What is the dividend allowance in 2026/27?

The dividend allowance in 2026/27 is £500. This means the first £500 of dividend income you receive each tax year is tax-free, regardless of which income tax band you are in. The allowance has fallen sharply from £5,000 in 2016/17.

Do I need to declare dividends under the £500 allowance?

If your only dividends are within the £500 allowance and you are a basic rate taxpayer with no other complications, you do not need to file a self assessment tax return for those dividends. However, if total dividend income exceeds £10,000, you must file self assessment. Between £500 and £10,000, HMRC can often adjust your PAYE tax code.

Does the dividend allowance apply inside an ISA?

Dividends earned inside a Stocks and Shares ISA or any ISA wrapper are completely tax-free — they do not count toward the £500 dividend allowance and generate no tax liability whatsoever. The allowance only applies to dividends received outside an ISA.

Can I use the dividend allowance and personal allowance together?

Yes. If you have little or no other income, dividends can first use up your personal allowance (£12,570) completely tax-free. Only after your total income exceeds £12,570 does the dividend allowance come into play as a separate £500 zero-rate band. A portfolio investor with no salary could receive £13,070 in dividends (£12,570 PA + £500 allowance) with zero tax liability.

UK Dividend Allowance Explained 2026/27 — £500 Tax-Free

What is the dividend allowance?

The dividend allowance is the amount of dividend income you can receive each tax year before you owe any dividend tax. In 2026/27, it is £500.

The allowance applies to all UK taxpayers — employees, directors, investors, and the self-employed — who receive dividends from shares or from their own limited company. It is separate from your personal allowance (£12,570) and applies on top of it.

Key point: The dividend allowance is not an exemption from income — dividends still count toward your total income for the purposes of determining which tax band you are in. The allowance simply means the first £500 is taxed at 0% rather than the standard dividend rate.

Dividend income	Tax rate 2026/27
First £500 (the allowance)	0%
Basic rate band (income up to £50,270)	10.75%
Higher rate band (£50,271–£125,140)	35.75%
Additional rate band (above £125,140)	39.35%

How the allowance has changed since 2016

The dividend allowance has been cut dramatically since it was introduced:

Tax year	Dividend allowance	Change
2016/17 – 2017/18	£5,000	Introduced
2018/19 – 2022/23	£2,000	Cut by 60%
2023/24	£1,000	Cut by 50%
2024/25 onwards	£500	Cut by 50%

The reduction from £5,000 to £500 over nine years is a 90% cut in the tax-free amount. A portfolio generating £5,000 in dividends that was entirely tax-free in 2016/17 now faces tax on £4,500 of it — roughly £394 at the basic rate or £1,519 at the higher rate.

Impact on company directors: When the allowance was £2,000–£5,000, many directors structured salary-dividend splits specifically to take advantage of the higher allowance. At £500, the allowance provides minimal shelter — the primary reason to take dividends over salary is now the absence of National Insurance, not the dividend allowance itself.

How the dividend allowance works in practice

Dividends are taxed after all other income — they sit on top of salary, pension, rental income and savings interest when calculating which tax band they fall into. The dividend allowance then creates a 0% band on the first £500.

Example: you have £35,000 salary and £3,000 in dividends.

Your salary (£35,000) uses up the personal allowance (£12,570) and occupies the basic rate band up to £35,000
Your dividends stack on top: first £500 at 0% (the allowance), remaining £2,500 at 10.75% = £268.75 dividend tax
Total income: £38,000 — still within basic rate band (below £50,270)

The allowance does not change where dividends sit in the tax bands — it only removes tax on the first £500 slice.

Personal allowance interaction

If you have little or no salary, pension, or other income, dividends can use your personal allowance (£12,570) first, completely tax-free. The dividend allowance then provides a further £500 at 0%.

Income type	Amount	Tax
Dividends using personal allowance	£12,570	£0
Dividend allowance	£500	£0
Remaining dividends (basic rate)	Any above £13,070	10.75%

This means a portfolio investor with no salary and £13,070 in dividends pays zero tax — using the full personal allowance plus the £500 dividend allowance. Above £13,070, basic rate dividend tax at 10.75% applies.

