemption are taxed at 18% within your basic-rate band and 24% above it for 2026/27. Losses can be set against gains in the same year and carried forward. Crucially, assets inside an ISA or pension are entirely outside CGT — which is why investors with portfolios above £20,000 prioritise sheltering their most growth-oriented holdings.
Work out a gain with the capital gains tax calculator.
Investment Bonds and Chargeable Events
Onshore and offshore investment bonds (life-assurance wrappers) follow their own rules. You can take up to 5% of the original investment each year with no immediate tax — a deferral rather than a true exemption, with unused 5% allowances rolling forward.
When you surrender beyond the cumulative 5%, a chargeable event gainarises, taxed as income rather than as a capital gain. Onshore bonds carry a notional 20% credit; offshore bonds do not. “Top-slicing relief” can soften the blow where a single year's gain pushes you into a higher band. Bonds are intricate and usually worth reviewing with a qualified adviser before encashment.
REITs and Property Income Distributions
Real Estate Investment Trusts pay most of their income as Property Income Distributions (PIDs). Unlike ordinary dividends, PIDs are taxed as property income at your normal rate (20%/40%/45%), do not use the £500 dividend allowance, and are usually paid with 20% tax already deducted at source.
Higher and additional-rate investors must top up the tax on PIDs; non-taxpayers can reclaim the 20% withheld. A REIT may also pay an ordinary (non-PID) dividend taxed under the usual dividend rules. Holding REITs inside an ISA removes the PID tax entirely — a common reason to keep property-fund exposure in the wrapper.
NS&I and Premium Bonds
Premium Bonds pay no interest; instead they enter a monthly prize draw, and any prizes are completely free of income tax and CGT. For a higher or additional-rate taxpayer who has used up their Personal Savings Allowance, the tax-free prize fund can beat the after-tax return on an ordinary account.
Other NS&I products vary: some are advertised as tax-free, but most fixed and easy-access accounts pay taxable interest that counts towards your PSA like any bank account. Always check the specific product before assuming it is sheltered.
Coming in 2027/28: Higher Rates on Savings & Property Income
A significant change is already scheduled. From April 2027, the rates charged on savings income and property income are due to rise by two percentage points across the board, taking them to roughly:
- Basic rate: 20% → 22%
- Higher rate: 40% → 42%
- Additional rate: 45% → 47%
This affects savings interest and rental income, but notdividend rates or the main income tax rates on earnings. Meanwhile the allowances — Personal Allowance, PSA, dividend allowance and CGT exemption — stay frozen, so “fiscal drag” continues to pull more savers into tax even before the 2027/28 rise lands. Filling your ISA each year is the cleanest way to stay ahead of both changes.