Answers · UK 2025/26
What is the £500 dividend allowance?
The dividend allowance is the slice of dividend income taxed at 0% in 2025/26. It was £2,000 in 2022/23, cut to £1,000 in 2023/24 and £500 from April 2024 onward. Above £500 you pay 8.75%, 33.75% or 39.35% depending on your overall Income Tax band.
Full answer
Every UK individual gets a £500 dividend allowance in 2025/26 — a band where dividend income is taxed at 0%, irrespective of overall income. It applies on top of the £12,570 Personal Allowance. Dividends above £500 are taxed at the dividend ordinary rate of 8.75% within the basic-rate band, 33.75% in the higher-rate band and 39.35% in the additional-rate band (above £125,140). The allowance was £2,000 from 2018/19 to 2022/23, halved to £1,000 in 2023/24 and halved again to £500 from April 2024. Example: salary £40,000 + dividends £5,000 in 2025/26. The first £500 of dividends is tax-free; the remaining £4,500 is taxed at 8.75% (still within the basic-rate band) = £394 dividend tax. Holding shares in an ISA or pension shelters dividends from tax entirely. Small company directors should re-model salary vs dividend mix as the allowance erodes.
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This answer is informational only and does not constitute financial, tax or legal advice. Figures are for the 2025/26 UK tax year. See our methodology and sources.