UK capital gains tax and dividend tax: what investors pay in 2026/27

Basics8 min read · updated 3 November 2026 · 13 sources

UK capital gains tax and dividend tax apply to investments held outside an ISA or a pension. Both allowances have been cut sharply in recent years, so even modest portfolios now pay: the capital gains tax exempt amount is £3,000 and the dividend allowance £500. This article explains the rates for the 2026/27 tax year as of November 3, 2026, how HMRC decides which shares you sold, why the tax status of a fund matters for ETFs domiciled abroad and how to move investments into an ISA without paying more tax than necessary.

Capital gains tax: rates and the exempt amount

Gains on shares, funds and ETFs are added up over the tax year. The first £3,000 of net gains is tax-free (HMRC, capital gains tax allowance 2026). Above that, the rate depends on your income: 18% on the part of the gains that fits into your unused basic-rate band and 24% on the rest (HMRC, capital gains tax rates 2026). The gains sit on top of your taxable income, so a large gain can straddle both rates.

Losses on shares and funds are set against gains of the same tax year first. Losses you cannot use can be carried forward to later years once you have reported them to HMRC. Gains inside an ISA are exempt from capital gains tax (HMRC, CG57600 2026), and so are gains on investments held by a registered pension scheme (HMRC, PTM024400 2026).

Which shares did you sell? The matching rules

When you sell part of a holding that you built up over time, HMRC's matching rules decide which purchase cost applies. Shares are matched first with shares of the same company bought on the same day, then with shares bought in the 30 days after the sale, and only then with the section 104 holding, a pool of all earlier purchases at their average cost (HMRC, HS284 2026). The same rules apply to units of a fund or an ETF.

The 30-day rule stops a trick known as bed and breakfasting: selling at the end of the tax year to realize a gain within the exempt amount, then buying straight back to reset the cost. If you buy back within 30 days, the sale is matched with the new purchase and the gain is largely undone. The rule does not stand in the way of buying the same investment inside your ISA, which is the basis of a bed and ISA.

Dividend tax

Dividends, including distributions from equity funds and ETFs, are tax-free up to the dividend allowance of £500 a year. Above it, the rates for 2026/27 are 10.75% for basic-rate, 35.75% for higher-rate and 39.35% for additional-rate taxpayers (HMRC, tax on dividends 2026). The basic and higher rates each rose by two percentage points from April 6, 2026 under the Finance Act 2026 (Finance Act 2026 2026).

Dividends count as the top slice of income, after salary and interest. Dividends within the allowance still use up part of the basic-rate band, which can push other dividends or gains into a higher rate. Scotland's own income tax rates do not apply here: Scottish taxpayers pay the same rates on dividends and savings interest as the rest of the UK (HMRC, Scottish income tax 2026).

Interest and bond funds

Interest from cash and bonds is covered first by the personal savings allowance: £1,000 for basic-rate, £500 for higher-rate and nothing for additional-rate taxpayers. With little other income, the starting rate for savings adds up to £5,000 of tax-free interest, reduced by £1 for every £1 of other income above the personal allowance (HMRC, tax-free interest 2026).

Above the allowances, interest is taxed at 20%, 40% or 45% in 2026/27. The Finance Act 2026 raises these savings rates to 22%, 42% and 47% from April 6, 2027 (Finance Act 2026 2026), and the Budget of October 28, 2026 announced a further rise to 24%, 44% and 49% from the same date, to be legislated in the next Finance Bill (HMRC, savings rates from 2027 2026).

Bond funds count as interest, not dividends. If more than 60% of a fund's investments are interest-bearing, its distributions are taxed as interest (HMRC, HS265 2026). Bond ETFs held outside a wrapper therefore pay the higher savings rates, which makes them the first candidates for the ISA or the pension.

ETFs domiciled abroad: reporting funds

Most ETFs sold in the UK are domiciled in Ireland or Luxembourg, so for HMRC they are offshore funds. Their tax treatment depends on whether the fund has reporting status. If it does, a gain on sale is a capital gain. If it does not, the gain is an offshore income gain, taxed as income at your marginal rate, without the £3,000 exempt amount and the lower capital gains tax rates (HMRC, offshore funds 2026).

Reporting funds have a second rule. An accumulating fund reinvests its income, but you are taxed on the reported income anyway: the excess reportable income counts as a distribution made six months after the end of the fund's reporting period and goes on your tax return as dividends or interest (HMRC, HS265 2026). The amounts you were taxed on are deducted from the gain when you sell, so they are not taxed twice. Accumulating funds outside a wrapper therefore mean more paperwork, not less tax.

Bed and ISA and other ways to pay less

Since gains inside an ISA are exempt, the most effective step is to move investments into it over time. A bed and ISA means selling investments held outside a wrapper and buying them back inside the ISA with the proceeds, up to the £20,000 annual limit. The sale is a disposal for capital gains tax, so it works best when the gain fits within the £3,000 exempt amount or when the holding shows a loss.

• Use the exempt amount every year: realize gains of up to £3,000 each tax year rather than all at once after many years.
• Hold the most heavily taxed income inside the wrappers: bond funds and high-yield shares first, growth investments with little income last.
• Check reporting status before buying outside a wrapper: a non-reporting fund turns capital gains into income.
• Rebalance with new money: buying the underweight asset avoids selling at a gain; see rebalancing.
• Keep records: you need purchase dates, prices and fees to work out the pool and the gain.

Common mistakes

• Forgetting the 30-day rule when selling and buying back the same fund outside an ISA.
• Ignoring excess reportable income on accumulating ETFs: it is taxable every year even though nothing is paid out.
• Assuming all ETFs are taxed like shares: without reporting status, gains are taxed as income.
• Treating bond fund income as dividends: above 60% in interest-bearing assets, it is interest.
• Selling everything in one tax year: the exempt amount can only be used once a year.

This article explains general UK tax rules for 2026/27 as of November 3, 2026, and is not tax advice. Gains and income above the allowances must be reported through Self Assessment.

This article explains a method; it is not investment or tax advice. Worked examples are simplified and rounded. All terms in the glossary.