Director note: If you take a salary of £12,570, your personal allowance is used up by that salary. The dividend allowance then only gives you £500 tax-free before dividend tax starts. This is why the allowance has less impact for directors who draw a full salary.

Dividends inside an ISA

Dividends received inside a Stocks and Shares ISA, Cash ISA, Lifetime ISA, or any ISA wrapper are completely tax-free and do not count toward the £500 dividend allowance.

This makes ISAs the most powerful tool for dividend investors. A portfolio generating £5,000/year in dividends inside an ISA incurs zero dividend tax, regardless of your other income or tax band — compared to up to £1,753 tax if held outside an ISA at the higher rate.

£5,000 dividends held in:	Dividend tax (basic rate)	Dividend tax (higher rate)
ISA wrapper	£0	£0
General investment account	~£394 (10.75% on £4,500)	~£1,519 (35.75% on £4,500)

For investors building a dividend income portfolio, holding dividend-paying shares inside an ISA — rather than a general investment account — eliminates ongoing dividend tax entirely. The annual ISA allowance is £20,000.

When you must file self assessment for dividends

Whether you need to file a self assessment tax return depends on the total amount of dividend income:

Annual dividend income	Action required
Up to £500	No action if no other SA requirement — within allowance
£501 – £10,000	HMRC can collect via PAYE tax code adjustment; or file SA voluntarily
Over £10,000	Must register and file self assessment

If you are already in self assessment (e.g., self-employed, landlord, or director), you must declare all dividend income regardless of the amount — including amounts within the £500 allowance. The allowance reduces your tax liability to £0 on those dividends, but they must still be declared.

Company directors almost always need to file self assessment because of their dividend income. If you are a director who has not registered for self assessment, contact HMRC immediately — penalties apply for late registration.

Worked examples

Example 1: Basic rate investor with share portfolio

Salary £30,000, share portfolio generating £2,500 dividends per year (outside ISA).

Total income: £32,500 — within basic rate band
Dividends: £500 at 0%, £2,000 at 10.75% = £215 dividend tax
Annual dividend tax bill: £215
If moved to ISA: £0

Example 2: Higher rate taxpayer

Salary £55,000, share dividends £4,000 per year (outside ISA).

Total income: £59,000 — all dividends fall in higher rate band (salary already uses basic rate)
Dividends: £500 at 0%, £3,500 at 35.75% = £1,251.25 dividend tax
If moved to ISA: £0

Example 3: Company director, no other income

Director salary £12,570, dividends £30,000.

Salary uses personal allowance: £0 income tax on salary
Dividend allowance: £500 at 0%
Remaining dividends: £29,500; basic rate band remaining = £50,270 − £12,570 = £37,700; all £29,500 in basic rate
Dividend tax: £29,500 × 10.75% = £3,171.25
Total income tax: £3,171.25

Frequently asked questions

The dividend allowance in 2026/27 is £500 — the first £500 of dividend income per year is taxed at 0%. This applies to all UK taxpayers regardless of their income tax band. It has fallen from £5,000 when introduced in 2016/17.

If you are already in self assessment (for example as a director or sole trader), yes — you must declare all dividends even if they are under £500. The allowance reduces your tax to £0 but the income must still be reported. If you are not in self assessment and dividends are under £500 with no other complications, no return is required.

Dividends inside an ISA are completely tax-free regardless of amount — they do not use or count against the £500 dividend allowance. The allowance only applies to dividends in general investment accounts or directly from your own company outside an ISA.

There is no confirmed change to the £500 dividend allowance for years beyond 2026/27. The allowance was cut from £1,000 to £500 in 2024/25 and has remained at £500 since. Any future changes would be announced in an Autumn Budget or Spring Statement. Always check the current HMRC figures for the relevant tax year.

Sources. The statutory and regulatory figures on this page are checked against GOV.UK: Tax on dividends. Last checked 2 September 2026; figures apply to the 2026/27 tax year unless a different period is stated.