Dividend Allowance
The amount of dividend income you can receive each tax year completely free of tax, currently set at £500. The allowance is available to all UK taxpayers regardless of the rate band they fall into. Dividends above the allowance were taxed at 8.75% (basic), 33.75% (higher), and 39.35% (additional) for 2025/26. From 6 April 2026 the basic rate rose to 10.75% and the higher rate to 35.75%; the additional rate is unchanged at 39.35%.
How it works
The Dividend Allowance means the first £500 of dividend income you receive each tax year is tax-free, regardless of which income tax band you would otherwise fall into — but it still counts as part of your income when working out which band your other dividends and income sit in. It is not an addition to your Personal Allowance and does not reduce your other taxable income; it simply sets a rate of 0% on the first slice of dividends specifically.
Dividends are always treated as the top slice of your income for tax purposes, stacked on top of your salary, self-employment profits, and savings interest, so the rate you pay on dividends above the allowance depends entirely on how much other income you already have. This is why company directors and shareholders who pay themselves through a mix of salary and dividends need to plan the split carefully, since it directly affects which dividend tax band applies.
If your total dividend income for the year stays within the £500 allowance and you have no other reason to file, you generally do not need to report it to HMRC. Once dividends exceed the allowance, they are usually reported through Self Assessment, and the rate that applies depends on the tax year — the basic and higher dividend rates rose from 6 April 2026.
Example: tax on £5,500 of dividends
A basic-rate taxpayer receives £5,500 in dividend income during 2026/27, with no other dividend income for the year.
The first £500 is covered by the Dividend Allowance and is tax-free. The remaining £5,000 is taxed at the 2026/27 basic dividend rate of 10.75%, giving dividend tax of £537.50.
Frequently asked questions
Do I need to tell HMRC about dividends below the £500 allowance?
Generally no, if that is your only reason for filing — dividend income within the tax-free allowance does not usually need to be reported, though other income sources may still require a return.
Why do dividends get taxed at a different rate depending on my other income?
Because dividends are treated as the top slice of your total income, so the rate on dividends above the £500 allowance depends on which income tax band your other income has already filled.
Did dividend tax rates change in 2026?
Yes. From 6 April 2026 the basic and higher dividend rates rose to 10.75% and 35.75% respectively, while the additional rate stayed unchanged at 39.35%.
Related Terms
Dividend Tax
Tax payable on dividend income received from shares in UK and overseas companies, above the Dividend Allowance.
Dividend Tax Rates
The rates at which dividends are taxed in excess of the Dividend Allowance.
Basic Rate
The standard income tax rate of 20% applied to taxable income between the Personal Allowance and the higher-rate threshold, currently £12,571 to £50,270 in England, Wales, and Northern Ireland.
Higher Rate
The income tax rate of 40% applied to taxable income above £50,270 up to £125,140 in England, Wales, and Northern Ireland.
Additional Rate
The highest income tax rate in England, Wales, and Northern Ireland, charged at 45% on taxable income above £125,140.
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