Definition
The dividend allowance is the amount of dividend income an individual can receive each tax year without paying dividend tax. For 2026/27 it is £500. Dividends above it are taxed at 10.75%, 35.75% or 39.35% depending on the shareholder’s Income Tax band. Dividends covered by an unused personal allowance are also tax-free, and dividends from shares held in an ISA are not taxed at all.
How the allowance works
- The £500 is taxed at 0%, but it still counts as income when working out which tax band the rest of your dividends fall into.
- A shareholder with no other income could receive £13,070 of dividends tax-free in 2026/27: £12,570 covered by the personal allowance plus the £500 allowance.
Example
A director with a £12,570 salary receives £8,000 of dividends in 2026/27. She pays nothing on the first £500 and 10.75% on the remaining £7,500, which is £806.25.
Telling HMRC
You do not need to tell HMRC about dividends within the allowance. Above it, unless you already file a Self Assessment return, report dividends up to £10,000 by 5 October after the tax year, by asking HMRC to change your tax code or calling the helpline. Dividends over £10,000 must go on a Self Assessment return, so register by that 5 October if you do not already file one.
For more detail, see the dividend allowance explained and SmartFiling’s page on dividend tax rates.
Related questions
- How much dividend income is tax-free? £500 under the dividend allowance, plus any unused personal allowance.
- What are the dividend tax rates for 2026/27? 10.75% basic rate, 35.75% higher rate and 39.35% additional rate.
- Do company directors need to file a Self Assessment tax return? A director with dividends over £10,000 needs one.
Related terms
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Self Assessment
Self Assessment is the system HM Revenue and Customs (HMRC) uses to collect Income Tax that is not taken automatically, for example through PAYE.
Read definition -
Unlawful dividend
An unlawful dividend (often called an illegal dividend) is a dividend a limited company pays when it does not have enough profits available for distribution to cover it.
Read definition
