How much tax do I pay on £5,000 of dividend income?

Full answer

Dividend income is taxed separately from other income, using its own dividend allowance and dividend tax rates rather than the standard Personal Allowance and Income Tax bands (though your other income still determines which dividend rate applies). For 2026/27, the dividend allowance is £500 -- the first £500 of dividend income is always tax-free, regardless of your other income. On £5,000 of dividends, this leaves £4,500 taxable. The rate that applies depends on which Income Tax band your total income, including the dividends, falls into: the dividend basic rate is 10.75%, the dividend higher rate is 35.75%, and the dividend additional rate is 39.35%, all having risen by 2 percentage points from 6 April 2026. A basic rate taxpayer with £5,000 of dividends pays 10.75% on the £4,500 taxable portion, which is £483.75. A higher rate taxpayer pays 35.75% instead, giving £1,608.75, while an additional rate taxpayer pays 39.35%, giving £1,770.75. This is a common way for company directors and shareholders to extract profit, often combined with a smaller PAYE salary up to the Personal Allowance or National Insurance threshold, since dividends are not subject to National Insurance at all, unlike salary. Dividends received within an ISA or pension wrapper are completely free of dividend tax regardless of amount.

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More answers

• How much tax does a higher rate taxpayer pay on £20,000 of dividends?