The UK Dividend Allowance Explained: £500 Tax-Free + 10.75% / 35.75% / 39.35% Rates (the current tax year)

What the Dividend Allowance is

Dividends are payments a company makes to its shareholders out of profits. HMRC applies a separate set of rates to dividend income, distinct from Income Tax on wages, and gives every taxpayer a small tax-free allowance on top of the Personal Allowance.

You also get a dividend allowance of £500 each year (gov.uk). You only pay tax on any dividend income above the dividend allowance (gov.uk).

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The rates for the current tax year

This table shows the rates from 6 April 2026 to 5 April 2027 (gov.uk).

• Basic rate tax on dividends is 10.75% (gov.uk).
• Higher rate tax on dividends is 35.75% (gov.uk).
• Additional rate tax on dividends is 39.35% (gov.uk).

The band a dividend falls into is determined by adding the dividend income on top of other taxable income and reading off the resulting position within the Income Tax bands.

Fig. 1Dividend tax rate by Income Tax band — after the £500 allowance

source: gov.uk/tax-on-dividends · 6 Apr 2026 – 5 Apr 2027検 verified

Two zero-rate zones

You do not pay tax on any dividend income that falls within your Personal Allowance (gov.uk). The Personal Allowance sits at £12,570 (gov.uk).

You do not pay tax on dividends from shares in an ISA (gov.uk). A Stocks and Shares ISA therefore takes dividends outside the tax calculation entirely, without eating into the £500 dividend allowance (gov.uk).

The HMRC worked example

HMRC publishes a worked example on its dividend tax page that walks through the arithmetic for a basic-rate taxpayer:

• You get £3,000 in dividends and earn £29,570 in wages in the 2026 to 2027 tax year (gov.uk).
• This gives you a total income of £32,570 (gov.uk).
• You have a Personal Allowance of £12,570 (gov.uk).
• Take this off your total income to leave a taxable income of £20,000 (gov.uk).

Applying the rates then produces three separate calculations:

• 20% tax on £17,000 of wages (gov.uk).
• No tax on £500 of dividends, because of the dividend allowance (gov.uk).
• 10.75% tax on £2,500 of dividends (gov.uk).

Three worked examples at other income levels

HMRC's example covers one basic-rate case. The same published figures — the £500 allowance (gov.uk), the three dividend rates, the £12,570 Personal Allowance (gov.uk) and the 2026/27 Income Tax bands, which run to £50,270 for basic rate and £125,140 for higher rate (gov.uk) — extend to any income level. Three further cases, worked in full:

£30,000 wages + £10,000 dividends (basic rate throughout)

Step 1: Total income is £40,000. Deducting the £12,570 Personal Allowance leaves £27,430 of taxable income.

Step 2: The wages fill the first £17,430 of that taxable income (£30,000 − £12,570).

Step 3: The dividends occupy the slice from £17,430 to £27,430. The basic-rate band covers taxable income up to £37,700 (£50,270 minus the £12,570 allowance), so every pound of dividend sits inside it.

Step 4: The first £500 of dividends is covered by the dividend allowance — no tax. The remaining £9,500 is taxed at 10.75%: £9,500 × 10.75% = £1,021.25.

£60,000 salary + £5,000 dividends (higher rate throughout)

Step 1: £60,000 − £12,570 = £47,430 of taxable income from salary alone — already past the £37,700 basic-rate ceiling.

Step 2: The dividends stack on top, from £47,430 to £52,430, so all of them fall in the higher-rate band.

Step 3: £500 is covered by the allowance; the remaining £4,500 is taxed at 35.75%: £4,500 × 35.75% = £1,608.75.

£130,000 salary + £10,000 dividends (additional rate, no Personal Allowance)

Step 1: The Personal Allowance tapers away by £1 for every £2 of income above £100,000 (gov.uk). £130,000 is £30,000 over, which would remove £15,000 — more than the full £12,570 — so the Personal Allowance here is nil.

Step 2: Taxable income from salary is the full £130,000, which is past the £125,140 additional-rate threshold before the dividends are even counted.

Step 3: £500 is covered by the allowance; the remaining £9,500 is taxed at 39.35%: £9,500 × 39.35% = £3,738.25.

The same £10,000 of dividends costs £1,021.25 at one income level and £3,738.25 at another — the allowance is flat, the rate is not.

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When dividends straddle two bands

The trickier case is a salary that leaves only partial room in the basic-rate band. Take £48,270 of salary and £6,000 of dividends:

• Taxable salary: £48,270 − £12,570 = £35,700, leaving £2,000 of basic-rate band before the £37,700 ceiling.
• The £500 dividend allowance takes the first £500 of that room. It charges no tax, but it still occupies band space — visible in HMRC's own example, where the tax-free £500 counts inside the £20,000 of taxable income (gov.uk).
• The next £1,500 of dividends uses up the rest of the basic-rate band at 10.75%: £1,500 × 10.75% = £161.25.
• The final £4,000 spills into the higher-rate band at 35.75%: £4,000 × 35.75% = £1,430.00.
• Total dividend tax: £161.25 + £1,430.00 = £1,591.25.

A £6,000 dividend at this salary is taxed at an average of about 26.5% (£1,591.25 ÷ £6,000) — neither the 10.75% nor the 35.75% headline figure. Dividends held inside a Stocks and Shares ISA sit outside all of this, and the ISA allowance is £20,000 per tax year (HMRC), separate from the £500 dividend allowance.

A note on scope

This page covers the published HMRC rules for the current tax year: the £500 dividend allowance (gov.uk), the 10.75% basic-rate dividend rate (gov.uk), the 35.75% higher-rate dividend rate (gov.uk), the 39.35% additional-rate dividend rate (gov.uk), the ISA exclusion (gov.uk), and the treatment of dividends inside the Personal Allowance (gov.uk).

UK Calculator provides information and tools, not regulated tax advice. Dividend planning interacts with pension contributions, salary-vs-dividend splits for company owners, ISA subscription limits, and the timing of dividend declarations across tax years — anyone in that territory should consult a chartered tax adviser or accountant.

Frequently asked questions

How much is the Dividend Allowance for the current tax year?

You also get a dividend allowance of £500 each year (gov.uk).

What rate applies to a basic-rate taxpayer's dividends above the allowance?

Basic rate tax on dividends is 10.75% (gov.uk).

What rate applies to a higher-rate taxpayer's dividends?

Higher rate tax on dividends is 35.75% (gov.uk).

What rate applies to an additional-rate taxpayer's dividends?

Additional rate tax on dividends is 39.35% (gov.uk).

Are ISA dividends taxable?

No. You do not pay tax on dividends from shares in an ISA (gov.uk).

Are dividends inside the Personal Allowance taxable?

No. You do not pay tax on any dividend income that falls within your Personal Allowance (gov.uk).

Part of our complete UK Tax Allowances guide →