The Dividend Allowance is the amount of dividend income you can receive tax-free each year in the UK. In 2026/27 it is £500 — down from £2,000 in 2022/23. Above the allowance, dividends are taxed at 8.75% (basic), 33.75% (higher) or 39.35% (additional) rate. Dividends inside ISAs or SIPPs are fully tax-free and don't count toward the allowance.
How the Dividend Allowance has been cut
| Tax year | Dividend Allowance |
|---|---|
| 2016/17 to 2017/18 | £5,000 |
| 2018/19 to 2022/23 | £2,000 |
| 2023/24 | £1,000 |
| 2024/25 onwards | £500 |
The cuts were announced in successive Autumn Statements (2017, 2022) as a stealth tax rise. A General Investment Account (GIA) portfolio with a 3% dividend yield needed only £67,000 to exceed the 2017/18 £2,000 allowance — but only £16,700 today to exceed £500.
Dividend tax rates 2026/27
| Tax band | Dividend tax rate |
|---|---|
| Within Personal Allowance (£0 – £12,570 total income) | 0% |
| Within Dividend Allowance (next £500) | 0% |
| Basic-rate band | 8.75% |
| Higher-rate band | 33.75% |
| Additional-rate band | 39.35% |
Dividend income is "stacked on top" of other income for band purposes. So if you earn £45,000 of salary and receive £10,000 of dividends, you're a basic-rate taxpayer on the salary but the dividends push you into higher rate — and most of those dividends are taxed at 33.75%, not 8.75%.
Worked example: £10,000 dividends, £45,000 salary
- Total income = £55,000. Personal Allowance covers £12,570.
- Salary £45,000 uses £12,570 PA + £32,430 of the basic-rate band.
- Basic-rate band has £37,700 capacity. Salary used £32,430. Remaining basic-rate capacity = £5,270.
- Dividend Allowance covers first £500 of dividends.
- Remaining £9,500 of dividends: £5,270 at 8.75% (= £461) + £4,230 at 33.75% (= £1,428).
- Total dividend tax = £1,889 on £10,000 of dividends. Effective rate: 18.9%.
The dividend calculator handles this stacking automatically.
How to legally avoid dividend tax
- Hold dividend-paying shares inside a Stocks & Shares ISA — £20,000/yr contribution cap, all dividends are fully tax-free.
- Hold them inside a SIPP — tax-free growth, but locked until age 57.
- Spouse transfer. Transferring shares to a basic-rate or non-taxpayer spouse uses their unused Dividend Allowance and lower rate bands.
- Use accumulation ETFs in GIAs. Even though dividends are still "deemed distributed" for tax purposes, the practical record-keeping is simpler than distributing funds — and the units retain compounding.
Calculate your dividend tax exactly
The dividend calculator stacks dividends correctly with salary income, applies the £500 allowance, and shows the tax owed at each band.
Open the dividend calculator →Sources and methodology
Dividend Allowance changes from gov.uk/tax-on-dividends and Autumn Statement 2022. Spouse transfer rules from HMRC Capital Gains Manual.
UK Tax Drag is not authorised by the Financial Conduct Authority and does not provide regulated financial advice — see the content disclaimer for the full position. The methodology page documents how every calculator is built and reviewed.
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