How Are Investments Taxed?

UK CGT, ISA exemption, bed-and-ISA, US short vs long-term rates

8 min read Intermediate

"In the UK, the first £3,000 of capital gains each year is tax-free. Everything above is taxed at 18% or 24% depending on your income. Dividends, ISAs, and pension wrappers all change the calculation significantly."

For educational purposes only. Nothing in this chapter is financial advice. All figures are illustrative examples. Tax rules, account types, contribution limits, and regulations differ by country and change over time. Always verify current rules with official government sources or a qualified financial adviser before making any investment decisions.

Capital Gains Tax (UK)

When you sell an investment for more than you paid, the profit is a capital gain. In the UK, the first £3,000 of gains per tax year is tax-free (2024/25 annual exempt amount, reduced from £12,300 in 2022/23). Gains above this are taxed at:

Basic rate taxpayer (income below £50,270) 18% on investment gains

Higher rate taxpayer (income above £50,270) 24% on investment gains

Inside a Stocks and Shares ISA 0% — all gains tax-free

Inside a SIPP 0% — all gains tax-free until withdrawal

Dividend Tax (UK)

The dividend allowance is £500/year (2024/25). Dividends above this are taxed at 8.75% (basic rate), 33.75% (higher rate), or 39.35% (additional rate). Inside an ISA: zero. This is why maximising your ISA before investing in a general account is so important for income investors.

Tax-Efficient Strategies

ISA first

Always maximise your £20,000 ISA allowance before using a general investment account. All gains inside are permanently tax-free.

Bed and ISA

Sell shares in a general account and immediately repurchase them inside an ISA. The sale may trigger CGT, but future gains are then sheltered.

Annual CGT allowance

Realise up to £3,000 of gains each tax year — even if you immediately reinvest. This resets your cost basis and uses the allowance.

Loss harvesting

Selling investments at a loss to offset gains elsewhere. Losses can be carried forward to future tax years.

FAQs

Do I need to report investments on my tax return?

Only if you have gains above £3,000, or total proceeds above £50,000 in a tax year, or you are self-employed. ISA and SIPP holdings do not need to be reported.

What are US investment taxes for UK residents?

UK residents pay UK CGT on US investments — not US tax. You should complete a W-8BEN form with your broker to confirm you are not a US person, reducing dividend withholding from 30% to 15%.

Is stamp duty charged on ETFs?

ETFs listed in the UK or Ireland are generally exempt from 0.5% stamp duty. ETFs listed on a foreign exchange (e.g. US-listed) are not subject to UK stamp duty.

What is the 30-day bed and ISA rule?

If you sell a share and buy it back within 30 days in the same account, HMRC applies the "30-day rule" which can affect your cost basis calculation. Buying in a different account (e.g. ISA) within 30 days is fine.

Key takeaways

UK CGT: £3,000 annual exempt amount (2024/25), then 18% (basic) or 24% (higher rate) on gains.
Dividend tax: £500 allowance, then 8.75–39.35% depending on rate. Zero inside an ISA.
ISA first — all gains inside are permanently tax-free. Use the full £20,000 allowance.
Use the annual CGT allowance each year, even if you immediately reinvest.
Complete a W-8BEN form to reduce US dividend withholding from 30% to 15%.