Answers · UK 2025/26

What is the dividend allowance for 2026/27 and does it use up my tax band?

The dividend allowance for 2026/27 is GBP 500, meaning your first GBP 500 of dividends is taxed at 0%. However, dividends covered by the allowance still count towards your total income, so they can push other income into a higher tax band.

Last updated: 10 June 2026Last reviewed: 10 June 2026How we verify

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The dividend allowance is GBP 500 in 2026/27, down from GBP 1,000 in earlier years. The first GBP 500 of dividend income is taxed at 0%, regardless of your tax band. Above the allowance, dividend rates are 10.75% (basic), 35.75% (higher) and 39.35% (additional). A common misunderstanding is that the allowance removes income from the calculation. It does not: dividends within the allowance are taxed at 0% but still use up part of the relevant tax band. This matters near band boundaries. Worked example: Anna has a salary of GBP 49,770 and GBP 1,000 of dividends. Her salary is GBP 500 below the GBP 50,270 higher-rate threshold. The first GBP 500 of dividends fills that remaining basic-band space at 0% (covered by the allowance). The next GBP 500 of dividends also falls within the allowance and is taxed at 0%, but because the allowance space is used, this second GBP 500 sits in the higher band. So although all GBP 1,000 is taxed at 0%, any further dividend income would be taxed at the higher dividend rate of 35.75% rather than 10.75%. The practical takeaway: the GBP 500 allowance is a zero-rate band, not an exemption that disappears from your income. For company directors and investors with portfolios outside ISAs, this affects how much further dividend income costs. Use the dividend-tax calculator to model the band stacking, and consider sheltering shares in a stocks and shares ISA (GBP 20,000 allowance) where dividends are completely tax-free. For the official rules, see gov.uk.