Dividends and Savings Interest: How Investment Income Is Taxed in 2026/27
A general investment account (GIA) usually produces two kinds of income: dividends from shares and funds, and interest on cash or interest-paying funds. They have separate allowances and separate rates, and HMRC collects the tax afterwards rather than at source.
Dividends and savings interest are taxed separately. For 2026/27 the first £500 of dividends is tax-free, then dividends are taxed at 10.75%, 35.75% or 39.35%.1 Interest gets a Personal Savings Allowance of £1,000 for basic-rate taxpayers, £500 for higher-rate and £0 for additional-rate, plus a starting rate for savings of up to £5,000 if your other income is under £17,570.2 Interest above that is taxed at 20%, 40% or 45% in 2026/27, rising to 22%, 42% and 47% from April 2027.3 Tax is no longer taken automatically from interest,4 so you settle it through your tax code or Self Assessment. Income inside an ISA is tax-free.1
- Dividend allowance £500; rates 10.75% / 35.75% / 39.35% for 2026/27.1
- Personal Savings Allowance: £1,000 basic rate, £500 higher rate, £0 additional rate.2
- Starting rate for savings: up to £5,000 of interest at 0% if other income is under £17,570.2
- Savings income rates rise by 2 points from April 2027: 22%, 42%, 47%.3
- To find your band, add your dividends to your other income.1
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Two kinds of income, two sets of allowances
Dividends come from shares, investment trusts and equity funds. Interest comes from cash held on a platform and from bonds and some bond funds. A platform's annual tax summary usually shows the two separately.
Each has its own tax-free amount. The £500 dividend allowance applies only to dividends.1 The Personal Savings Allowance applies only to interest and depends on your income tax band.2 Neither allowance can be moved to the other kind of income.
| 2026/27 | Dividends / interest |
| Tax-free allowance | £500 / £1,000, £500 or £0 |
| Basic rate | 10.75% / 20% |
| Higher rate | 35.75% / 40% |
| Additional rate | 39.35% / 45% |
From 6 April 2027 the savings rates become 22%, 42% and 47%; the dividend rates above have applied since 6 April 2026.3
Worked example: a basic-rate investor
Sam earns a £30,000 salary and, in a general investment account, receives £2,000 of interest and £3,000 of dividends in 2026/27. Total income of £35,000 keeps Sam a basic-rate taxpayer. Other income is over £17,570, so the starting rate for savings does not apply.
| Interest: first £1,000 (Personal Savings Allowance) | £0.00 |
| Interest: £1,000 at 20% | £200.00 |
| Dividends: first £500 (dividend allowance) | £0.00 |
| Dividends: £2,500 at 10.75% | £268.75 |
| Tax on investment income | £468.75 |
The salary's own tax is collected through PAYE as normal. On the same figures in 2027/28 the interest tax would be £220 at 22%.
Worked example: a higher-rate investor
Alex earns £60,000 and has the same £2,000 of interest and £3,000 of dividends. As a higher-rate taxpayer Alex's Personal Savings Allowance is £500, and the dividends above the allowance are taxed at 35.75%.
| Interest: first £500 (Personal Savings Allowance) | £0.00 |
| Interest: £1,500 at 40% | £600.00 |
| Dividends: first £500 (dividend allowance) | £0.00 |
| Dividends: £2,500 at 35.75% | £893.75 |
| Tax on investment income | £1,493.75 |
Moving the same holdings into an ISA would make both the interest and the dividends tax-free.1
The starting rate for savings: up to £5,000 at 0%
If your other taxable income, not counting interest or dividends, is under £17,570, some or all of a further £5,000 of interest can be tax-free. Every £1 of other income above the £12,570 Personal Allowance reduces it by £1.2
GOV.UK's example: £16,000 of wages leaves £3,430 above the Personal Allowance, so £1,570 of the starting rate is left (£5,000 minus £3,430).2 This mainly helps retirees and people on lower earnings with a lot of cash or bond income.
Does your broker deduct the tax?
Usually not. GOV.UK confirms that income tax is no longer taken automatically from interest on savings and investments,4 and dividends above your allowances are something you report yourself.1 Banks and building societies tell HMRC about interest after 5 April, and HMRC may send a calculation or adjust your tax code.
For dividends: up to £10,000 with no tax return, you can ask HMRC to collect the tax through your tax code between 5 April and 5 October; above £10,000 you need Self Assessment.5 If you already file a return, put both the interest and the dividends on it.
Model your dividends
See how dividends stack on your salary in 2026/27.
Open investment dividend calculatorRelated pages
Sources & references
Every headline figure in this guide is drawn from the official HMRC and GOV.UK sources below and reflects the confirmed 2026/27 rates. Each link opens the relevant official page in a new tab.
- Tax on dividends ↗ https://www.gov.uk/tax-on-dividends
- Tax on savings interest: how much is tax free ↗ https://www.gov.uk/apply-tax-free-interest-on-savings/how-much-is-tax-free
- Changes to tax rates for property, savings and dividend income ↗ https://www.gov.uk/government/publications/changes-to-tax-rates-for-property-savings-dividend-income/changes-to-tax-rates-for-property-savings-dividend-income
- Tax on your UK income if you live abroad ↗ https://www.gov.uk/tax-uk-income-live-abroad
- Tax on dividends: how to report tax on dividends ↗ https://www.gov.uk/tax-on-dividends/how-to-report-tax-on-dividends
- Individual Savings Accounts (ISAs) ↗ https://www.gov.uk/individual-savings-accounts
Frequently asked questions
Are dividends and interest taxed the same way?
Do UK brokers deduct tax from dividends and interest?
Is the savings tax rate changing?
Can I use my dividend allowance against interest?
How do I avoid tax on investment income?
Disclaimer: General information about UK tax for 2026/27, not personal tax advice. Figures assume England, Wales or Northern Ireland income tax bands unless stated.