The dividend allowance for 2026/27 is £500. That is the amount of dividend income you can receive above your Personal Allowance without paying dividend tax.
It has been £500 since 2024/25. Before that it was £1,000 in 2023/24, £2,000 from 2018/19 to 2022/23, and £5,000 when it was introduced in 2016/17. In under two years it lost three quarters of its value, and almost nobody noticed because the headline dividend rates were unchanged at the time. They are not unchanged now — they rose on 6 April 2026 — so the shrunken allowance now bites harder.
What the allowance actually is
The dividend allowance is a nil-rate band, not a deduction. That distinction matters more than it sounds.
A deduction would remove £500 from your taxable income entirely and push everything else down a band. A nil-rate band charges the first £500 of dividends at 0% but still uses up £500 of whatever band it falls in. So taking £500 of dividends does not create £500 of extra room lower down.
Everyone gets it. It is not means-tested, it does not taper, and it is not reduced for higher earners. There is no way to carry it forward if you do not use it.
How much it is worth
| Tax year | Dividend allowance |
|---|---|
| 2026/27 | £500 |
| 2025/26 | £500 |
| 2024/25 | £500 |
| 2023/24 | £1,000 |
| 2018/19 to 2022/23 | £2,000 |
| 2016/17 to 2017/18 | £5,000 |
The cost of the reduction from £2,000 to £500 — £1,500 of dividends that used to be tax-free and now are not — depends on your band:
| Band | 2026/27 rate | Extra tax on £1,500 |
|---|---|---|
| Basic | 10.75% | £161.25 |
| Higher | 35.75% | £536.25 |
| Additional | 39.35% | £590.25 |
The bit most people miss: unused Personal Allowance
Dividends falling inside an unused Personal Allowance are not taxed either. This is separate from the dividend allowance, it sits underneath it, and it is worth far more.
The Personal Allowance for 2026/27 is £12,570. If your salary and other income do not use all of it, the unused portion soaks up dividends first, tax-free. Only then does the £500 dividend allowance apply.
Worked example. A director takes a £5,000 salary and £20,000 in dividends, with no other income.
- Salary £5,000 uses £5,000 of the £12,570 Personal Allowance
- £7,570 of Personal Allowance is unused and covers the first £7,570 of dividends at 0%
- The £500 dividend allowance covers the next £500 at 0%
- The remaining £11,930 is taxed at the basic dividend rate of 10.75% = £1,282.48
So £8,070 of that £20,000 dividend is tax-free — the £7,570 unused Personal Allowance plus the £500 allowance. Articles that tell you “only £500 of dividends is tax-free” are describing a director on a full £12,570 salary, not one on £5,000.
Run the same numbers on a £12,570 salary and the Personal Allowance is exhausted. Only £500 of the dividend escapes, and £19,500 is taxed at 10.75% — £2,096.25. Same £20,000 dividend, £813.77 more tax — because the salary has used up the Personal Allowance the dividend would otherwise have used.
The 2026/27 rates the allowance protects you from
| Band | 2026/27 | 2025/26 |
|---|---|---|
| Basic rate | 10.75% | 8.75% |
| Higher rate | 35.75% | 33.75% |
| Additional rate | 39.35% | 39.35% |
The basic and higher rates each rose two percentage points on 6 April 2026. The additional rate is unchanged.
Note the timing. The return you file by 31 January 2027 covers 2025/26 and uses the old rates. Dividends taken from 6 April 2026 are reported in the return due 31 January 2028, at the new ones.
When you have to tell HMRC
The trigger is not “did I receive a dividend”. It is whether the dividend exceeded both allowances.
If your dividends are within the dividend allowance, you do not need to tell HMRC at all. No return, no phone call, nothing.
Above that, what you do depends on the amount.
| Dividend income | What to do |
|---|---|
| Within the dividend allowance | Nothing |
| Above the allowances, up to £10,000 | If you already file Self Assessment, report it on the return. If you do not, tell HMRC after 5 April and before 5 October — either ask HMRC to update your tax code so the tax comes out of your wages or pension, or contact the Income Tax helpline |
| Over £10,000 | File a Self Assessment return. If you do not usually file, register by 5 October after the end of the tax year |
For dividends received in 2026/27, the 5 October date is 5 October 2027 and the return is due 31 January 2028.
Dividends from shares held in an ISA are not taxed and do not count towards the allowance or the reporting thresholds.
Why this matters more for directors than for investors
An investor with a £30,000 portfolio yielding 3% receives £900 of dividends, uses the £500 allowance and pays tax on £400. Mildly annoying.
A company director paying themselves through dividends is in a different position. The allowance is a rounding error against a £40,000 distribution, so the practical planning question is not “how do I use the £500” — it is where the Personal Allowance is best spent, and how much salary to run through payroll before the employer National Insurance cost outweighs the benefit.
That calculation changed in April 2026 too. Employer National Insurance is 15% and the secondary threshold is £5,000, so salary above £5,000 now carries a real cost that it did not at the old threshold. The right answer depends on whether your company can claim the Employment Allowance, and single-director companies generally cannot.
Frequently asked questions
What is the dividend allowance for 2026/27?
£500. It has been £500 since 2024/25, down from £1,000 in 2023/24, £2,000 from 2018/19 to 2022/23, and £5,000 when it was introduced in 2016/17. Everyone gets it regardless of income, and it cannot be carried forward.
Is the dividend allowance on top of the Personal Allowance?
Yes. Dividends falling within an unused Personal Allowance are not taxed, and the £500 dividend allowance applies on top of that. A director on a £5,000 salary has £7,570 of Personal Allowance left over, so £8,070 of dividends could be tax-free.
Do I need to tell HMRC about dividends under £500?
No. If your dividends are within the dividend allowance for the tax year, there is nothing to report. You only need to tell HMRC if your dividends exceed both your unused Personal Allowance and your dividend allowance.
How do I report dividends if I do not file a tax return?
If your dividend income is up to £10,000, tell HMRC after the end of the tax year on 5 April and before 5 October — either by asking HMRC to update your tax code or by contacting the Income Tax helpline. Above £10,000 you need to file a Self Assessment return and register by 5 October if you do not already file.
Does the dividend allowance reduce my tax bill or my taxable income?
Neither, strictly. It is a nil-rate band: the first £500 of dividends above your Personal Allowance is taxed at 0%, but it still uses up £500 of your tax band. It does not push your other income down a band.
Getting the salary side right first
The dividend allowance is fixed and small. The variable you can actually control is how much salary goes through payroll — and after the April 2026 changes to employer National Insurance, that decision is worth getting right rather than copying from an article written for a different tax year.
SmartFiling runs RTI payroll from £15 per employee per month, including auto-enrolment, payslips, P60s and year-end returns. Everything is online, fixed fee, and reviewed by an ICAEW Chartered Accountant.
