Dividends received inside a Stocks and Shares ISA are completely exempt from UK income tax — no dividend tax, regardless of amount or tax rate. This guide explains how ISA dividend tax exemption works in 2026/27.
Published by the UK Money Calculators editorial team. Last updated for the 2026/27 tax year.
Any dividend income received inside a Stocks and Shares ISA is completely exempt from UK income tax. It does not matter how large the dividends are, which rate band you sit in, or how much you receive — ISA dividends are simply not taxable.
This exemption covers all dividend types: individual company dividends, fund distributions, REIT distributions paid as dividends, and interest distributions. Capital gains on investments held inside an ISA are also exempt from Capital Gains Tax. Neither needs to be declared on a Self Assessment tax return.
The annual ISA allowance for 2026/27 is £20,000 per person. This is the maximum you can contribute across all your ISAs in a single tax year. You can split it across a Cash ISA, Stocks and Shares ISA, Innovative Finance ISA or Lifetime ISA (up to £4,000 into a LISA), but the combined total cannot exceed £20,000.
Unused ISA allowance cannot be carried forward to the next tax year. The allowance resets on 6 April each year. However, existing ISA funds — including growth and dividends accumulated over previous years — remain sheltered indefinitely. There is no cap on the total ISA pot size.
Dividends inside an ISA are completely ignored for UK tax purposes. They do not count towards your £500 dividend allowance, and they do not push you into a higher rate band. Your £500 allowance remains fully available for dividends you hold outside an ISA.
This is particularly valuable for investors with large dividend-paying portfolios. If you have £200,000 in dividend-paying funds inside an ISA receiving 4% yield (£8,000 in dividends), all £8,000 is tax-free. The same portfolio outside an ISA would generate significant dividend tax — especially for higher and additional-rate taxpayers.
Scenario: £5,000 of dividend income per year. Taxpayer has a salary of £55,000 (higher-rate taxpayer).
| Inside ISA | Outside ISA | |
|---|---|---|
| Dividend income | £5,000 | £5,000 |
| Tax-free amount | £5,000 | £500 (allowance) |
| Taxable dividends | £0 | £4,500 |
| Dividend tax owed | £0 | £1,519 (at 33.75%) |
If you hold dividend-paying investments outside an ISA, you can consider a Bed and ISA strategy: selling the investment outside the ISA and immediately repurchasing it inside an ISA. Future dividends and gains on those holdings then become tax-free.
The sale may trigger a Capital Gains Tax liability if the investment has grown — so the CGT position should be reviewed before proceeding. You can transfer up to £20,000 per year (the ISA allowance) in this way. Spouses and civil partners each have their own £20,000 ISA allowance, so a couple can shelter up to £40,000 per year in ISAs.
Calculate tax on dividends outside your ISA
Enter your salary and dividend income to see how much dividend tax you would owe on investments held outside an ISA.
Use the calculatorDisclaimer: This guide is for general information only and does not constitute financial or tax advice. Tax rules can change and individual circumstances vary. Consult a qualified accountant or tax adviser for advice specific to your situation.