What is the dividend allowance for 2026/27?

Full answer

The dividend allowance is the amount of dividend income you can receive tax-free each year, outside of an ISA or pension wrapper. For 2026/27, the allowance remains £500 — it was cut from £2,000 to £1,000 in April 2023, then from £1,000 to £500 in April 2024, and has remained at £500 since. Dividends above the £500 allowance are taxed at: 8.75% if they fall in the basic-rate band (£12,571–£50,270 total income including dividends); 33.75% in the higher-rate band (£50,271–£125,140); 39.35% in the additional-rate band (above £125,140). Dividends are treated as the top slice of income for tax purposes (above salary, rental income and savings interest, but below savings income in the tax calculation hierarchy). This means if your salary uses most of the basic-rate band, dividends will be taxed at higher-rate rates. The allowance does not apply to dividends received inside a Stocks and Shares ISA or pension — those are always tax-free regardless of amount. For company directors and shareholders in small limited companies, the reduction in the dividend allowance significantly increases the tax cost of the salary+dividends extraction strategy. A higher-rate taxpayer receiving £10,000 in dividends now pays 33.75% on £9,500 (above the £500 allowance) = £3,206 tax, compared to £2,700 when the allowance was £2,000. Dividends must be reported on Self Assessment if they exceed £10,000, or if you're a higher/additional-rate taxpayer with any dividend income.

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More answers

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