Calculate Dividend Yield & Income
UK Dividend Tax Rates 2026/27
| Band | Income Tax Rate | Dividend Tax Rate | Dividend Allowance |
|---|---|---|---|
| Basic rate | 20% | 8.75% | £500 tax-free |
| Higher rate | 40% | 33.75% | |
| Additional rate | 45% | 39.35% |
Dividends received inside an ISA or pension are completely exempt from tax — the allowance does not apply inside these wrappers.
How It Works
Dividend Yield Formula
Yield = (Annual dividend per share ÷ Share price) × 100. A £5 share paying £0.25 annually has a 5% yield.
£500 Annual Allowance
The first £500 of UK dividend income each year is tax-free. Only dividends above this are taxed at your dividend rate — not your income tax rate.
ISA — No Tax
Dividends inside a Stocks & Shares ISA are completely sheltered from UK tax. No allowance needed — all income is free regardless of amount.
Pension — Deferred Tax
Dividends inside a SIPP or workplace pension grow tax-free. Tax is paid on withdrawal (as income), not on dividends received.
Worked Examples
Example 1 — Mark: 500 shares at £5.20, 24p dividend (Basic rate taxpayer, GIA)
Mark holds 500 shares priced at £5.20. The company pays a 24p annual dividend per share. Mark is a basic rate taxpayer and holds in a GIA.
Annual income: £120.00 (500 × £0.24)
Taxable after allowance: £0 (below £500 allowance)
Dividend tax due: £0.00
Net income: £120.00
Example 2 — Rachel: 1,000 shares at £3.80, 19p dividend (ISA)
Rachel holds 1,000 shares at £3.80 each, paying 19p per share annually. She holds them inside a Stocks & Shares ISA.
Annual income: £190.00 (1,000 × £0.19)
Tax status: ISA — completely tax free
Dividend tax due: £0.00
Net income: £190.00
Example 3 — David: £50,000 portfolio at 4.5% yield (Higher rate taxpayer, GIA)
David holds a £50,000 dividend portfolio averaging a 4.5% yield in a general account. He is a higher rate taxpayer.
Allowance: £500.00 tax-free
Taxable: £1,750.00 at 33.75%
Dividend tax due: £590.62
Net income after tax: £1,659.38
What Makes a Good Dividend Yield?
Below 2% — Growth Focus
Low yielders typically reinvest profits for growth. Apple, Amazon. Suitable for investors prioritising capital appreciation over income.
2–4% — Balanced
Common among blue-chip UK stocks. Provides some income while suggesting the company retains earnings for reinvestment and growth.
4–6% — Income-Focused
Typical of UK equity income funds, REITs, and established utilities. Generally considered healthy and sustainable.
Above 7% — Caution
A very high yield may signal the market expects a dividend cut. Always check the payout ratio and earnings coverage before investing for income.