Do You Pay Tax on a Stocks and Shares ISA?

You do not pay UK tax on a Stocks and Shares ISA in the way most investments are taxed. Gains, dividends, and interest earned inside the wrapper are free from capital gains tax and income tax, and withdrawals of any size are tax-free too. The £20,000 annual subscription limit for 2025/26 sets the ceiling on what you can shelter each year. Inheritance tax is the one exception that catches people out, and some foreign dividends carry withholding tax the ISA cannot recover.

No Capital Gains Tax on Profits

Selling investments at a profit outside an ISA triggers capital gains tax once your gains for the year exceed the annual exempt amount of £3,000.¹ From April 2025 the rates are 18% for basic-rate taxpayers and 24% for higher and additional-rate taxpayers on most asset types.²

Inside a Stocks and Shares ISA, none of that applies. You can sell shares or fund units that have doubled, tripled, or grown tenfold and owe nothing. There is no reporting threshold and no distinction between short-term and long-term holdings. A £500,000 gain is treated identically to a £50 one. Both are exempt.

The exemption covers every disposal within the account. Whether you are rebalancing by selling one fund and buying another, or cashing out entirely, the profits stay intact.

No Income Tax on Dividends or Interest

Dividends from shares and interest from bonds or gilts held inside the ISA are free from UK income tax. Outside the wrapper, dividend income above the £500 allowance is taxed at 8.75% for basic-rate taxpayers, 33.75% for higher-rate taxpayers, and 39.35% for additional-rate taxpayers.³ ISA income sidesteps all of that. It does not count toward your dividend allowance, your personal savings allowance, or your taxable income for any purpose.

The full dividend or interest payment is credited to your account with no deductions at source, so the whole amount is available to reinvest. Over years, that compounds harder than income arriving after a tax haircut.

Foreign Dividends Can Still Be Taxed

The ISA’s UK tax exemption does not override the tax rules of other countries. When you hold international shares or a global equity fund, dividends paid by overseas companies may have withholding tax deducted at source by the country the company is based in. A US company typically withholds 15% of dividends paid to UK investors under the UK–US tax treaty before the money reaches your account.

Investors holding these shares outside an ISA can normally reclaim foreign withholding tax through double taxation agreements. ISA holders cannot, because the income is already exempt from UK tax and there is no UK liability for the foreign credit to offset. This is the one genuine tax cost of holding international investments inside an ISA. A UK equity fund faces no foreign withholding at all; a global tracker with heavy US exposure will quietly lose a slice of its dividend income before it arrives.

Withdrawals Are Tax-Free

Taking money out of a Stocks and Shares ISA does not create a tax liability. You can withdraw any amount at any time without notifying HMRC or paying anything in tax.⁴ This makes ISAs far more flexible than pensions, where most withdrawals above the 25% tax-free lump sum are taxed as income.

One thing to check is whether your ISA is a “flexible” account. With a flexible ISA, if you withdraw money and replace it within the same tax year, the replacement does not count against your £20,000 annual allowance. GOV.UK’s example: if you contribute £10,000 and then withdraw £3,000, a flexible ISA lets you put back £13,000 (the £10,000 remaining allowance plus the £3,000 you took out), while a non-flexible ISA only allows the remaining £10,000.⁴ Not every provider offers flexibility, so confirm before you rely on it.

You Don’t Report an ISA on Self-Assessment

ISA income and gains do not appear on your Self-Assessment tax return. Even if you already file a return for self-employment, rental income, or other reasons, the ISA is left out entirely. HMRC’s SA150 guidance notes explicitly state that ISA interest should not be included.⁵

You do not need to calculate cost bases, track holding periods, or report disposals, even if you make dozens of trades a year.

What Happens If You Exceed the £20,000 Limit

The annual ISA subscription limit is £20,000 for the 2025/26 tax year, and it can be split across cash, stocks and shares, innovative finance, and Lifetime ISAs so long as your total stays within the cap.⁶ The Lifetime ISA carries its own sub-limit of £4,000 within that £20,000.⁷ The £20,000 allowance has been frozen since 2017 and is confirmed frozen until at least 2030.

Since April 2024 you can pay into more than one ISA of the same type in the same tax year, provided the total across all of them does not exceed £20,000.⁸

If you do go over the limit, HMRC can void the excess portion of your ISA. The provider must remove the over-subscribed amount along with any related income or gains, and that money loses its tax-free status.⁷ Capital gains on the voided portion become subject to standard CGT rates, and dividends face income tax at the rates that apply to your tax band. If HMRC spots the oversubscription before you or your provider report it, they will contact both of you with instructions on how to correct it.⁹

Inheritance Tax Still Applies

This is the tax that surprises most ISA investors. While the ISA shelters you completely from income tax and capital gains tax during your lifetime, the full value of your holdings forms part of your estate when you die. If your estate exceeds the nil-rate band of £325,000 (or £500,000 including the residence nil-rate band, if you leave a home to direct descendants), the excess is taxed at 40%.¹⁰ Both thresholds are frozen until the end of 2030.

There is a valuable mechanism for married couples and civil partners. When an ISA holder dies, the surviving spouse or civil partner receives an Additional Permitted Subscription equal to the value of the deceased’s ISA holdings. This sits on top of the survivor’s own £20,000 annual allowance and can be paid into any type of ISA. The APS is based on either the value at the date of death or the value when the account ceases to be a “continuing account,” whichever is higher. Cash subscriptions must be made within three years of the death, or 180 days after the estate administration completes if that is later. In-specie transfers of the actual investments must happen within 180 days of ownership passing to the surviving spouse.¹¹

Some investors hold AIM-listed shares inside their ISA to reduce inheritance tax exposure, because those shares have historically qualified for Business Property Relief after a two-year holding period. From 6 April 2026, AIM shares qualify for only 50% relief rather than the previous 100%, so the reduction is smaller but still meaningful.

If You Move Abroad

Leaving the UK and becoming non-resident does not close your ISA. It stays open and continues to benefit from UK tax relief on the holdings inside it.¹² What you cannot do is make new contributions. The wrapper effectively freezes, sheltering what is already there but no longer accepting fresh money.

The exception is Crown employees serving overseas, along with their spouses or civil partners, who can continue contributing as normal.¹² Everyone else must notify their ISA provider as soon as they stop being UK resident. Any contributions made in a tax year in which you were non-resident, along with related growth, must be removed. Return to the UK and regain resident status and you can start contributing again within the normal annual allowance.

One caveat: while your ISA keeps its UK tax exemption, your new country of residence may tax the income or gains under its own rules. The ISA wrapper offers no protection from foreign tax authorities.

1
Legislation.gov.uk. Taxation of Chargeable Gains Act 1992
2
GOV.UK. Capital Gains Tax: What You Pay It On, Rates and Allowances
3
GOV.UK. Check if You Have to Pay Tax on Dividends
4
GOV.UK. Individual Savings Accounts (ISAs): Withdrawing Your Money
5
HM Revenue and Customs. SA150 Notes 2025
6
GOV.UK. Individual Savings Accounts (ISAs): Overview
7
GOV.UK. How to Manage ISA Subscriptions
8
MoneyHelper. Understanding the New ISA Rules for 2025/26
9
GOV.UK. How to Close, Void or Repair an ISA
10
GOV.UK. Inheritance Tax Thresholds
11
GOV.UK. How to Manage Additional Permitted Subscriptions
12
GOV.UK. Individual Savings Accounts (ISAs): If You Move Abroad