Money, invested in the exact same fund, can be taxed in three different ways depending on which type of account it sits in. A pension, a Stocks & Shares ISA and a General Investment Account (GIA) can all hold the same shares and funds but when, and if, you pay tax differs meaningfully between them.
This page walks through how each one is taxed, from when money goes in to when you eventually take it out, plus the general income tax, dividend and capital gains rules that decide how much of your GIA returns you actually keep. Figures are for the 2026/27 tax year and cover income tax in England, Wales and Northern Ireland. Scotland sets its own income tax bands. This is general information, not personal advice, and allowances change most tax years, so it’s worth checking gov.uk for the latest figures before making any decisions.
Start with your income tax band
Your marginal rate decides how dividends, savings interest and pension withdrawals outside an ISA are taxed. The more of your other income already fills the lower bands, the higher the rate on anything extra.
| Band | Taxable income | Rate |
|---|---|---|
| Personal Allowance | Up to £12,570 | 0% |
| Basic rate | £12,571 to £50,270 | 20% |
| Higher rate | £50,271 to £125,140 | 40% |
| Additional rate | Over £125,140 | 45% |
Earning over £100,000 also costs you Personal Allowance itself. It’s reduced by £1 for every £2 of income above that, disappearing entirely by £125,140. That income between £100,000 and £125,140 is effectively taxed at 60%, because you’re paying 40% tax while simultaneously losing tax-free allowance on the same pound. Thank you government!
Three places to hold your investments
Pension
Stocks & Shares ISA
General Investment Account
Pension
Contributions get tax relief at your marginal rate. Relief-at-source schemes (most personal pensions and SIPPs) add 20% automatically, so a £100 contribution costs you £80; higher and additional rate taxpayers claim the rest back through Self Assessment. Net pay schemes (common for workplace pensions) give the full relief automatically, straight off your payslip. Employer contributions go in before tax entirely, on top of whatever you put in yourself.
The Annual Allowance caps how much can go in tax-free each year at £60,000, including tax relief and any employer contributions. Once your adjusted income passes £260,000 (and threshold income passes £200,000), it tapers down by £1 for every £2 above that, to a floor of £10,000. If you’ve already started drawing flexibly from a pension, a separate £10,000 Money Purchase Annual Allowance applies to further contributions instead. Unused allowance from the previous three tax years can be carried forward, which matters if you’re catching up after a lower-income year or a large bonus.
Growth inside a pension is completely tax-free. No dividend tax and no Capital Gains Tax, however you invest. You can normally start taking money out from age 55, rising to 57 from 6 April 2028. Up to 25% usually comes out tax-free, capped at £268,275 (the Lump Sum Allowance) regardless of how large your pot grows beyond that. Everything else is taxed as income at your marginal rate in the year you take it. Therefore a pension defers tax rather than avoiding it on that portion, which is why timing withdrawals around your other income matters.
| Annual Allowance | £60,000 |
| Tapered floor (high earners) | £10,000 |
| Money Purchase Annual Allowance | £10,000 |
| Tax-free lump sum, up to | £268,275 |
| Earliest access age | 55 (57 from 2028) |
Stocks & Shares ISA
No tax relief on the way in. You invest money you’ve already paid tax on. In return, growth inside is completely tax-free for as long as it stays in the ISA: no dividend tax, no Capital Gains Tax, ever. Withdrawals are tax-free too, at any age, for any reason, which makes an ISA far more flexible than a pension if you might need the money before retirement age.
The annual allowance is £20,000, shared across every ISA you hold. Cash, Stocks & Shares, Lifetime and Innovative Finance all draw from the same pot, so putting the full £20,000 into a Stocks & Shares ISA uses your entire allowance for the year. From April 2027, the amount of that allowance you can put specifically into a Cash ISA drops to £12,000 if you’re under 65. Stocks & Shares ISAs are unaffected.
The Lifetime ISA is a special case within the ISA family, aimed at a first home or retirement. You can put in up to £4,000 a year (counted within your overall £20,000 allowance), and the government adds a 25% bonus. That’s up to £1,000 of free money annually. You must open one before you turn 40 and can keep contributing until 50. Money can come out tax-free toward a first home worth up to £450,000, or from age 60. Withdraw it for any other reason and a 25% charge applies to the amount you take out. Since the bonus is 20% of your total pot, that charge actually claws back 6.25% of your own money on top of the bonus, not just the bonus itself.
| Annual ISA allowance | £20,000 |
| Lifetime ISA allowance (within the above) | £4,000 |
| Lifetime ISA government bonus | 25%, up to £1,000/yr |
| Lifetime ISA penalty-free access | First home, or from age 60 |
General Investment Account
No tax relief going in and no cap on how much you can invest. The trade-off for that flexibility is that growth is taxed as it happens, not sheltered the way it is in a pension or ISA. Everything below sits on top of whatever income tax band your other income already puts you in.
Dividends above the £500 dividend allowance are taxed at 10.75% for basic rate taxpayers, 35.75% for higher rate, or 39.35% for additional rate. Capital gains above the £3,000 annual exempt amount are taxed at 18% within your basic rate band, or 24% above it, when you actually sell. Gains that stay unrealised aren’t taxed at all, which is why choosing when to sell matters. Interest is covered by your Personal Savings Allowance first. This is £1,000 for basic rate taxpayers, £500 for higher rate, nothing extra for additional rate. Your normal income tax rate applies to the rest.
There’s no extra tax charge for withdrawing cash itself. Tax is already paid as dividends land or when you crystallise a gain, not when you move money out of the account. That also makes a GIA a useful top-up once your ISA and pension allowances are used for the year, even though it’s the least tax-efficient of the three on its own.
| Dividend allowance | £500 |
| Capital Gains Tax annual exempt amount | £3,000 |
| Personal Savings Allowance | £1,000 / £500 / £0 |
Pension vs ISA vs GIA at a glance
| Pension | Stocks & Shares ISA | GIA | |
|---|---|---|---|
| Tax relief going in | Yes, at your marginal rate | No | No |
| Annual limit | £60,000 (tapered for high earners) | £20,000 | None |
| Growth & dividends inside | Tax-free | Tax-free | Taxed as it arises |
| Capital gains inside | Tax-free | Tax-free | Taxed on sale, above £3,000/yr |
| Withdrawals | 25% tax-free, rest as income | Always tax-free | No extra tax on withdrawal itself |
| Earliest access | 55 (57 from 2028) | Any time | Any time |
Key allowances for 2026/27
| Personal Allowance | £12,570 |
| ISA allowance | £20,000 |
| Lifetime ISA allowance | £4,000 (within the ISA allowance) |
| Pension Annual Allowance | £60,000 (tapered to £10,000) |
| Money Purchase Annual Allowance | £10,000 |
| Pension tax-free lump sum, up to | £268,275 |
| Dividend allowance | £500 |
| Capital Gains Tax annual exempt amount | £3,000 |
| Personal Savings Allowance | £1,000 / £500 / £0 |
Knowing how each account is taxed is one thing, working out the right mix for you is another. My Engine Fuel calculator will help with this. It shows how much of your income can go into your pension, ISA and GIA, how that impacts your tax and what you will have left over for your lifestyle expenses.