Glossary · UK
What is Dividend Allowance?
The amount of dividend income you can receive tax-free each year — £500 in 2026/27.
Full Definition
The dividend allowance is a tax-free band for dividend income, separate from the Personal Allowance. It has been cut sharply: £2,000 until 2022/23, £1,000 in 2023/24, and £500 from 2024/25 onwards (including 2026/27). Dividends above the allowance are taxed at rates that depend on your overall income band. For 2026/27 these rise to 10.75% in the basic-rate band, 35.75% in the higher-rate band and 39.35% in the additional-rate band (each up 2 percentage points from 2025/26). The allowance still uses up part of the relevant band even though it is taxed at 0%. It is especially relevant for company directors paying themselves through dividends and for investors holding shares outside an ISA.
How Dividend Allowance is calculated
Taxable dividends = max(0, Dividends - 500)
Tax = Taxable dividends x dividend rate (stacked on top of other income)- 500
- Tax-free Dividend Allowance for 2026/27 (GBP).
- dividend rate
- 10.75% basic, 35.75% higher, 39.35% additional (2026/27).
Worked example: A basic-rate taxpayer with GBP 5,000 of dividends: (5,000 - 500) x 10.75% = GBP 483.75. Dividends sit on top of other income, so the rate depends on which band they fall into.